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Environmental Due Diligence – An Overview

Environmental due diligence, known as EDD, is a process mandated for businesses involved with maintaining compliance related to environmental regulations and sustainable practices. Environmental due diligence services include business evaluations across various metrics that determine its impact on the environment, potential risks and liabilities.

The method of Environmental due diligence helps businesses identify issues that arise with non-compliance. It also aids them with assessing site contaminations, managing their business waste, and evaluating air and water quality.

The EDD service offers comprehensive guidance on regulatory requirements and implementation of strong environmental management systems, which, in turn, reduce the risk of legal risks and violations. This process helps boost a company’s reputation by ensuring all compliances are duly followed.

Therefore, Environmental due diligence is a process that helps businesses accomplish their sustainability targets to maintain long-term environmental and economic viability.

What is Environmental Due Diligence?

Environmental Due Diligence (EDD) is a comprehensive process, which encompasses the assessment of a business to evaluate the risks and liabilities it poses to the environment. EDD ensures that businesses follow all compliances in accordance with the environmental laws. It also helps identify contaminated sites and hazards, and calculates the potential impact of these risks on human health and the environment.

EDD is one of the most important compliances. It helps businesses make informed decisions, manage risks, and avoid legal and financial penalties for violating environmental regulations. The EDD process comprises site assessments, audits, and compliance reviews.

Why do Organisations Need Environmental Due Diligence?

Organisations need Environmental due diligence (EDD) for the following reasons:

  1. Compliance – EDD is a mandatory need for certain businesses to ensure they meet all environmental compliances, laws and regulations to be able to operate legally in India.
  2. Risk Management – EDD is a very important procedure, which helps identify and mitigate potential environmental risks and safeguard human health along with the environment.
  3. Legal Protection – EDD is a legal shield that protects businesses against liabilities, penalties, and legal actions for violations of environmental compliance.
  4. Stakeholder Trust- EDD boosts the business's reputation amongst its customers and builds the trust of stakeholders, too.
  5. Sustainability – EDD is a legal compliance that promotes sustainable practices and develops responsible corporate behaviour.

Benefits of Environmental Due Diligence Services

Environmental Due Diligence (EDD) offers various benefits, including regulatory compliance, risk management, and safeguarding human health and the environment. Let us explore all the benefits in detail below to understand why Environmental due diligence services are important:

  1. Regulatory Compliance – The process of Environmental due diligence helps businesses comply with all the mandatory regulations and follow the rigorous environmental laws. Businesses must adhere to compliance to avoid legal actions and draw penalties for violations.
  2. Risk Management—This process helps businesses identify all possible and potential environmental risks and liabilities. It greatly benefits them by reducing the risks involved by managing them proactively.
  3. Boosts Goodwill – The EDD helps boost a business’s reputation. EDD directly establishes its commitment to fulfilling environmental responsibilities and upholding its sustainability goals. This dedication fosters trust amongst its customers and all stakeholders, building its market reputation.
  4. Operational Efficiency –EDD is the business’s commitment to meet its sustainability goals to help manage its resources efficiently. Optimal use of resources comprises reducing the overall operational costs and waste along with its management.
  5. Investment Attraction – Businesses that have their EDD compliances in place are considered valuable by investors. Therefore, all businesses that follow EDD compliances stand a chance against competitors since investors prefer to deal with an organization that understands its environmental and social responsibilities.
  6. Sustainability Goals—EDD compliance helps businesses manage and achieve their long-term sustainability goals in accordance with regulatory norms and standards. This, in turn, helps these organisations align with global standards on sustainability and contribute to environmental conservation by widening their scope.
  7. Market Opportunities – Organizations that follow EDD compliances have an opportunity to explore new markets through their products and business compliances. Businesses with EDD compliances in order have a huge scope to explore uncharted territories across the globe and beat the competition.
  8. Health & Safety – Businesses that have committed to sustainability through EDD compliances demonstrate a direct obligation to the health and safety of their employees, community and environment. Such businesses proactively manage environmental hazards and do so effectively.
  9. Decision Making – One of the most important benefits of having EDD compliance in place is that it helps businesses make informed decisions. Such thoughtful decisions prevent liabilities and at the same time promote sustainable practices.
  10. Avoid Legal Actions – EDD compliances are important to avoid legal actions, and businesses that have such compliances in place are safe from drawing legal penalties. Such businesses can function freely within the legal framework in the long-term.

