EDR Insight
EDR Insight ®
Researching your top challenges
Tip Sheet For Lenders – April 13, 2012 How Well Do You Communicate the Value of Environmental Due Diligence Within Your Institution? Author: Ashley Gowen ([email protected]) Simply put, environmental risk is a business risk. The goal of environmental due diligence is to understand any potential environmental risk associated with a particular property and then factor it into the overall credit analysis. Environmental risk managers at financial institutions understand why due diligence is important to guard against collateral devaluation and liability exposure, but how well do they communicate this value up the chain at their institutions? Bridging the gap between environmental risk managers and loan officers or senior management was identified as a key challenge that risk management professionals face, according to the results of EDR Insight's most recent Benchmarking Survey of Financial Institutions. To help risk managers meet this challenge, EDR Insight hosted a webinar on March 28, 2012 entitled “Helping Risk Managers Communicate the Value of Environmental Due Diligence”. Speakers included: (1) Rick Ferguson, P.G., Chief Environmental Compliance Officer, SVP, U.S. Bank, (2) Brian Ginter, VP & CCIM, Appraisal/Environmental Group, Burke & Herbert Bank, and (3) John Rybak, SVP Environmental Risk Manager, BB&T. This trio of seasoned professionals candidly shared their real-word experiences and advice for other risk managers. Below are five tips from the webinar about how to proactively foster a broader understanding of environmental risk management in your day-to-day operations. Click here to listen to the replay.
Key Tips for Lenders: 1. Educate your peers One common thread throughout all three presentations was the importance of communication in getting everyone on the same page on the role that environmental due diligence plays in the loan origination process. Attendees were encouraged to take a proactive role in educating senior management, loan officers and credit officers, and to view this education as an ongoing process. Do everything you can to ensure the loan and credit officers at your institution that you are all in the business of originating loans - and that you all have the bank's best interest at heart. “Communicate to colleagues that you’re all on the same team, that uncovering environmental risks up front is to the bank’s benefit." ~ Rybak "Understand that this is an everyday process of fostering an understanding at your bank of why environmental due diligence matters. Take the lead, offer up training to key managers for the business lines, even teaming with environmental professionals to do it." ~ Ferguson 2. Work with knowledgeable environmental consultants Select outside environmental due diligence consultants that understand your institution’s risk tolerance, are knowledgeable about environmental risk and are current on environmental regulations in your areas of operation. According to Rybak, assembling a small team of trusted consultants is an important part of any environmental risk manager’s toolbox, along with reliable data sources and various report types. Over time, this toolbox will expand—with the help of the consultants you have surrounded yourself with—to incorporate new types of environmental risks as they emerge and
EDR Insight ®
Researching your top challenges
new tools for managing those risks. Technical experts play a valuable role in keeping you informed of any new guidelines or regulations that might affect decisions your institution makes about lending on certain commercial properties. "Find consultants you trust, who are knowledgeable, who understand your risk tolerance, who can be trusted advisors to your bank." ~ Ferguson "I’m a firm believer in having a small list of environmental consultants you can craft into being the best they can be for your bank and your clients. You don’t need a large, large list.” ~ Rybak 3. Have a good, solid policy that everyone knows about Developing and defining a solid environmental due diligence policy is critical for protecting a financial institution’s bottom line. By outlining due diligence policies, practices and procedures in a formal policy, financial institutions can help protect themselves from the unnecessary business risk associated with property contamination. Ginter suggests defining a policy that reflects current regulatory requirements and is tailored to your specific institution’s risk tolerance. Make sure that loan officers, credit officers and senior management understand the policy and how it will be enforced, as well as who is responsible for approving waivers to the policy in certain situations. A policy will only be effective at protecting the financial institution if the policy has the support of senior managers at the financial institution—and those directly involved in making decisions on commercial properties. “There’s an ever increasing regulatory compliance focus on environmental due diligence. It seems to be a very chief topic at every function I attend. The need for a proper environmental due diligence platform is more important than ever.” ~ Ginter "Be a resource, not a roadblock. If you are a resource, [borrowers] will come to your for help. If you are a roadblock, they'll find a way to get around you." ~ Rybak "The policy should clearly define roles, responsibilities and functions." ~ Ferguson Want to know more about what your policy should consist of? Check out this EDR Insight Technical Brief on the top 10 things lenders should consider when writing or updating their policy. 