EHS Alignment contracts Mergers/ Acquisitions- The Missing Elephant!

One of the topics I wanted to cover in my blog over a long time but kept missing for whatever reason is the topic. Over the past several decades, especially in an Indian context where EHS regulations /ownership with respect to Mergers and Acquisitions is non-existent or not even being made aware at any level of organization. The target companies that are merged/ acquired have to struggle to meet the EHS expectations/norms of the new parent organization. The parent company,(Mostly another Indian company) conveniently forgets to allocate resources post deal is inked, no person at CEO/ CXO level is made accountable for EHS expectations, and are rarely taken to task for failing to meet the requirements.

This CXO person would have passed the buck to four levels down the chain of command and the poor guy at plant / Supply chain level would run pillar to post getting frustrated and losing sleep to get things done with his one leg and hand-tied. After some year or so, EHS professionals are called to bring in EHS strengthening / improvements add insult to the old target companies’ injury by pointing out things that are not in place. I am getting sick of this story being Rinse/ Repeat, and thought I should write a blog post on this.

So here we go on What is EHS Alignment Contract:-

An EHS (Environmental, Health, and Safety) Alignment contract is a legal agreement or a set of contractual terms used during a merger and acquisition (M&A) process when one company is acquiring another.

This contract focuses specifically on ensuring that the Environmental, Health, and Safety practices and standards of the target company align with those of the acquiring company. The goal is to manage potential risks, liabilities, and compliance issues related to environmental and safety matters as part of the M&A transaction.

The EHS Alignment contract outlines various aspects of environmental, health, and safety considerations to ensure a smooth transition and integration of the target company’s operations into the acquiring company’s framework. It can include provisions related to:

1. Environmental & Safety Compliance: Ensuring that the target company adheres to all applicable laws, regulations, and permits.
2. Health and Safety Policies: Assessing the target company’s health and safety policies and procedures to determine their compatibility with the acquiring company’s standards.
3. Site Assessments: Conducting site assessments to identify any potential environmental liabilities, contamination, or safety hazards.
4. Remediation Plans: If any environmental issues are identified, outlining plans for remediation and clean-up to bring the target company’s sites into compliance.
5. Employee Training: Ensuring that the target company’s employees are trained in the acquiring company’s safety protocols and policies.
6. Risk Management: Identifying and mitigating risks associated with the target company’s operations that could have an impact on the acquiring company’s EHS performance.
7. Integration Strategy: Detailing how the target company’s EHS processes will be integrated into the acquiring company’s EHS management system.
8. Communication Plans: Outlining how EHS-related information will be communicated to employees, stakeholders, and regulatory agencies during and after the integration process.
9. Reporting Requirements: Defining reporting mechanisms for incidents, accidents, near misses, and environmental releases.
10. Liabilities and Indemnities: Specifying how liabilities related to EHS matters will be handled, including any indemnification clauses.
11. Compliance Audits: Addressing how compliance audits and ongoing monitoring of EHS practices will be conducted post-acquisition.

The EHS Alignment contract is a critical component of M&A due diligence, as it helps the acquiring company assess and manage potential risks and liabilities associated with environmental and safety matters. It also outlines a roadmap for integrating EHS practices, policies, and standards to ensure a consistent and safe working environment across the newly merged entities. The contract’s specific terms and content can vary based on the industries involved, the complexity of operations, and the relevant regulatory requirements. Legal and regulatory experts, as well as EHS professionals, are usually involved in drafting and negotiating these contracts to ensure compliance

B Karthik

27th Aug 2023.