1. business and industrial
2. business operations
3. management
4. project management

SESSION #8
DUE DILIGENCE
Presented by
Monkey Forest Consulting
OBJECTIVE AND OUTLINE
The aim of this module is to share our experiences in due diligence and interactively
discuss some key considerations. Specifically we will focus on:
•  What Due Diligence is (aims, elements to consider, who calls for it
and why)
•  Specializations in Due Diligence
•  Assessing Regulatory Compliance Issues and/or Materiality Issues
WHAT IS DUE DILIGENCE?
Ø Assessment
Ø Appraisal
Ø Review
AIMS OF OVERALL PROJECT APPRAISAL (DD)
ü To identify the major risks, liabilities and capital /
operational expenditures related to a project.
ü For project to demonstrate compliance with legislation,
Lender requirements, and project commitments.
EHSS DD HELPS THE EBRD ANSWER
Ø Should the project be financed?
Ø How should environmental and social risks and impacts be
addressed in project planning, implementation and
operation?
Ø What gaps exist between project design and
implementation, practice, policies, etc. and the PRs and
how those will be met? (for existing projects, those under
construction and/or already permitted)
Ø What mitigation measures or Action Plans are required to
fill project gaps?
Ø What is the scope of the project monitoring required
IN OTHER WORDS
Ø Can the project can be implemented in
accordance with the EBRD E&S Policy?
Ø What are the potential financial, legal, and
reputational risks?
Ø What are the potential environmental or social
opportunities?
REPUTATIONAL, PERMITTING, FINANCIAL, & LEGAL
Tailings dam collapse DEATHS Gas pipeline explodes Regulatory Delays RISKS HIGH CLEANUP COSTS Ground water contamin
a3on Evic3ons of Roma communi
3es Community Protests Project Delays HEADLINE NEWS KEY ELEMENTS CONSIDERED
Ø EHS risks and impacts
Ø Capacity and commitment to implement the project in
accordance with the relevant PRs
Ø Red flag go/no-go issues
Ø Facilities and activities that
are associated with the
project, but are not financed
by the EBRD (to the extent
appropriate).
WHO CALLS FOR THE EHS DUE DILIGENCE?
Ø  Why would these different
parties call for an appraisal?
Ø  Would this affect how you
approach the assignment as a
consultant? If so, how?
Lender Project Owner Investor / Buyer Seller DIFFERENT REASONS FOR EHS DUE DILIGENCE
Ø  Financial deals – buying, selling, mergers, investing
Ø  Provides the parties with data relating to major liabilities, capital
and operating expenditures, and legislative compliance
Ø  Cost of additional EHS mitigation measures (and related schedule
delays) can be leveraged at the time of financial negotiations
Ø  Provides data to support investing decisions
Ø  Reputational and project risk management
EHS: DISTINCT BUT RELATED SPECIALISATIONS
Ø Health and Safety
Ø  Social
ü Occupational
ü  Engagement/Consultation
ü Community
ü  Supply Chain/Contracting
Ø Environment
ü  Labour/Human Resources
ü Air
ü  Land access / Resettlement
ü Water
ü  Cultural heritage / Indigenous
ü Waste
ü Biodiversity
peoples
ü  Vulnerable groups / Gender
APPRAISAL METHODS
Ø  Data room (document) reviews
Ø  Background research (company, country/political, social)
Ø  Screening and selection of audit sites from a large portfolio
Ø  Site visits, site walkovers, community visits
Ø  Interviews with key personnel - corporate, site, regulators
Ø  Interviews with community members and key external stakeholders
Ø  Observation of management/staff interaction
Ø  Observation of company/community interaction
Ø  Combination of checklists and open questions
REPRESENTATIVE APPRAISAL
HEALTH & SAFETY ASPECTS
•  Regulatory compliance as indicated by such data as:
–  prosecutions, fines, warnings or other communications from regulatory authorities;
–  injury and industrial disease claims (past or present);
–  inspection records (e.g. pressure vessels, cranes, hoists);
–  workplace monitoring test results (e.g. dust, fumes, mists and vapours, noise,
lighting, heat, vibration);
–  company records (e.g. accident and incident records, environmental incidents, risk
assessments, safety data sheet records, EHS committee meeting minutes);
–  interviews with site operational personnel as to their knowledge of practices and
procedures, look at training records etc.;
–  reports by third parties (e.g. accidents, contaminated land investigations, audits by
regulatory authorities and consultants).
ENVIRONMENTAL ASPECTS
New Projects •  Review available assessment
documentation (e.g. ESIA)
•  Environmental baseline
conditions and sensitivity
•  Sensitive habitats, species, and
biodiversity conditions and
impacts
•  Community use of ecosystem
services
•  Land conversion impacts and
risks
Exis3ng/Expansion Projects •  Identify existing environmental
liabilities and contamination
•  On-site and offsite land use
impacts
•  Emissions and effluent
monitoring data
•  Regulatory and project standard
compliance
•  Review assessment
documentation for expansion
projects
SOCIAL ASPECTS
•  Review of baseline studies, impact assessments and relevant
corporate documentation
•  Review of national legislation
•  Review of social management system and processes (including
organization, human and budgetary resourcing, grievance
mechanism, stakeholder engagement and social investment)
•  Interviews with corporate officers, project affected people, key
stakeholders
•  Observation of conditions on the ground through site visit
TRIANGULATION & SAMPLING: KEY
CHALLENGES OF SOCIAL DUE DILIGENCE
•  Document review identifies key
issues
•  Who to interview
•  Attend along or with social staff
•  Formal or informal
•  Observe meetings
•  Culture & language
•  Distortions created by the
reviewer’s presence
HOW DO WE DETERMINE?
Ø  the quality of the EHS management system
Ø  the training and awareness of employees
Ø  the competency of existing management
MATERIALITY
•  A key issue for commercial lenders, but not a focus of EBRD’s
Environmental and Social Policy.
•  For commercial lenders/acquisitions:
–  EHS DD is conducted to identify and quantify “material” EHSS liabilities,
impaired assets or regulated conduct
–  The materiality threshold, agreed prior to the start of EHS DD, will reflect not
only the value of the target but also the amount of risk the client is willing to
take (e.g. USD50,000 per liability)
–  Allows to ‘see the wood from the trees’ and focus on what are the important
EHS issues
•  However, even if not an EBRD focus if there is a material issue then
there is likely to be a compliance or other issue underlying it which is
of interest to EBRD
TAKE AWAY MESSAGES
•  All projects undergo environmental and social appraisal to help the
EBRD decide if the project should be financed and, if so, the way in
which environmental and social issues should be addressed in its
planning, implementation and operation
•  The appraisal will be appropriate to the nature and scale of the
project, commensurate with the level of environmental and social
impacts and issues, and with due regard to the mitigation hierarchy
•  Depending upon the scope of the appraisal, experts in a variety of
fields are required to undertake a proper appraisal. While there are
overlaps between these areas of specialty, the focus of the appraiser
is different
•  Very complex projects may require several different environmental,
health and safety, and social experts
1 800 491 0274
[email protected]
www.monkeyforestconsulting.com