United States: The Nickel Report: Risk Management Roadmap: Navigating Environmental Due Diligence In Multi-Jurisdictional Transactions

Depending upon the assets being acquired or project being developed, a well-designed due diligence plan can be a critical component in managing transaction risk both before and after closing or commercial operation. Adeptly managing the due diligence process requires careful thought to appropriate timing and scope at both the front and back ends.

Among the most critical items in ensuring a successful outcome are consulting decision-makers who are driving the transaction and engaging professionals to provide appropriate support well in advance. Too often, key risks are overlooked or not adequately allocated or managed as a result of a rushed or improperly focused due diligence effort. Particularly for assets or projects with an inherently higher environmental, health and safety, or social (EHSS) impact potential, attempting to manage risk through the purchase and sale or development agreements alone also may not suffice. For example, avoiding a risk by carving out particular assets, employing third-party risk management strategies such as insurance policies, and post-acquisition integration or stakeholder engagement plans can be among the more effective means of managing EHSS risk—but these each require careful strategic planning by a team of professionals with the skills and experience to navigate a transaction's complexities, particularly in a cross-border context.

Every project and transaction differs; moreover, even two transactions that appear similar may require very different due diligence and risk mitigation approaches, depending upon the nature, objectives and risk appetites of the parties. Thus, it's important to design a due diligence plan to properly address the transaction, both to avoid missing critical issues and to avoid getting bogged down or derailed by issues that are irrelevant or immaterial. General considerations helpful to calibrating an EHSS due diligence plan to the transaction and the parties include:

  • Type of asset or facility: Operations with higher potential for EHSS impacts likely justify investing more effort on front-end due diligence and risk-allocation structuring and planning for back-end risk mitigation strategies.
  • Type of buyer, developer or investor: The role and sophistication of a party also dictates the appropriate level and type of due diligence effort. A passive institutional investor or lender, for example, typically will have a different risk profile in the transaction or project relative to a strategic investor planning to operate a facility.
  • Co-parties and their roles: Their number, sophistication, solvency, relationship to one another and jurisdictions can be important to evaluating risk allocation among buyer, seller, developer and any other co-parties.
  • Type of transaction: Whether an acquisition is confined to a narrow set of assets or structured as a stock purchase can have a significant effect on the breadth and depth of environmental due diligence. Development project considerations also likely will differ significantly depending on the project ownership and operating structure.
  • Jurisdiction: The project's or assets' location should be evaluated to identify applicable law of the local jurisdiction, any treaty or other international standards relevant to its operation or dispute resolution, degree of governmental and NGO focus on the industry or similar facilities and any unique litigation or dispute resolution risks.
  • Timing and availability of documentation & site access: Ensure availability early in the process—unanticipated impediments to accessing relevant documentation or to scheduling property or plant inspections can result in missed issues or deadlines.
  • Qualified consultants & local counsel: Similarly, it's important to confirm availability of competent technical consultants and local counsel early in the process. Depending upon the type and complexity of the project or transaction, preferred professionals may be occupied with other priorities, unavailable due to conflicts or may require significant time to engage and define their scopes of work.
  • Legal privilege preservation: Where the due diligence process may uncover significant legal violations or other high-risk items posing significant legal exposure, qualified legal counsel should be consulted early to help scope the due diligence effort, manage consultants and others involved in the project or transaction; to assess identified risks for legal exposure and structure liability allocation strategies; and to assist in developing post-closing risk mitigation and stakeholder engagement plans.
  • Focused scope of work: Each of these considerations should be clearly documented in a due diligence work scope to ensure the effort is comprehensive but focused and to ensure clear definition of team objectives, roles, communication protocols and timelines.

