Environmental due diligence audits are being performed to identify potential environmental liabilities prior to many transactions in Poland. They are most prevalent with international corporations having high sensitivity to environmental aspects. It is usually reflected in companies’ internal principles and culture. Environmental awareness is also becoming more common among Polish entrepreneurs and companies in comparison to 20 or even ten years ago.
Environmental aspects such as due diligence and sub-surface investigations are becoming the standard of responsible business rather than the exception. Although Polish environmental law is complex and may include unforeseen risks, businesses are recognising that these are not insurmountable obstacles.
Despite its complexity, Polish environmental law has become more reasonable towards investors by allowing alternatives to full remediation of contaminated land. Significant changes were introduced in September 2014 through the implementation of the European Directive on industrial emissions into national law. The new law allows for a wider understanding of remediation; it is no longer just treatment to soil standards which was previously required. Now, it may include reduction, control, and prevention of contaminants as form of mitigation. The fundamental condition for avoiding or limiting remediation is risk-based evaluation of the conditions so that no threat to humans and to the environment will occur considering current and future land use. This type of evaluation is the basis of analysis conducted by chemists, geologists and sometimes ecotoxicologists – which is the backbone of knowledge and experience ERM offers. Although this risk-based evaluation is time-consuming and somewhat expensive, the total expenditure, if done well, is a fraction of the cost associated with traditional means of remediation.
Liabilities for contaminated land in Poland
In Poland, liabilities for contaminated land are regulated by the Environmental Protection Act (EPA) of 27 April 2001 and the Act on Prevention of Damages to the Environment of 13 April 2007. The EPA is applied for the so-called 'historical impact' while the Act on Prevention of Damages to the Environment applies to any new contamination, which occurred after 30 April 2007. At first glance this division may result in confusion. The implication for entrepreneurs is two-fold: in case of historical impact, the land owner is responsible (legally and financially) for remediation irrespective of prior ownership. Therefore historically contaminated land purchase is equivalent to buying a “defective product”. In case of damage to the environment that occured after 30 April 2007, the land owner is responsible for remediation, unless another party is identified as the 'polluter', in which case the responsibility will be transferred to that polluter (the Polluter Pays Principle).
These liabilities associated with historical impact may be mitigated and may be shared during a transaction, while the latter law is clearer on responsibility as mentioned above.
As buyers become more sophisticated in Poland, the due diligence process is to be expected. In practice, the need to be diligent is key to mitigation. Sellers aware of potential environmental risks may opt to disclose these risks through a vendor due diligence process where they proactively disclose risks. Often the outcome in a transaction is better transactional value as it is built on trust and transparency.
Upon discovery of environmental risk associated with historical soil contamination, parties hedge those risks through the contracting process by requiring the seller to bear or participate in the costs associated with further characterising the contamination, often taking part in the remediation process pre-transaction.
ERM’s experience in risk-based assessments and alternative remediation strategies provides owners and buyers options to traditional methods, which significantly lowers those costs allowing transactions to proceed which in the past would have been shelved.