4. Estimate risks and their magnitude as clearly and accurately as you can It is important for risk managers to stay current as new environmental risks emerge. The property risk management field is a dynamic one, with new risks coming into focus all of the time (e.g., vapor migration, mold, Chinese drywall, etc.). According to Ginter, it is critical to keep abreast of current changes and to continue to educate yourself as new issues emerge. This education, shared Rybak, will not only help your institution build a solid reputation, but can also contribute to a greater level of comfort originating loans that your competitors may avoid. He also discussed the importance of identifying risks and making sure to communicate them to the right parties. Converting environmental risks to dollars can be hugely valuable in helping loan officers and credit officers understand the magnitude of a leaking underground storage tank, a past spill or some other environment issue uncovered during due diligence. "You are not there to fix the problems. You are a reporting and recommendation group." ~ Ginter "Don't shoot the messenger for reporting the problem. Don't kill deals. Help educate clients on risk." ~ Ginter "Most environmental problems can be solved. It is just a function of desire and money. Convert risks to dollars through proper due diligence, use of good tools, and educated decisions." ~ Rybak 5. Educate yourself and your team In addition to educating colleagues in other divisions of your institution, seek out sources that will help you and your team stay current on environmental issues. Myriad tools are available to help you do this. According to Ferguson, who is currently the president of the Environmental Bankers Association, organizations like EBA provide valuable workshops and industry events dedicated to environmental risk management. He also advised attendees to find a mentor in the field, and have regular contact with that person to help deal with challenges. This is particularly important for risk managers at smaller financial institutions who might not have environmental experts on staff. Ginter urged attendees to do what he did when first coming up the environmental due diligence learning curve: get your hands on sample policies from other institutions and review them as you consider elements that your policy might include. EDR Insight will continue to post content to its own website www.edrnet.com/edrinsight to help risk managers better understand environmental risks and the tools
EDR Insight ®
Researching your top challenges
available for managing those risk in a way that makes sense for their financial institutions. EDR is also a source of an environmental policy matrix and various informational documents designed to help lenders develop policies that are in keeping with their own risk tolerance. To hear more tips on communicating the value of environmental due diligence up the chain at your institution, click here to listen to the replay of EDR Insight’s webinar entitled "Helping Risk Managers Communicate the Value of Environmental Due Diligence".
EDR Insight would like to thank Tom Waldron and Duane Beck for peer reviewing this Tip Sheet.
Questions or comments? Ashley Gowen | Research Analyst Email: [email protected] www.edrnet.com/edrinsight Unauthorized reproduction, distribution or use of EDR Insight’s Strategic Briefs and Technical Briefs is strictly prohibited. © 2012 Environmental Data Resources Inc. All rights reserved.
Researching your top challenges
Tip Sheet For Lenders – April 13, 2012 How Well Do You Communicate the Value of Environmental Due Diligence Within Your Institution? Author: Ashley Gowen ([email protected]) Simply put, environmental risk is a business risk. The goal of environmental due diligence is to understand any potential environmental risk associated with a particular property and then factor it into the overall credit analysis. Environmental risk managers at financial institutions understand why due diligence is important to guard against collateral devaluation and liability exposure, but how well do they communicate this value up the chain at their institutions? Bridging the gap between environmental risk managers and loan officers or senior management was identified as a key challenge that risk management professionals face, according to the results of EDR Insight's most recent Benchmarking Survey of Financial Institutions. To help risk managers meet this challenge, EDR Insight hosted a webinar on March 28, 2012 entitled “Helping Risk Managers Communicate the Value of Environmental Due Diligence”. Speakers included: (1) Rick Ferguson, P.G., Chief Environmental Compliance Officer, SVP, U.S. Bank, (2) Brian Ginter, VP & CCIM, Appraisal/Environmental Group, Burke & Herbert Bank, and (3) John Rybak, SVP Environmental Risk Manager, BB&T. This trio of seasoned professionals candidly shared their real-word experiences and advice for other risk managers. Below are five tips from the webinar about how to proactively foster a broader understanding of environmental risk management in your day-to-day operations. Click here to listen to the replay.
