With issues of environmental risk assuming an ever greater significance in China’s modern economy, this is a chance to take part in a Q&A with one of the UK’s leading environment lawyers.

1. ENVIRONMENT: THE CHALLENGE
PAUL DAVIES
2012

2. ENVIRONMENT: THE CHALLENGE

3. ENVIRONMENT
• AGENDA
– Environmental Risks
– Structuring Transactions
– Due Diligence
– Risk Management and Solutions
– Case Study

4. ENVIRONMENTAL RISKS
Contamination
- Contamination/nuisance Issues
Climate change - Triggers for remediation and also publicity
Reclamation/remediation
- Risks of climate change - Disclosure issues – access to information
Air pollution - Liability transfer
include increase in litigation
from effects of climate - Nuisance issues
change - Air quality
- Difficult causation issues
AIR LAND
Contamination
- Same issues as contaminated
land – but consider, ENVIRONMENTAL
contamination in water can
easily spread and effect many RISKS Quality issues
people - Product liability
REACH
- Placing the onus on
producers/manufacturers
-Supply chain
WATER PRODUCTS
- Information disclosure issues
- Combined effects
Hazardous substances
- Fully evaluate/audit
Flooding?
supply chain?
“Water is the new carbon” - See climate change
- Hazardous substances in
- Undervalued commodity products Waste
- Increasingly valued and - Asbestos - Stewardship – cradle to grave
scarcity will lead to increase in - Brand issues? - Know your waste
contentious issues - Consider final end disposal

5. STRUCTURING TRANSACTIONS
• Corporate Interests
– Shares, Assets, Joint Ventures, Minority Interests
• Property Rights
– Freehold, Leases
• Others
– Acquisition of Debt

6. STRUCTURING TRANSACTIONS
• Corporate Interest
– Share Acquisitions
• Former Businesses and Former Properties
– Asset Acquisitions
• Assumed/Excluded Liabilities
– Joint Ventures
• Issues over Control

7. STRUCTURING TRANSACTIONS
• Property Rights
– Nature of Interest
– Indirect risk – delay in obtaining product, value of interest
• Acquisition of debt
– Lender liability issues?
– Underlying value of secured asset

8. DUE DILIGENCE
• Nature of transaction and interest being acquired
• Vender due diligence and Purchaser due diligence
• Supply chain issues
• Role of Consultant
– Liability issues and operational issues
– New risks: Climate change, supply chain
– “Deep diving”
• Efficiency savings for investment?
• Turnaround potential – Costs vs Rewards
• Eco screening for institutional investors

9. RISK MANAGEMENT AND SOLUTIONS
• Warranties and Indemnities
– Traditional protection
– Increasingly unreliable – Covenant strength/Restructuring?
• Baselines?
– Certainty in scope
• Insurance
– Difficult for environmental issues

10. RISK MANAGEMENT AND SOLUTIONS
• Innovation
– Escrow arrangements
– Fixed Price Remediation/Liability buy-outs
– More sophisticated cost models and liability allocation
– Regulatory Comfort

11. CASE STUDY
• Commodities Co based in China is looking to invest in natural resources
businesses. It comes across Dirty Steel Co, a business within Conglomerate Co,
which has been operating for over 100 years in Europe and, in particular, Germany.
Commodities Co strikes a deal to buy the shares of Dirty Steel Co for US$800
million. It is looking to close certain loss making plants and upgrade the most
profitable plants, considerably increasing production in order to meet expected
demand from another investment owned by Commodities Co.

12. CASE STUDY
• Options
– Assets vs Shares
– Due diligence
– Environmental protection?
– Regulatory comfort?

13. ENVIRONMENT
PAUL DAVIES
Macfarlanes LLP 20 Cursitor Street London EC4A 1LT
T +44 (0)20 7831 9222 F +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com
This presentation is given on behalf of Macfarlanes LLP. Macfarlanes LLP is not authorised under the Financial Services and Markets Act 2000, but it is able in
certain circumstances to offer a limited range of investment services to clients because it is regulated by the Solicitors Regulation Authority. It can provide these
investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes LLP 2011