Module 13
Environmental Audits and Environmental Site Assessments
Environmental Audits and Environmental Site Assessments are different things.
In this submodule I just want to explain the difference, which your book (Chapter
16) does not.
Environmental Audits
Similar to a financial audit that determines if a company is keeping its financial
books properly, an environmental audit determines if a company is complying
with the applicable environmental laws. The term "environmental laws"
is often expanded to included worker health and safety laws, and sometimes these
are called "Environmental Health and Safety Audits," sometimes just
"environmental audits." The principal use of the environmental audit
is related to the financial. About 1970, when the U.S. promulgated many federal
environmental laws, the Chairman of the Board of a major steel company said
in public, "If XX Steel had to comply with all these new environmental
laws, we'd go bankrupt." Since XX Steel was indeed obliged to conform to
those laws, his statement was tantamount to admitting insolvency. He was just
blustering, of course, but from that statement came the requirement by the federal
agency that controls securities that all companies had to review their compliance
with major environmental laws and include this information in their financial
statements. There is a very human tendency of branch and division managers to
not communicate problems at their level to higher ups. Also, because their bonuses
and compensation are based on current profitability, there is sometimes a tendency
to gamble and not spend current money, even if it might result in fines or problems
in the future. Hence, major corporations started a policy of maintaining this
environmental audit function in their home or corporate office. Governmental
agencies are not immune to this tendency to hide a problem, and likewise most
agencies have a centralized environmental auditing department. Consultants are
frequently used for private environmental audits and sometimes for governmental
audits.
Environmental Site Assessments
CERCLA (or superfund, click if you need refreshing
) makes the current owner of a piece of real estate 100% responsible for all
the contamination on it. The people who put the contamination there are also
100% responsible, but the current owner of the site is always obvious. (Too
many 100%'s? No, they are all "jointly and severally liable" for the
mess. The government can make any or all of them pay the entire cost. So the
government taps the closest deep pocket for all the costs, then that deep pocket
can seek "contribution" from the others, if he can find them.) This
seems unfair, for example the story I heard of a business who bought an apple
orchard, which had been an orchard forever, only to find that many years ago
farmers used a fungicide that had a mercury base. The business had to clean
the entire site of mercury. The theory is that the purchasers got the land cheaper
because of the contamination, hence they are liable. There is one and only one
escape from this dilemma for a purchaser of property. That is to establish an
"innocent purchaser" defense. The purchaser must establish that before
they bought the property they made a reasonable attempt to ascertain that the
property was not contaminated. Since many purchases are financed by banks, and
if the purchaser defaults the bank could become the owner of the property, the
bank would be liable if it took the property back. Hence banks demand an audit
before they lend money to purchase property. So how does one determine that
a site is not contaminated? An environmental site assessment must be
performed. Because there are many real estate transactions, these environmental
site assessments are big business.
Repeating the difference:
Environmental audits are reviews of a company's operations to assure
they are complying with all the environmental laws. Environmental site assessments
are done prior to the purchase of real property and are concerned with the presence
of contamination on the property.