Which Businesses in India need Environmental Due Diligence?

Certain businesses in India need to follow legal and regulatory compliances, which makes it mandatory for them to get environmental due diligence done. These businesses include:

  • Manufacturing Industries – These businesses are comprised of chemical, pharmaceutical, textile, and automotive industries that handle toxic materials.
  • Real Estate & Construction – These businesses comprise projects involving land development, infrastructure, and building construction.
  • Mining & Extractive Industries – These comprise businesses involved in mining, quarrying, and extraction of minerals or natural resources.
  • Energy & Power Generation – These comprise businesses such as thermal power plants, renewable energy projects, and oil & gas exploration.
  • Waste Management & Recycling– These comprise businesses involved in waste treatment, recycling facilities, and disposal sites.
  • Transport & Logistics – These comprise businesses that manage fleets or facilities with potential environmental impacts.
  • Hospitality & Tourism – These comprise businesses located in environmentally sensitive areas or that are engaged in eco-tourism.

Documents Required for Environmental Due Diligence

EDD primarily focuses on the review of several documents related to a project or a property. The documents required for environmental due diligence in India are mentioned below-

  • Environmental Reports- Environmental Site Assessments, Monitoring Reports, and Remediation Plans
  • Inventory Record of Chemicals and Hazardous Substances
  • Property Records
  • Regulatory Permits and Compliance Records
  • Historical Records
  • Geologic and Hydrologic Data
  • Financial Records

Environmental Due Diligence Procedure in India

Environmental due diligence is important to maintain environmental compliance and meet regulations and sustainability goals. Environmental due diligence procedure is spread across three phases, and each phase includes the following process:

Phase I

  • Data Inspection

The first step includes a review and analysis of existing data that helps in identifying potential environmental issues. This is necessary to validate regulatory compliance and to get a better understanding of the facility’s environmental status.

  • Surveys & Interviews

This step deals with the detailed surveys and interviews of stakeholders. This is done to collect evidence about past and current environmental state, operational systems, and possible risks.

  • Site Assessment

This step involves conducting physical inspections of the facility with an aim to identify contaminations, environmental hazards, and compliance issues regarding that of soil and water.

  • Report Filing with Findings and Recommendations

Once the above three steps are completed, the next step involves making a comprehensive report outlining the details of the findings of the EDD process. The report aims to find and specify all the risks identified, compliance status, and effective recommendations to mitigate the risks or redress the problems.

Phase II

  • Examine Issues Highlighted in Phase 1

The first step of Phase II includes reviewing and analysing all the environmental issues highlighted during Phase I assessment. This must be done to understand the scope of the identified issues, their seriousness, and the potential impact of these risks on the facility and business.

  • Prepare a Detailed Budget Report to Redress the Issues

The next step involves developing an all-inclusive financial plan, which details the expenses and resources needed to address and resolve the identified environmental issues. This step is necessary to ensure an effective and efficient solution.

Phase III

Addressing Identified Risks, Contamination, Water Management, and Air Pollution

Phase III of the EDD focuses on addressing and mitigating the environmental risks identified during previous evaluations. This comprises executing the strategies to rectify contamination of soil and water. It also recommends managing water resources in such a way that it prevents water pollution, and controlling air pollution through applicable steps.

 Actions taken involve cleaning the harmful materials, installing water treatment systems, and adopting technologies that help reduce unsafe emissions. The objective of this phase is to safeguard environmental compliances, protect public health, and encourage sustainable practices.

What are Environmental Liabilities?

Environmental liabilities refer to legal obligations and responsibilities imposed on individuals or organizations for causing pollution, environmental damage, or non-compliance with environmental regulations.

These liabilities may include cleanup costs, fines, penalties, and legal actions aimed at remedying or mitigating harm to the environment caused by their activities or operations.

