Due Diligence in Disclosing Environmental Information for Securities Transactions

Abstract

Society's increasing awareness of and interest in environmental matters has had a direct effect upon the public offering process. New environmental laws impose increasing obligations upon a company, placing greater demands upon available capital and giving rise to increased concern about current or future environmental obligations. Similarly, the public's interest in, or perception of, the environmental performance of a company may significantly affect the company's ability to raise funds through such an offering. As a result, the disclosure of environmental information is of increased importance to the public, the underwriter, the issuing company and its officers and directors. The process of environmental disclosure is, however, complicated by a variety of factors. Environmental matters are not always easily identified or quantifiable and future environmental effects are difficult to predict. Given such imprecision, issues of materiality are likely to arise. As a result, both the issuing company and the underwriter must ensure that there has been a thorough and complete investigation of existing and potential environmental concerns in order to provide reasonable assurance that the disclosures that are made in the course of a due diligence review are true and that there are no omissions of material facts. This article discusses many of the concerns that arise with respect to environmental disclosure and provides practical examples of the methods and techniques that have been used to ensure "full, true and plain disclosure".