The Nickel Report: Risk Management Roadmap: Navigating Environmental Due Diligence In Multi-Jurisdictional Transactions

Depending upon the assets being acquired or project being developed, a well-designed due diligence plan can be a critical component in managing transaction risk both before and after closing or commercial operation. Adeptly managing the due diligence process requires careful thought to appropriate timing and scope at both the front and back ends.

Among the most critical items in ensuring a successful outcome are consulting decision-makers who are driving the transaction and engaging professionals to provide appropriate support well in advance. Too often, key risks are overlooked or not adequately allocated or managed as a result of a rushed or improperly focused due diligence effort. Particularly for assets or projects with an inherently higher environmental, health and safety, or social (EHSS) impact potential, attempting to manage risk through the purchase and sale or development agreements alone also may not suffice. For example, avoiding a risk by carving out particular assets, employing third-party risk management strategies such as insurance policies, and post-acquisition integration or stakeholder engagement plans can be among the more effective means of managing EHSS risk—but these each require careful strategic planning by a team of professionals with the skills and experience to navigate a transaction's complexities, particularly in a cross-border context.

Every project and transaction differs; moreover, even two transactions that appear similar may require very different due diligence and risk mitigation approaches, depending upon the nature, objectives and risk appetites of the parties. Thus, it's important to design a due diligence plan to properly address the transaction, both to avoid missing critical issues and to avoid getting bogged down or derailed by issues that are irrelevant or immaterial. General considerations helpful to calibrating an EHSS due diligence plan to the transaction and the parties include:

Type of asset or facility: Operations with higher potential for EHSS impacts likely justify investing more effort on front-end due diligence and risk-allocation structuring and planning for back-end risk mitigation strategies. Type of buyer, developer or investor: The role and sophistication of a party also dictates the appropriate level and type of due diligence effort. A passive institutional investor or lender, for example, typically will have a different risk profile in the transaction or project relative to a...