Environmental risk matrix guideline for small to mid-sized lenders, created by Mitch Kreeger

1. Environmental Risk Management Guidelines
Product Description Vendor Reviewed by EP Site Visit CERCLA ASTM Risk Mgmt Guideline
Defense Compliant**
(EP = Env Professional) (AAI*) (MF = multifamily)
Environmental Bank-approved brief environmental risk (Internal No, reviewed internally No No No ALL LOANS
Questionnaire (EQ) questionnaire completed by borrower document)
Environmental Brief site environmental history Vendor or EP No, usually reviewed No No No Loans < $xxx (non-MF) if:
Database Review, internally Negative EQ1; or,
Government Record Positive EQ (MF) or site inspection; or,
Search No observed risks2 on or adjacent to
(EDR, DB or GRS) subject.
Transaction Screen Limited environmental due diligence Vendor or EP No, usually reviewed Yes, visual No Yes – Loans $xxx-$xxx (non-MF) if:
(TSR, TS, or ETS) (if EP, internally (if yes, usually E1528-06 Negative EQ1; or,
engaged by engaged by Bank) (depends on Positive EQ (MF) or site inspection; or,
borrower) issues) No observed risks2 on or adjacent to
subject.
Phase I ESA Environmental Site Assessment. AAI-compliant No, unless ESA notes Yes, visual Yes Yes – Any Loans Involving: (may be waived
Request ASTM Basic ESA scope does not include search EP (from observed environmental E1527-05 by insurer)
E1527-05 standard** for petroleum, lead or asbestos; may be borrower) risks (if yes, engaged by Current or prior use is environmentally
Request lead &/or included upon request. Bank) sensitive3; or,
asbestos survey, if EQ, EDR, TSR, insurer or site
contamination inspection suggest further research; or,
suspected Any loan > $xxx (incl. MF); or,
(multifamily)*** Pre-foreclosure & pre-acquisition of
Bank facilities/investments.
Phase II ESA, or ESA with invasive samplings (soil AAI-compliant Yes, usually – should be Yes, Yes, if Yes, usually – Any Loans Involving: (may be waived
RCRA Facilities borings, indoor air quality testing, etc.) EP (from engaged by Bank invasive preceded by E1903-97, -02 by insurer)
Investigation (RFI), or and analysis. RFI is specifically tailored borrower) AAI Phase I Phase I ESA suggests further invasive
RI/FS (Remediation to certain non-EPA regulated research; or,
Investigations / environmental hazards. Other indications suggest further
Feasibility Study) invasive research.
Phase III ESA More invasive ESA (add’l AAI-compliant Yes, should be engaged Yes, Yes, if Yes, usually Any Loans Involving: (may be waived
borings/analysis) based on Phase 1 EP (from by Bank (consultation invasive preceded by by insurer)
findings; describes extent of borrower) with qualified counsel AAI Phase I Phase I or II ESA suggests in-depth
contamination and provides possible recommended) invasive research.
remediation alternatives & costs.
Compliance Audit**** Audit of business activities to see if AAI-compliant No, usually reviewed Yes, usually No No Existing Loans Involving:
acting in compliance with pertinent EP (engaged internally (if yes, Subsequent transactions or inherited
environmental regulations (e.g., gas by Bank) engaged by Bank) liabilities; or, Information suggesting
stations re: storage tanks, dry cleaners re: possible non-compliance as a result in
chemicals, etc.). change in collateral condition or use.
* AAI compliance is necessary for CERCLA Bonafide Prospective Purchaser, Innocent Landowner, or Contiguous Property Owner defenses, as well as to maintain Secured Creditor or Good
Samaritan exemptions.
** ASTM E1527-05 compliance adds petroleum hazards research to AAI-compliant Phase I ESA (not required under AAI or by US EPA). RFI may include a variety of on- and off-site activities such
as monitoring, sampling and analysis for non-EPA regulated environmental hazards (e.g. petroleum).
*** Lead and/or asbestos survey may be added to ESA but is not part of basic scope. Survey should be requested if lead paint and/or asbestos are suspected, particularly if residential property.
**** Compliance Audit is not required by CERCLA, AAI or ASTM, but may be prudent on existing loans when there is a subsequent transaction or modification with stale prior due diligence reports,
any material change in collateral condition or use, or if there is suspicion of non-compliance to pertinent environmental regulations so as to mitigate or minimize potential environmental risk or loss.

2. 1
Negative Questionnaire: Current environmental questionnaire completed by borrower, Bank RLM, or Credit Risk Officer (or authorized delegate) includes all negative responses to questions
relating to current or prior existence of environmentally sensitive3 concerns.
2
Observed Risks: Upon site inspection by Bank RLM or Credit Risk Officer (or authorized delegate), any indication of current or prior existence of environmentally sensitive3 concerns observed at
or near the subject property.
3
Environmentally Sensitive: Refers to any potentially toxic or hazardous substances identified by US EPA, state environmental authority, regional water district, or other regulatory entity including
by not limited to dry cleaning chemicals/solutions, petroleum-based hazards (oil, gas, tires, etc.), lead, asbestos or ACMs (asbestos-containing materials), certain pesticides, and/or mold.