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ACCA Applied Knowledge · Business and Technology · Environmental and sustainability factors

A listed company buys a competitor's factory and later discovers contaminated land that it will have to clean up under environmental law. Which statement BEST describes the strategic implication for the company?

The company faces a potential clean-up liability and should have carried out environmental due diligence before buying the site. Environmental law can make the current owner responsible for contamination, so the cost can fall on the buyer and affect its financial position, regardless of publicity.

  1. AThe clean-up is only a concern for the former owner, so the buyer's financial position is unaffected
  2. BThe company faces a potential liability and should have assessed environmental due diligence risk before acquiring the siteCorrect
  3. CThe contamination only matters if customers learn about it, since environmental law is rarely enforced against buyers

Explanation

Environmental legislation can place clean-up liability on the current owner or occupier of land, so the buyer can bear the cost. This is why environmental due diligence is needed before acquisition. Claims that the buyer is unaffected or that enforcement depends on publicity are incorrect.

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