While investing in any business, due diligence must be done for every prospect. An Environmental Due Diligence Audit is also very necessary to establish a business since the environment plays a very important role in the growth of any business. An Environmental Due Diligence Audit is done to evaluate the probable risks and opportunities that a business might face if it is set up at that location. An in-depth analysis of the property is done to evaluate the location, such as its groundwater and its level, and the presence of any contagious drainage system (if any). If the industry needs to dispose of waste, then it looks for a place that is outside the residential area so that it doesn’t affect the public.
How to Conduct an Environmental Due Diligence Audit
An Environmental Due Diligence Audit has to be conducted procedurally –
Alignment with Company Goals
While conducting an Environmental Due Diligence Audit, the first thing to look into is whether the company’s goals and objectives will be met if a business is set up in that area. If the area is not in alliance and will face difficulties, then that area shouldn’t be considered as a possible business location.
Financial Competence
The other main Environmental Due Diligence Audit that should be done is to look at the financial competence of the area with the company’s budget. Suppose the area that a company is looking for is good, but the cost of the property exceeds the company’s financial budget; in that case, choosing that site is not a viable option.
Legality
The legal aspect of the property should be the main concern, as if the rules are not in alignment with the nature of the business, even a good location would not be good for the business. The laws of the land play a vital role in its establishment, and not opting for such locations shows the importance of Environmental Due Diligence.
Risks Involved
The importance of Environmental Due Diligence is realized while evaluating the risks involved in the preferred business location. An Environmental Due Diligence Audit provides the probable risks involved if a business entity is set up at that location. This provides the company with a basic layout through which it can take risks. If the risk percentage is less and the growth opportunities are greater, then the company may proceed with the business setup in that location.
Competitor Comparison
If a business competitor is already established and running its business in a particular location, then in that case, setting up a business there might prove risky. It may be fruitful as well if the prices, quality, or quantity is superior to that of the rival, but mostly, it may be a setback to proceed with the business activity in a place where the competitor has already established its business.
What Constitutes a Due Diligence Audit Team
The Due Diligence Audit team provides a layout of the pros and cons of the environment, which helps the senior management to ponder upon the environment that can or cannot be used for business proceedings. An understanding of the environment is better, and it would be good for making business decisions in the long term or short term. The team can include some personnel like –
- Accountants – These will look into the budget that can be allotted for the purpose that will come under the limits of the company. The company cannot invest all its money in a single place, so they have to put money into things wisely.
- Financial Advisors – They help the company decide how much money can be put into buying the land, which will not be a hindrance to the profit of the company. If the place is too costly or comes with other maintenance charges, then even if the company is making a profit through its business, it will be of no use. They review the financial reports and help the management by advising them on the performance and viability of the business.
- Lawyers – Legal scrutiny is the most important part of conducting an Environmental Due Diligence Audit. Lawyers are needed to determine whether there will be any legal issues while running the business or even before setting it up. No company wants to be involved in legal issues by conducting its business outside of legal compliance.
- Business Mentors – These mentors help in making the right decisions that would be good for the business and its growth. They review the profitability of the business in coming years if the execution is done through the place.
Conclusion
Environmental due diligence is of huge importance since it lays the foundation of a business. With good due diligence, a business can be on a boom in a very short period and vice versa. It helps the business get a basic outline of how to run a business in that place and what steps it should not take. Due diligence holds its importance even before buying a smartphone. If it is setting up a business, one should always complete proper due diligence since it can reduce the struggle period of a business in the market. Also, experienced and skilful personnel should be appointed to get the job done because it requires good knowledge and experience to conduct due diligence before setting up a business.
Corpbiz has experienced individuals who can help perform the task in a professional manner, which can help the business grow in a very short time.
Frequently Asked Questions
Is a Lawyer requiredto conduct environmental due diligence?
Yes, a lawyer holds a very key position while conducting an environmental due diligence audit since it tells the laws of the lands and what acts should be omitted by the business during its course. It defines the legal structure through which a company needs to be run to avoid legal complications in the coming days or even years.
How many types of due diligence are done?
Due diligence of a company or a business should be done in many ways. These include due diligence on –
· Suppliers
· Taxation
· Target market
· Operations
· Environment
· Legal
· Management
· DigitalWhy is due diligence important for buyers?
Due diligence is important for buyers since it tells them about the pros and cons of the place and whether setting up a business at such a place would yield them profits or not. They should do thorough research on the surrounding market with the help of experts to study it and get to know the prospects of the business.
Can due diligence be omitted if the competitor executes the business at that place?
No, every business or company should perform their due diligence since the different organizations have different strengths. Suppose the break-even point of your competitor is much lower than yours then in that case, your business would suffer huge losses and may even shut down.
What is social due diligence?
Social due diligence can be linked to environmental due diligence since it evaluates the society where the investment has to be made. The investor does thorough research to see if the social group and environment would be a good place to make such an investment or not.
Why is an environmental due diligence audit needed?
An environmental due diligence audit is needed to know the environmental liabilities of the place, the presence of any hazardous substance in the area, any licenses or permits, or any compliances that need to be met. If a place has not permitted the manufacturing of any substance, then its manufacturing unit cannot be set in that territory where it holds jurisdiction.
What is an example of environmental due diligence?
The best example of environmental due diligence would be that before buying any land to do business or set up a company, there must be a proper inspection of the place and the laws of the land.
What is environmental due diligence in M&A?
Environmental due diligence in M&A implies that the process of due diligence has to be done before any two or more companies are going for a merger, amalgamation, or association. This helps in the sustainability of the business and reduces the chances of failure since the pros and cons of the company are already known and the decision would be based on those factors.
What is the scope of environmental due diligence?
Environmental due diligence has a wide scope, and it covers a wide range of subjects like pollution, sustainability, Corporate social responsibility, societal evaluation, risks pertaining to land, etc.
What are the 3 Ps of due diligence?
The three Ps of due diligence includes the assessments of Personnel, Privacy Controls, and the Process.
Read Our Article: What Projects Require Environmental Clearance In India?