Key Tips for Lenders: 1. Educate your peers One common thread throughout all three presentations was the importance of communication in getting everyone on the same page on the role that environmental due diligence plays in the loan origination process. Attendees were encouraged to take a proactive role in educating senior management, loan officers and credit officers, and to view this education as an ongoing process. Do everything you can to ensure the loan and credit officers at your institution that you are all in the business of originating loans - and that you all have the bank's best interest at heart. “Communicate to colleagues that you’re all on the same team, that uncovering environmental risks up front is to the bank’s benefit." ~ Rybak "Understand that this is an everyday process of fostering an understanding at your bank of why environmental due diligence matters. Take the lead, offer up training to key managers for the business lines, even teaming with environmental professionals to do it." ~ Ferguson 2. Work with knowledgeable environmental consultants Select outside environmental due diligence consultants that understand your institution’s risk tolerance, are knowledgeable about environmental risk and are current on environmental regulations in your areas of operation. According to Rybak, assembling a small team of trusted consultants is an important part of any environmental risk manager’s toolbox, along with reliable data sources and various report types. Over time, this toolbox will expand—with the help of the consultants you have surrounded yourself with—to incorporate new types of environmental risks as they emerge and
EDR Insight ®
Researching your top challenges
new tools for managing those risks. Technical experts play a valuable role in keeping you informed of any new guidelines or regulations that might affect decisions your institution makes about lending on certain commercial properties. "Find consultants you trust, who are knowledgeable, who understand your risk tolerance, who can be trusted advisors to your bank." ~ Ferguson "I’m a firm believer in having a small list of environmental consultants you can craft into being the best they can be for your bank and your clients. You don’t need a large, large list.” ~ Rybak 3. Have a good, solid policy that everyone knows about Developing and defining a solid environmental due diligence policy is critical for protecting a financial institution’s bottom line. By outlining due diligence policies, practices and procedures in a formal policy, financial institutions can help protect themselves from the unnecessary business risk associated with property contamination. Ginter suggests defining a policy that reflects current regulatory requirements and is tailored to your specific institution’s risk tolerance. Make sure that loan officers, credit officers and senior management understand the policy and how it will be enforced, as well as who is responsible for approving waivers to the policy in certain situations. A policy will only be effective at protecting the financial institution if the policy has the support of senior managers at the financial institution—and those directly involved in making decisions on commercial properties. “There’s an ever increasing regulatory compliance focus on environmental due diligence. It seems to be a very chief topic at every function I attend. The need for a proper environmental due diligence platform is more important than ever.” ~ Ginter "Be a resource, not a roadblock. If you are a resource, [borrowers] will come to your for help. If you are a roadblock, they'll find a way to get around you." ~ Rybak "The policy should clearly define roles, responsibilities and functions." ~ Ferguson Want to know more about what your policy should consist of? Check out this EDR Insight Technical Brief on the top 10 things lenders should consider when writing or updating their policy. 4. Estimate risks and their magnitude as clearly and accurately as you can It is important for risk managers to stay current as new environmental risks emerge. The property risk management field is a dynamic one, with new risks coming into focus all of the time (e.g., vapor migration, mold, Chinese drywall, etc.). According to Ginter, it is critical to keep abreast of current changes and to continue to educate yourself as new issues emerge. This education, shared Rybak, will not only help your institution build a solid reputation, but can also contribute to a greater level of comfort originating loans that your competitors may avoid. He also discussed the importance of identifying risks and making sure to communicate them to the right parties. Converting environmental risks to dollars can be hugely valuable in helping loan officers and credit officers understand the magnitude of a leaking underground storage tank, a past spill or some other environment issue uncovered during due diligence. "You are not there to fix the problems. You are a reporting and recommendation group." ~ Ginter "Don't shoot the messenger for reporting the problem. Don't kill deals. Help educate clients on risk." ~ Ginter "Most environmental problems can be solved. It is just a function of desire and money. Convert risks to dollars through proper due diligence, use of good tools, and educated decisions." ~ Rybak 5. Educate yourself and your team In addition to educating colleagues in other divisions of your institution, seek out sources that will help you and your team stay current on environmental issues. Myriad tools are available to help you do this. According to Ferguson, who is currently the president of the Environmental Bankers Association, organizations like EBA provide valuable workshops and industry events dedicated to environmental risk management. He also advised attendees to find a mentor in the field, and have regular contact with that person to help deal with challenges. This is particularly important for risk managers at smaller financial institutions who might not have environmental experts on staff. Ginter urged attendees to do what he did when first coming up the environmental due diligence learning curve: get your hands on sample policies from other institutions and review them as you consider elements that your policy might include. EDR Insight will continue to post content to its own website www.edrnet.com/edrinsight to help risk managers better understand environmental risks and the tools
EDR Insight ®
Researching your top challenges
available for managing those risk in a way that makes sense for their financial institutions. EDR is also a source of an environmental policy matrix and various informational documents designed to help lenders develop policies that are in keeping with their own risk tolerance. To hear more tips on communicating the value of environmental due diligence up the chain at your institution, click here to listen to the replay of EDR Insight’s webinar entitled "Helping Risk Managers Communicate the Value of Environmental Due Diligence".
EDR Insight would like to thank Tom Waldron and Duane Beck for peer reviewing this Tip Sheet.
Questions or comments? