Environmental risks are easy to overlook—until they become deal-breakers. Whether you’re buying, selling, financing, or developing a business with physical assets, environmental due diligence is a non-negotiable part of the process.

At Colonnade Advisors, we’ve seen firsthand how a lack of environmental clarity can delay or derail a transaction. That’s why we work closely with buyers and sellers to ensure environmental diligence is thorough, organized, and forward-looking.

In this post, we’ll walk through the two primary types of environmental site assessments (ESAs)—Phase I and Phase II—and explore additional documentation that buyers often request to evaluate a company’s environmental footprint and compliance history.

🧪 Phase I Environmental Site Assessment (ESA)

What it is:

A Phase I ESA is a non-intrusive investigation to identify whether there is a risk of environmental contamination on a property. It’s often required by lenders and is the first step in protecting against environmental liability.

What’s Reviewed:

• Historical land use records (e.g., aerial photos, city directories, fire insurance maps)
• Federal/state/local environmental databases (e.g., EPA reports, hazardous site listings)
• A physical site inspection (no soil/water sampling)
• Interviews with current and former owners, tenants, and local officials
• Adjacent property use and potential contamination sources

Time to Complete:

~2–4 weeks, depending on property complexity and access to records.

Purpose:

To determine whether there is a Recognized Environmental Condition (REC)—meaning actual or potential contamination. If no REC is found, the Phase I is complete. If there is an REC, a Phase II ESA is recommended.

🧪 Phase II Environmental Site Assessment

What it is:

A follow-up to a Phase I ESA, a Phase II involves on-site sampling and testing to confirm whether contamination is present and to quantify its extent.

What’s Reviewed:

• Soil, groundwater, and vapor samples collected from the site
• Testing of specific “areas of concern” flagged in the Phase I
• Lab analysis for pollutants (e.g., heavy metals, hydrocarbons, solvents)
• Comparative analysis against regulatory limits and cleanup thresholds
• Time to Complete:
• ~2–6 weeks, depending on the scope of testing and lab turnaround.

Purpose:

To determine whether remediation is necessary—and, if so, to support cost estimates, regulatory filings, or insurance coverage.

Phase I vs. Phase II: Key Differences

Feature	Phase I ESA	Phase II ESA
Intrusive?	No	Yes (sampling involved)
Purpose	Identify potential environmental issues	Confirm contamination
Activities	Records review, site visit, interviews	Soil/water/vapor sampling
Triggered by?	Due diligence, financing, compliance	Findings in Phase I (RECs)
Time to Complete	2–4 weeks	2–6 weeks (or more)

🧾 Additional Environmental Documentation Reviewed in Diligence

Buyers (and their legal counsel) often request supporting documentation to assess the company’s environmental practices and compliance posture. These may include:

• Third-Party Audits: Past environmental audits performed by consultants
• Evidence of self-reporting or remediation steps taken
• Regulatory Inspection Reports: Records from EPA, OSHA, state, or local inspections
• Notices of violation or enforcement actions
• MSDS / SDS (Material Safety Data Sheets):
• Safety documentation for all hazardous substances used or stored onsite: Required under OSHA’s Hazard Communication Standard; indicates how the company handles chemical exposure, spill response, and safety training
• Environmental Policies & Procedures
• Hazardous materials handling
• Waste disposal
• Emergency spill response
• Water usage, air emissions, sustainability programs
• Permits & Licenses
• Wastewater discharge, stormwater, hazardous materials handling, Clean Water Act (CWA), Clean Air Act (CAA) permits
• Incident & Spill Reports: Records of leaks, spills, or accidental discharges, including how they were managed
• Underground Storage Tank (UST) Documentation: Removal reports, compliance tests, registration with state agencies
• Hazardous Waste Records: Manifests, transporter logs, and contracts with disposal companies

🔍 Why Environmental Due Diligence Matters in a Deal

• Financial Risk: Contamination can come with major cleanup costs and long-term liabilities—especially if government agencies get involved.
• Legal Compliance: Environmental violations can result in fines or injunctions that delay operations or new development.
• Insurance Limitations: Environmental issues may be excluded from coverage if not properly disclosed during underwriting.
• Deal Breakers: In severe cases, buyers will walk away rather than take on environmental liabilities that weren’t disclosed early.

Final Thoughts: Be Proactive, Be Prepared

Environmental issues can be complex, but surprises are avoidable. By conducting a Phase I ESA early and organizing your records—permits, audits, MSDS, spill reports—you can present a clean, transparent profile to potential acquirers.

If contamination is found, a Phase II ESA can help quantify the issue and inform next steps, whether that’s remediation, insurance claims, or negotiation adjustments.

📩 Want to get ahead of environmental diligence? Colonnade Advisors works with clients to prepare clean data rooms, manage risk disclosures, and position their operations for successful transactions.