Beyond the obvious categories of applicable local jurisdiction statutory or regulatory EHSS standards and routine due diligence tools such as a Phase I or II site assessment, key areas of focus to help define the due diligence team's work scope include:

  • Ensure your focus isn't overly narrow: As the environmental profession becomes increasingly specialized, it's also increasingly important to ensure coverage of key risks beyond just the more obvious issues such as soil contamination and government permits; in both domestic and cross-border contexts, worker exposure, social responsibility and political considerations also may pose significant legal, commercial or reputational risk.
  • Don't neglect the back end: Post-acquisition integration and mitigation plans are an oft overlooked, but critical, component to an effective due diligence strategy to help address both corrective measures for identified defects as well as strategies for managing government affairs concerns and public, customer or media relations where appropriate.
  • Country risk should help guide your focus: Issues which may be mission critical in one jurisdiction may be moot in others. The underlying political, economic and social environment can have just as significant an impact on risk factors affecting the due diligence scope as legal standards, particularly in developing economies.
  • Be aware of international standards or commitments: Whereas assets located in developed economies typically are governed by a robust set of comprehensive environmental regulatory and procedural standards, in less developed jurisdictions international EHSS standards such as the World Bank Group Equator Principles, IFC Performance Standards or voluntary industry or NGO-administered standards may be implicated (e.g., the International Petroleum Industry Environmental Conservation Association or Roundtable on Sustainable Palm Oil guidelines)—whether through a voluntary commitment, contractual obligation, permit, lease or concession.
  • Identify mandatory reporting obligations before inadvertently tripping a land mine: Beware of these obligations in advance, either to develop a contingency plan for managing such risks or to carve out sensitive issues that could trigger post-acquisition self-disclosure obligations, and address them through contractual allocation, insurance or other risk-management strategies that avoid triggering enforcement or litigation.
  • Anticipated legislative or regulatory developments: It's not enough to look back at existing regulatory standards; scan the horizon for new or expanded legal developments with the potential to affect an asset's or project's legal or commercial risk profile.
  • Consider internal corporate social responsibility (CSR), EHSS management system or sustainability program commitments and reputational risk factors: It's also not enough to focus only on external standards—many sophisticated international companies have adopted CSR, EHSS or sustainability commitments above-and-beyond legal requirements of the relevant jurisdiction to help manage legal and reputational risk.
  • Status of site reclamation and closure contingencies: Whether in the US or overseas jurisdictions, particularly for industries with a high potential for EHSS impacts such as energy, natural resources and extractive industries, adequate plans and financial provisions for site reclamation and closure have become increasingly critical both to governmental regulatory authorities and NGOs policing corporate EHSS practices.
  • Adjacent parcels, infrastructure and supply/off-take parties: The status of and ability to effectively transfer government-issued permits and operating licenses is a common focus of due diligence – but site access, adjacent infrastructure and transportation rights (e.g., rail, transmission, pipelines, ports or terminals), as well as supply, off-take and waste disposal arrangements also can be important EHSS and commercial risk factors.
  • State ownership or participation: Particularly in jurisdictions with heightened political risk, whether the assets are being privatized from state ownership or control can be an important risk factor, as can availability of immunity from liabilities incurred during state ownership and recourse against the sovereign or state-owned enterprise for liabilities pre-dating privatization or deriving from ongoing participation in the project by the government or a state-affiliated party.
  • Leverage in contractual allocation structuring: Appropriate risk management through purchase and sale or development, supply and offtake agreement structuring is a well-recognized risk mitigation tool. However, it's important to understand the company's degree of leverage to effect favorable contractual provisions at the outset of the due diligence period, as a position of less leverage may warrant more attention to investigating documentation and site conditions to confirm representations, warranties and other critical deal terms.
  • Insurance: Although difficult to obtain or enforce in certain cases, insurance can be a useful risk management tool where available, if exclusions and premiums are not excessive. Review of existing policies should be undertaken where relevant.

Every transaction or project differs, and some are significantly more complex than others; hence, these factors comprise only a few of those which may be relevant to a given situation. As this summary illustrates, however, regardless of the deal size or parameters, it's critical to ensure a thorough yet focused due diligence protocol including a back end risk mitigation plan.

It's equally important not to navigate the treacherous shoals of EHSS due diligence without legal counsel experienced in managing the process across multiple jurisdictions, in helping to properly engage and direct consultants, and in assessing and helping to mitigate legal risks which may be identified through the due diligence process both during negotiation and after closing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions