By Paul Davies

Environmental issues are global issues. To navigate the environmental aspects of international business operations, companies must look at the entire lifecycle of a product – the global supply chain – and the legal issues and reputational risk associated with compliance.

For example, a business looking to acquire a target with operations in different jurisdictions could trigger the need for environmental investigations, and an acquirer will need to consider:

  • Which jurisdictions the assets or shares are in and how the business is structured.
  • Where component parts are sourced and whether those components are legal in all jurisdictions in which the business is located.
  • The scope of due diligence required for the transaction.
  • How to assess liabilities based on former, current and future operations by understanding product life-related issues, such as where materials in the manufacturing process are sourced from and how the business disposes of such materials.

By proactively identifying environmental issues and leveraging high quality environmental advice, an acquirer may be able to negotiate reps and warranties and determine whether there will be any indemnities or price chips.  Similarly, a business engaged in the financing of a large-scale project may also be impacted by environmental issues should the Equator Principles come into play (or other provisions such as OECD guidelines).

Global Issue, Global Standards?

But it is not just in the context of transactions that environment is a live issue. Multinationals increasingly apply group environmental standards to business operations in all jurisdictions and can also apply those standards to the suppliers in their supply chains. Issues arise in ensuring that those standards are complied with on a global basis. For businesses that apply high standards, operating in markets which have appropriate infrastructure may enable greater compliance. For example, a business operating in the US is more easily able to dispose of hazardous waste than one operating in Africa, due to the wider availability of hazardous waste facilities.

Environmental issues are not limited to one country, as a breach in one territory can impact multiple jurisdictions. The challenge businesses face is to consistently uphold environmental compliance across the entire supply chain (Read more about environmental compliance in global supply chains).

We will be looking in more detail at some of environmental issues businesses face in Europe and China as part of a series on this blog. Stay up to date by subscribing to receive email alerts.