Due diligence

The term "due diligence" first emerged in common business and legal use as a result of the US Securities Act of 1933, which required broker-dealers to carry out investigations into a company’s affairs when selling their equities, and for this to be disclosed to investors.

Since then, it has become widely used in business transactions to describe a process of inquiry adopted when a business is bought (an acquisition), sold (divestment or disposal), or floated on the market (e.g. an initial public offering (IPO)) (there are other mechanisms for buying and selling).

For example, during an acquisition, the due diligence process is normally approached by having numerous advisers from a range of disciplines examine the entire target business and prepare advisory reports. These reports will collectively provide the prospective acquirer with the information needed to prepare a suitable bid price for the target company. To adequately cover a business in depth, due diligence can therefore cover a wide range of issues going to (e.g.) the nature, liabilities and pricing of a business.

Corporate environmental due diligence

Environmental Due Diligence (EDD) is something of a niche discipline, beginning in the US during the 1970s following discovery of a number of high-profile sites with contaminated land liabilities.

EDD services are now quite diverse. Key issues typically considered will often include business permitting, litigation and compliance, land quality and product liability, materials, emissions and waste management.

In general, EDD will include an historical and future appraisal of the business. The findings of the EDD may impact on the final deal price, so sellers and buyers alike will be mainly interested in the target company’s financial and legal position, in an environmental sense, and how the business could be impacted in the future.

In a world of ever increasing environmental regulation, the impact of environmental issues has fast become a proactively managed boardroom issue. Today, particularly in global sectors such as emissions trading, the regulatory regime can be used to generate significant revenue and opportunity for a company, as can improvements in general environmental management across an organisation.

Further information

As EDD can focus on single issues as well as multi-disciplinary issues, different approaches will be employed to assess specific industry or business sectors. The best route for obtaining further advice on your particular business or sector dealings is therefore generally through a specialist team of EDD advisers.