Your location: Home » Resources » White Papers » Determining the Level of Environmental Inquiry

DETERMINING THE LEVEL OF ENVIRONMENTAL INQUIRY

The primary factors that dictate the appropriate level of environmental inquiry include loan amount, property type, and assessment hierarchy. Each of these factors may be adjusted accordingly to meet corporate risk objectives. Additionally, different levels of assessment may be grouped together or further divided; for example, to specifically address a particular industry.

The starting level of due diligence is not necessarily determined by the amount of the loan. The non-impaired market value of the real estate used to secure the loan is typically the basis for the level of due diligence.

Property type indicates the current or historic use of the property being evaluated as well as the adjoining properties. A higher level of environmental due diligence is recommended if current or historic uses of the subject property or an adjoining property are identified as environmentally sensitive or industrial.

Environmentally sensitive properties have an above-average level of environmental risk based on typical operating practices within a particular industry. Industrial properties include all other manufactures, warehouses, or other properties in which chemicals, petroleum products, and/or hazardous materials are stored or used and/or where hazardous wastes are generated, stored, treated, and/or disposed.

Non-environmentally sensitive and non-industrial properties would otherwise be considered commercial, residential, or undeveloped for due diligence purposes. A higher level of due diligence is recommended for larger loan amounts on historically non-sensitive property types.

Other factors that may affect the due diligence process including employee training, consultant qualifications, review and sign-off process, indemnity agreements, environmental insurance, prior assessments, renewal loans, foreclosures, and executive exceptions should be addressed in the corporate environmental policy and procedures document. Further inquiry or an increase in the due diligence level may also be necessary to address unresolved environmental concerns.