CONTRACTING FOR ENVIRONMENTAL RISK: PROTECTING DEAL VALUE IN THE NEW WORLD OF SUSTAINABILITY
A buyer closes on a long-negotiated acquisition, confident that robust environmental indemnities will protect against legacy contamination. Two years later, a regulatory agency demands costly remediation. The buyer turns to the seller for indemnification, only to discover the seller has dissolved and its assets have been distributed. The contractual protection that once appeared comprehensive is now functionally worthless, leaving the buyer to absorb millions in unanticipated liability.
These scenarios are not rare. Environmental liabilities remain among the most unpredictable and financially significant risks in corporate transactions. They may arise from historical contamination at industrial sites, regulatory noncompliance or emerging and unregulated substances. The financial consequences, including remediation expenses, third-party litigation, natural resource damages and penalties, can dwarf the economics of the original deal.
At the same time, sustainability commitments have created a new category of contractual risk and liability. Companies are making public pledges regarding carbon neutrality, emissions reductions, renewable energy usage, waste reduction and supply chain sustainability. When incorporated into transaction documents such as representations, covenants or conditions to closing, these commitments can create indemnification obligations, purchase price adjustments or claims for breach if the target company’s operations do not align with the stated sustainability profile. Future liabilities stemming from emerging contaminants can further complicate the process years after a transaction has closed.
Apr-Jun 2026 issue
Arnall Golden Gregory LLP