Due Diligence

The term "due diligence" refers to the actions that a reasonable individual or corporation should undertake to avoid the possibility of harm to another person or property (1). In a business or legal context, due diligence often refers to the investigation into the operations and management of a company or organization prior to a potential investment (2). Performing due diligence in a way that includes an assessment of environmental hazards or illness-causing pathogens, such as asbestos, is known as "environmental due diligence" (3).

Environmental due diligence (EDD) is a relatively recent notion, and it refers to a thorough evaluation of the conditions and hazards of land and property, especially prior to a transfer of that land and property in a business transaction. For example, if a corporation desires to acquire a new location in which to do business, it may initiate an EDD investigation to ensure that any environmental liabilities associated with the property are brought to light (3).

An EDD evaluation is a multifaceted investigation, and includes: 1) An examination of potentially contaminated land, 2) an assessment of the degree to which the target operation complies with current governmental standards, 3) an analysis of the financial cost required to upgrade a location comply with the standards, 4) an estimate of the cost of possible future legislation due to environmental hazards, and 5) a survey of ozone-depleting or hazardous substances, such as asbestos (3).

In the EDD process, identification of materials which may contain asbestos or other hazardous materials takes place in what is known as Phase I Environmental Site Assessment (Phase I ESA). This is the first step in the EDD process, and the procedures are dictated by the American Society for Testing and Materials. Phase I ESA revolves around a report that addresses land issues and proposed physical improvements to the property; this phase does not usually physical or chemical samples (3). If a site is considered contaminated, a Phase II Environmental Site Assessment (Phase II ESA) may be conducted, and this usually involves the taking of samples. There is also a Phase III ESA, which involves assessing the logistics of cleaning a site to bring it into compliance with environmental standards (2).

  1. "Due diligence." (2007) Merriam-Webster Online Dictionary. Available: http://m-w.com/dictionary/due%20diligence (Accessed July 22, 2007).
  2. Sharon Mattox. (2003) "Due Diligence: Phase I, Phase II, and Beyond." Conference on Land Use Planning Law," Austin, Texas, February 6 & 7, 2003. Available: http://www.utcle.org/eLibrary/preview.php?asset_file_id=1512 (Accessed July 22, 2007).
  3. Emma Farthing. (2004) "Environmental Due Diligence -
    Development and Process." From Due Diligence Review: M&A Behind the Scenes 2004, a supplemental by Financier Worldwide. Available: http://www.environcorp.com/img/media/M&A_BTS_-_lowres.pdf (Accessed July 22, 2007).

 

 

 

 

 
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