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Environmental due diligence (EDD)

Pursuant to Federal Law No 7-FZ “On environmental protection” dated 10/01/02, an environmental audit is an independent comprehensive and documented assessment of a legal entity’s or a private entrepreneur’s compliance with environmental requirements set by national laws and regulations, and international standards, and also serves to issue recommendation to improve the target facility’s environmental performance.

An EDD is an important and convenient management tool that brings the following advantages:

  • Identify in a timely manner environmental risks associated with current activities (including legal, financial and reputational risks);
  • Develop action plans to reduce excessive impacts and eliminate existing environmental non-conformances;
  • Assess the degree of current activity’s compliance with international environmental standards (including requirements set by international financial institutions), and develop action plans to achieve conformance;
  • Adopt the necessary managerial decisions to provide financial and human resources to environmental activities.

An EDD can have different purposes:

  • Determine the true value of the asset (reflecting existing environmental risks, accumulated impacts) before acquisition / disposal;
  • Identify environmental risks from current activities: sufficiency of available environmental documents and permit, timeliness and correctness of environmental payments, fulfilment of instructions from supervisory authorities etc.);
  • Assess effectiveness of the environmental management system;
  • Assess compliance of current activities with international standards (including IFI requirements).

As Russian legislation does not impose specific requirements to an environmental audit and associated reporting documents, SHANECO developed (and subsequently tested at a number of production facilities) its own procedure for an environmental compliance audit.

An compliance audit includes:

  • A field survey of the territory, buildings, main and auxiliary facilities;
  • A reconnaissance survey of the facility; consultations with personnel and other stakeholders where necessary;
  • Collection and review of input data including titles, permits and other information characterising environmental aspect of the current activity;
  • Ranking and assessment of environmental risks in terms of their potential impact on business due to:
    • Lack or absence of necessary permits;
    • Excessive and/or permit-contradicting impacts;
    • Significant planning limitations (land protection, urban development regime, associated sanitary and epidemiological requirements);
    • Failure to fulfil instructions from environmental and sanitary supervision authorities;
    • Issues from historical construction / impacts;
    • Other circumstances giving risk to potential environmental implications.
  • Development of recommendations to reduce risks and improve sustainability and feasibility of operations.

At a customer’s request, the environmental compliance audit may be expanded to include:

  • Assessment of the environmental management system’s effectiveness;
  • Assessment of compliance with IFI requirements (IFC, EBRD);
  • Analytical investigations (sampling and analysis of air, soils, water etc.).

SHANECO is highly experienced in environmental due diligence surveys and compliance audits for compliance with national and IFI requirements. Our projects include:

Project: Year:
Environmental audit of a unit to process solid and liquid cyano-containing plating waste and expired cyano-containing chemicals, the Leading R&D Institute of Chemical Technologies 2001
Environmental due diligence of TransOthody 2001
Compliance audit for national and internal environmental laws and best performing peers, Sorsky GOK, Sorsky FMZ, Khakassia 2007
Compliance audit for national and internal environmental laws and best performing peers, Zhirekensky GOK, Zhirekensky FMZ, Zabaikalsky Krai 2007
Compliance audit for national and internal environmental laws, Korund, Khemkor, Dzerzhinskoye Orgsteklo, Ufaorgsintez, Nizhny Novgorod region, Ufa 2011
Compliance audit for national laws and IFC PS and Guidelines, Kiselyovskaya United Heat Company, Kemerovo region 2012
Compliance audit of Blagoveschensky Valve Plant, Bashkortostan 2012
Compliance audit of EVRAZ Vanadium Tula, Tula 2015
Assessment of environmental risks associated with four airports of Basel Aero, Krasnodar region 2015

Technical Due Diligence

SHANECO offers a comprehensive approach to a technical due diligence using its own resources or engaging external experts where necessary and with the customer’s consent.

  1. A typical scope of a technical due diligence (TDD) is as follows:
    • Current and historical operations
    • Licence commitments
    • Titles and permits
    • Historical activities in physical and cost terms;
    • Annual opex and capex figures
    • Financial statements
  2. Geological component
    • Detailed review of reserves and resources
    • Historical dynamics of reserves and resources
    • Qualitative and quantitative assessment of the raw materials base; assessment of its sufficiency for full-scale production;
    • Economic feasibility of mining existing and future reserves;
    • Future geoexploration plans
  3. Mining component
    • Existing, historical and future mining calendars and plans
    • Pre-production and production mining KPIs;
    • Adequacy of the available mining fleet for current and future periods;
    • Sufficiency of financial, human, technical and other resources for mining operations
    • Adequacy, feasibility and efficiency of proposed mining plans
    • Mining risks; development of recommendations to optimise the mining component
  4. Technology component
    • Selected technology from the current and historical perspective
    • Adequacy of KPIs and their correspondence with raw materials and finished products
    • Sufficiency of resources for the production process
    • Risk assessment; development of recommendations to optimise the technology component
  5. Infrastructure component
    • Sufficiency of water, energy, logistics and other resources;
    • Risk assessment; development of recommendations to optimise the infrastructure component
  6. Environmental and social responsibility. Substantiation of reclamation (closure) solutions
    • Identification of applicable environmental and social requirements
    • Development of an health, safety, environment and social action plan;
    • Environmental encumbrances and costs for the project period
  7. Financial components
    • Economic surroundings of the project
    • Opex and capex estimates
    • Estimate of general and administrative expenses
    • Tax and other payments to budgets
    • Revenue from operating and other activities
    • DCF-based cash flow calculations
    • Investment return calculations
    • Sensitivity to critical factors
    • Scenario analysis of the project
    • Issuance of an opinion on the economic component
  8. Expert opinion
    • Current state of the facility (for key areas)
    • Solvency and economic attractiveness for investors / lenders
    • Risk management measures
    • Potential optimisation of the key areas.