Lenders How to Ensure Quality in Environmental Due Diligence

In the recent Environmental Bankers Association Summer Journal, an article written by Lizz Barringer Lagomarsino, Principal at Lagomarsino Planning + Management, caught our eye. The recommendations in her article, The High Cost of Low Quality – Improving the Quality of Environmental Risk Management, will certainly elevate quality in environmental due diligence if the industry pays attention. 

Doubling down on the call for a higher standard, the EBA followed Lagomarsino’s article with the summary of an informal survey they conducted titled Quality v. Commoditization in Environmental Due Diligence. The survey questions asked whether EBA members have experienced barriers to quality, and if so, what the applicable reasons/challenges are. Lagomarsino’s article paired with the results of the EBA survey both points toward one thing—barriers to producing and expecting quality work need to be removed to most effectively do the job of environmental risk management.

A commitment to quality, especially when it comes to risk management, might seem like a no-brainer. Unfortunately, as Lagomarsino points out, the high stakes and innate pressures of environmental due diligence often translates to prioritizing speed. The result can end up being subpar due diligence that costs lenders and environmental professionals extra time and money.

Lagomarsino’s article points to the responsibility lenders have to require quality reporting and to support this with clear communication and by defining specific improvement measures. “Take the time to track the quality of reports received and communicate with your vendors about expectations,” Lagomarsino says. “Track the most common problems, gaps, and errors in reports and work with vendors to identify solutions. Communicate issues and quality failures to your vendors routinely to keep the process improvement loop open.”

Here are some of the top barriers lenders face in ensuring quality:

1. Lacking information on property history and/or activities

Lacking information on property history and/or activities were noted in the survey as a leading barrier for lenders. Perhaps they feel it is up to environmental consultants to access this information. However, it’s clearly a waste of time and resources when lenders end up spending time double-checking and having to correct the information or searching for omitted information. 

The solution to this problem is a due diligence technology solution that provides instant access to property information for both lenders and environmental consultants, allowing them to instantly verify or fill in gaps of missing information. Also, access to the best available historical property information is critical.

2. Full understanding of the consultant’s expertise 

Many lenders noted lacking experience or training of consultants is a barrier for them. This means lenders don’t entirely understand what environmental consultants need to deliver better due diligence reporting, and might not know how to solve inefficiencies. 

Again, the solution to this comes down to better communication and increased feedback from both sides. Lagomarsino offers these recommendations:

“Annually provide vendors a copy of general policy requirements and scopes of work, and communicate the most common problems you are having (e.g., lack of file review for projects with specific risk, adjoining property risk concerns, turnaround time issues.). If you keep scorecards on the quality of work, take the time to discuss these with the vendor on a routine basis. If errors or quality failures are routinely accepted or not communicated, improvements cannot be made. If you don’t keep scorecards on the quality of work, implement scorecards.”

“Do a senior supervisory review of a percentage of internal environmental risk decisions. Confirm that decisions are consistent with policy and catch errors or inconsistencies in the risk management department before they become systemic. Communicate about these errors and create training around common risk situations (e.g., dry cleaning).” 

3. Rapid turnaround time for senior reviewers 

Lenders on the survey said senior reviewers are too rushed to be as thorough as they’d like to be. This indicates that senior reviewers likely need more time to double-check information delivered in due diligence reports, and are often having to rework areas where information is not valid or is incomplete. 

4. Incomplete information: Missing or purged regulatory records

Regulatory reporting is essential to ensuring compliance, and lenders in the survey find that missing or purged regularly reporting is a barrier to quality in due diligence.

Consistent quality is possible with LightBox

When you make the decision to prioritize quality above all other metrics, the next steps are to define what that means specifically for your organization, and then determine how to support those metrics. 

Lenders throughout the country rely on LightBox to help streamline the property due diligence process and to ensure quality due diligence. For lenders, our workflow solution allows you to manage all due diligence from one centralized system, including procurement of appraisal, and environmental, commercial evaluations, flood certificates, collateral site inspections, and more. 

Contact us for a free demo and to discuss how LightBox can help ensure the quality of your due diligence reporting.

Category Environmental Consulting