Due diligence is a term that describes the level of care taken by a person to prevent harm to other individuals or their belongings. On the other hand, environmental Due Diligence (EDD) is a procedure utilised to evaluate real estate for potential soil and groundwater contamination risks. EDD plays a crucial role in mergers and acquisitions by assessing potential liabilities linked to land quality, environmental issues, and Health & Safety concerns. A comprehensive Environmental Due Diligence Report (EDDR) is produced for each project. The primary goal is to gather and analyse information regarding environmental impacts and management measures incorporated in the project document.
Role of Consultants in Environmental Due Diligence
|S. No.||Act/ Rule/ Policy||Objective||Authority responsible||Applicability|
|1.||Environmental Protection Act, 1986||To protect the environment||Ministry of Environment, Forest & Climate Change; State & Central Pollution Control Boards; Central Ground Water Authority||Applicable to almost all projects.|
|2.||Environmental Impact Assessment||Required in developmental & expansion projects to study the impact of the activity on the environment||Ministry of Environment, Forest & Climate Change; State & Central Pollution Control Boards||Applicable to construction, developmental, and real estate projects|
|3.||Indian Forest Act, 1927; Forest (Conservation) Act, 1980; Forest (Conservation) Rules, 1981; National Forest policy||Protection of forests and keeping track of deforestation activities and maintaining ecological balance. A forest clearance certificate and tree felling license is required under these rules.||Ministry of Environment, Forest & Climate Change; State Forest Department||Applicable to projects linked to forests. eg: laying a pipeline through a forest, dam construction, etc.|
|4.||Wildlife Protection Act, 1986||For the protection of National Parks & Sanctuaries for the protection of flora & fauna||National Board of Wildlife, Chief Wildlife Warden of State||If the transaction is related to Wildlife sanctuary, National Parks, etc.|
|5.||Biological Diversity Act, 2002||Conservation of biological diversity, promote equitable sharing of benefits.||Ministry of Environment, Forest & Climate Change; National Biodiversity Authority; State Biodiversity Board||If the transaction deals with biodiversity.|
|6.||Air (Prevention & Control of Pollution) Act, 1981||To control air pollution. Providing CTO (Consent to Operate) and CTE (Consent to Establish) certificates (NOC)||State Pollution Control Board||Applicable to all factories, manufacturing units and expansion activity under the transaction deal.|
|7.||Water (Prevention & Control of Pollution) Act, 1974||To control Water Pollution. Providing CTO & CTE Certificates||State Pollution Control Board||Applicable to all factories, manufacturing units, and expansion activity under the transaction deal|
|8.||Construction & Demolition Waste Rules, 2016||For proper disposal of waste arising from the construction & demolition of sites||Local Authority & State Pollution Control Board||Applicable to most of the transactions involving expansion & development|
|9.||E-waste (Management & Handling) Rules, 2016||For proper disposal of e-waste||State Pollution Control Board||Applicable to all major transactions, as e-waste is inevitable in every business activity|
|10.||Hazardous and Other Waste (Management and Trans-boundary Movement) Rules, 2016||Ensure safe handling, conversion, processing, and treatment of hazardous waste. Permission is required under these rules if the company deals with hazardous substances.||State Pollution Control Board||Applicable to most of the transactions involving expansion & development|
|11.||Noise Pollution (Regulation & Control) Rules, 2000||To control noise levels||State Pollution Control Board & Central Pollution Control Board||Required at any manufacturing facility, production houses, etc|
|12.||Ozone Depleting Substances (Regulation & Control) Rules, 2000||Control & reduce the use of ozone-depleting substances||Ministry of Environment, Forest & Climate Change||Projects where air conditioning units play an important role|
The Environmental Due Diligence (EDD) Assessment
The EDDR includes assessments of subprojects’ compliance with:
- Regulatory clearances (e.g., environmental clearance, forest clearance, CRZ clearance)
- Environmental safeguards based on IIFCL’s ESSF and World Bank policies
- Analysis of alternatives
- Identification of environmental impacts and integration of management measures
- Public consultations and disclosure
The approach to preparing the draft EDD involves the following work plan:
- Meeting of Environmental Development Specialists
- Collection of relevant information
- Site visit
- Preparation of draft EDD
- Joint site visit by funding organisation and project proponent
- Finalisation of EDD.
How to Conduct EDD in India?
An environmental due diligence process involves the following steps:
- Examination of data room (virtual/physical)
- Questionnaire and interviews
- Inspection of site
- Produce a report that contains findings, risk evaluation, liability costs, and recommendations.
- Investigation of issues recommended in Phase I
- Produce a report that contains detailed budgets for remediation or abatement.
- These processes are customised to meet the needs of customers.
- Remediation of identified contamination, abatement of water and air pollution and reducing hazardous waste.
Documents required in EDD
The documents required for Environmental Due Diligence are as follows:
EDD involves a review of various documents related to a property or project. The common documents that may be required in EDD include:
- Property Records: These may consist of deeds, surveys, title reports, and tax assessments.
- Environmental Reports: Environmental reports can include Phase I and II environmental site assessments, remediation plans, and monitoring reports.
- Regulatory Permits and Compliance Records: These may include environmental permits, compliance records, and notices of violations.
- Hazardous Materials Inventories: These can include lists of chemicals and hazardous substances used or stored on the property.
- Geologic And Hydrologic Data: Geologic and hydrologic data may be needed to assess potential soil and groundwater contamination issues.
- Historical Records: Historical records can include maps, aerial photos, and property-use records that may be used to identify potential contamination sources.
- Financial Records: Financial records, including budgets and financial statements, may be needed to evaluate the financial risks associated with a property or project.
Environmental due diligence is a complex undertaking that demands significant exertion, endurance, and coordination. Given that it could be a deal-breaker, it needs to be handled with the utmost caution. The process of environmental due diligence does not operate in a vacuum; it involves Environmental Consultants operating on-site to ensure compliance with legal requirements for permits and licenses. The teams need to collaborate closely to ensure the success of the transaction, as on-site conditions may provide a positive signal. At the same time, legal requirements are not fulfilled, or the deal may have serious irreversible environmental consequences despite the company having fulfilled all legal obligations. Please coordinate effectively between the teams to avoid significant costs and loss of business for the parties. Thus, the recommendations provided throughout the process will be highly beneficial in determining liability allocation and reducing the overall transaction costs for businesses.
Read Our Article:How To Conduct ESDD In India? An Overview