Legislation Guiding Environmental Protection in India

Environmental protection in India is governed by a set of different laws, guidelines and regulations that form the comprehensive legal framework. Let us look at some of the key legislations included:

  1. The Environment (Protection) Act, 1986 – As the umbrella legislation, it authorizes the government of India to take action to protect and improve environmental quality and pollution control.
  2. The Air (Prevention and Control of Pollution) Act, 1981 – This Act intends to prevent, control, and reduce air pollution through Central and State Pollution Control Boards.
  3. The Water (Prevention and Control of Pollution) Act, 1974 – Endeavours to prevent and control water pollution through Pollution Control Boards.
  4. The Wildlife (Protection) Act, 1972- This Act helps safeguard wildlife and their habitats through national parks, wildlife sanctuaries, and other protected areas to prevent poaching and hunting.
  5. The Forest (Conservation) Act, 1980 – It aims at conserving forests by regulating the diversion of forest land for non-forest activities.
  6. The Biological Diversity Act, 2002 – Conserve biological diversity and promote fair use of biological resources.
  7. The Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 - Regulates waste management via the optimal handling and disposal of toxic and non-toxic waste.
  8. The Public Liability Insurance Act, 1991 – Makes public liability insurance compulsory for industries dealing with harmful substances so that they are able to offer instant relief to victims impacted by accidents occurring while handling toxic materials.
  9. The National Green Tribunal Act, 2010 – Handles cases related to environmental protection as well as conservation of forests along with other natural resources.
  10. The Coastal Regulation Zone (CRZ) Notification, 2011 – Aims to protect and conserve the coastal environment by regulating the activities in the coastal areas by segregating coastal areas into different zones and specifying permissible activities in each zone.

Validity of Environmental Due Diligence

The validity of environmental due diligence is based on the specifications of the environmental project. However, in general, such reports have a validity period ranging between 6 months and 12 months. However, this is subject to change in line with environmental compliances, regulations, site conditions, and project scope.

Fees for Environmental Due Diligence Services in India 

The registration fees for Environmental Due Diligence services in India depend on various factors, including the complexity of the environmental issues and the scope of the project. These factors also include aspects like the size of the facility and other regulatory requirements. Depending on these factors, fees for our consultation services range from INR 15,000 to INR 40,000 and even more in some cases.

Timeline to Conduct Environmental Due Diligence

The time taken to complete the end-to-end environmental due diligence process is long as the method is complex and procedures are complicated. It depends on various factors. The process is completed over a series of three phases that include data collection, site visits, stakeholder interviews, risk assessment, sampling, lab analysis, and regulatory checks, among others.

Owing to the complexity and length of the procedure, it takes anywhere between 30 days to six months to complete the environmental due diligence process. However, depending on the complexity of the project, it may take longer than the usual time frame.

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Frequently Asked Questions

Environmental due diligence, known as EDD, is a process mandated for businesses involved with maintaining compliance with environmental regulations and sustainable practices in India. EDD services include business evaluations across various metrics that determine their impact on the environment, potential risks they pose, and liabilities.

Environmental due diligence is important because it helps organizations evaluate environmental risks, follow regulatory compliance, protect public health, and mitigate potential liabilities.

The EDD process involves various procedures, such as site visits, stakeholder interviews, data review, risk assessment for contaminants (such as soil, water, and air), and compliance with environmental regulations.

Environmental Due Diligence (EDD) offers various benefits, including regulatory compliance, risk management, and safeguarding human health and the environment. You can check the details here.

Certain businesses in India are mandated to comply with Environmental due diligence, and these belong to the following industries:

  • Manufacturing Industries
  • Real Estate & Construction
  • Mining & Extractive Industries
  • Energy & Power Generation
  • Waste Management & Recycling
  • Transport & Logistics
  • Hospitality & Tourism

Once the EDD study, through a series of procedures, is complete, a detailed report will be prepared, which will summarize the findings of the study, including the risks and recommendations. Once this is done, mitigation measures or remedial actions are suggested.

The time taken to complete the end-to-end Environmental due diligence process is long as the method is complex and procedures are complicated. It depends on various factors. The process is completed over a series of three phases that include data collection, site visits, stakeholder interviews, risk assessment, sampling, lab analysis, and regulatory checks, among others. Owing to the complexity and length of the procedure, it takes anywhere between 30 days to six months to complete the EDD. However, depending on the complexity of the project, it may take longer than the usual time frame.

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Sarfaraz Ahmed Bangi

From Mumbai Recently Purchased @Private Limited Company