Nowadays conducting a comprehensive audit of legal entities in the field of environmental protection, or environmental due diligence is especially important.
The concept of environmental due diligence
Due diligence, as a legal examination of a company, is carried out in connection with the planned purchase of an enterprise or a foreign company that is going to enter the market together with the company under examination.
Risk issues are contract issues, how competently and efficiently the agreements are worked out. All risks can be distributed according to agreements, the main thing is to identify them. The value of the company is formed taking into account all risks. Environmental risk assessment is part of the due diligence process. No international standard for risk analysis and assessment is complete without an environmental section.
Environmental due diligence examines the verification of compliance with the procedure for the use of resources that make up the natural environment during the operation of an object. It aims to identify violations of environmental requirements that may entail various losses (say, fines).
The due diligence procedure includes the following points:
- an assessment of investment risks;
- independent appraisal of the investment object;
- a comprehensive study of the company’s activities;
- a comprehensive audit of its financial condition and market position.
The fact that due diligence is not limited to civil law matters is shown as a prime example of public law due diligence, 90 which deals with questions from the area of environmental law. Environmental due diligence deals with the detection and assessment of environmental risks of an operating company. This kind of procedure is not limited to environmentally sensitive industries such as the chemical or petrochemical industry. The ecological problems of banks or insurers result from the environmental risks of their customers.
Environmental due diligence can be initiated by:
- the owner of the company when selling it;
- an investor in a merger/acquisition or direct investment;
- the company in the development of a takeover defense mechanism;
- company to increase investment attractiveness;
- bank when opening a credit line, etc.
What about Virtual due diligence?
A special feature of due diligence is the Data Room. The target company can set up such a Data Room at their premises or with a consultant. In this room, the data requested by the buyer are displayed for inspection. In addition, the target company can use so-called Data Room procedures to specify which persons can view the data, whether and to what extent copies can be made, etc. The software allows the seller or the target company to limit the extent to which company data can be viewed and monitored. An external Data Room also prevents possible irritations among the employees of the target company if they are not notified of the planned transaction until later.
Another way in which the information can be made available to the buyer is virtual due diligence. The data is made available to the buyer in electronic form. The advantage of such an approach is the ability of the target company to control the data and the need to set up a Data Room. Several bidders can also carry out due diligence at the same time as part of a limited auction process. Concerning the proof function, a virtual data room has great advantages, since the content of the software can be stored easily and for a long time.