Pub. 8 2018 Issue 3

5 ISSUE 3. 2018 Environmental Risk w Continued on page 6 dry cleaners, auto repair shops and manufacturers. Luckily for banks and borrowers, CERCLA contains liability protec- tions provided that the borrower conducted “all appropriate inquiries.” “All appropriate inquiries,” is an EPA standard used to evaluate a property’s environmental condition and assessing potential liability for any contam- ination. The standards by which environmental assessments are conducted are published by ASTM International, and a bor- rower generally conducts “all appropriate inquiries” by having an ASTM E1527 Phase I Environmental Site Assessment conducted on their property. For most banks, this is where having a structured environmental policy fits in, because Phase I ESAs are expensive and are not required by federal regulation or state law. In 2006 the FDIC indicated in an Institutional Letter that banks should main- tain an environmental risk program in order to screen potential collateral prop- erties for environmental contamination, but this is to protect the safety and soundness of the bank’s collateral. The FDIC guid- ance addresses environ- mental risk management in very general terms and leaves it up to banks to come up with specif- ic policy requirements based on each bank’s own appetite for risk. For many loans, particularly those of a lower dollar amount or on certain property types, banks do not require Phase I ESAs and evaluate environmental risk onsite using other methods. A good first step in evalu - ating environmental risk is completing first portion of the ASTM E1528 Transac- tion Screen Questionnaire (TSQ). The instructions on the TSQ indicate in several places that the E1528 does not comply with “all appropriate in- quiries,” so this is not used for protection from CER- CLA liability, it is used to determine if the risk onsite for environmental concerns is low enough to proceed with the loan without conducting more due diligence onsite. The first portion of the TSQ is generally filled out by the borrower and the lender while visiting the property being screened. The TSQ contains roughly 40 questions such as “is the property used for an industrial use?” and “are there currently and pits, ponds or lagoons located on the property?” which help to identify any potential environmental concerns onsite. The second compo- nent of the TSQ is done after reviewing standard environmental databases maintained by federal, state, and tribal offices. The databases contain information about the subject property and prop- erties within a one-mile