Environmental audit and Due Diligence: protecting the business before the deal, not after problems arise

When you buy a business, a production complex, land, an agricultural asset or commercial real estate, you are not only buying the balance sheet, contracts and equipment. Along with the asset, you may also acquire environmental violations, hidden liabilities and potential fines that the seller “politely keeps quiet about.” Environmental audit and the environmental block within Due Diligence are precisely what you need to see these risks before the deal, not after the money has already been paid.

For an investor, this is an answer to a simple question: what am I really buying – a functioning asset or a “black box” full of issues that will surface during the very first inspection? For a bank, it is an understanding of whether the collateral for the loan includes an asset with toxic environmental risks. For a business owner, it is an opportunity to prepare for the transaction and fix weak spots before the other side sees them.

What an environmental audit means in a deal context

An environmental audit as part of Due Diligence is a systematic assessment of how the target’s operations comply with environmental legislation and what risks its exploitation entails. It is not a “quick visual check”, but work with documents, reporting, permits, the history of interaction with supervisory authorities and, where needed, the actual condition of the site and infrastructure.

We look at three layers:

• Legal – what permits, licences and declarations are in place, whether they are up to date, and whether the asset is operating “on outdated paperwork” or without documents at all.
• Regulatory – whether the conditions of these permits are being observed, what inspections, orders, fines and court cases have taken place.
• Factual – what is happening “on the ground”: waste, emissions, discharges, potential contamination, risks for adjacent areas and the population.

Questions we help the investor/buyer answer

During environmental Due Diligence we help obtain answers to key questions that directly affect the value and feasibility of the deal:

• Does the company have all the necessary environmental permits and documentation?
• Do actual operations correspond to the types of activities/services declared “on paper”?
• Have there been significant violations, fines, orders or environmental‑related litigation?
• Are there risks of operations being suspended due to unmet requirements from supervisory authorities?
• What future obligations may arise in terms of waste disposal, upgrading treatment facilities, land remediation and similar measures?

In essence, we translate environmental risks from the realm of “unknown and dangerous” into specific figures and scenarios that can be used in negotiations.

How it works in practice

Typically, we are brought in once the parties have reached basic agreements and are preparing for Due Diligence. We work in tandem with financial, tax and technical advisers, taking responsibility for the environmental block. The process generally looks like this:

1. We define the deal structure and the target: a stake in a company, a standalone asset, or a portfolio of assets.
2. We obtain and analyse documents: permits, reporting, inspection acts, orders, internal policies, contracts with waste and cleaning contractors, etc.
3. We review the history of interaction with supervisory authorities: whether there are “loose ends”, unfulfilled orders or ongoing proceedings.
4. We compile a list of identified risks, their possible consequences and an indicative cost of remediation.
5. We prepare recommendations for negotiations on price, guarantees and contract terms (representations, indemnities, escrow, deferred payments).

The client ultimately receives not just a lawyer’s opinion but a document that can be taken to the seller, the bank, an investment committee or partners.

How an environmental audit impacts deal terms

A well‑executed environmental Due Diligence gives the buyer additional leverage:

• Arguments to reduce the price due to future costs required to “clean up” environmental issues.
• Grounds to demand that the seller remedy part of the violations before closing.
• The ability to build protective mechanisms into the contract (warranties, indemnities, financial security arrangements).
• Grounds to walk away from the transaction if the risks clearly outweigh the potential benefits.

For the seller, an early internal environmental audit before going to market is a chance to prepare, bring the asset to an acceptable condition and avoid a “price collapse” at the Due Diligence stage.

When you should consider environmental Due Diligence

This service is particularly relevant if you:

• are buying or selling a production complex, warehouse, logistics hub, agricultural or processing business
• are entering a project involving land or real estate where there may have been historic industrial or other “heavy” activity
• are planning to attract a major investor or bank financing secured by a specific asset
• are preparing for an M&A transaction and want a full picture of the risks before signing an SPA/APA

If you need an environmental audit or an environmental block within a Due Diligence exercise, we can perform it before you sign the deal and take on someone else’s environmental problems.

Author – Svitlana Krutorohova, attorney at the Law Firm “WINNER”.

Contact us: info@uk-winner.com | +38 (096) 574 81 02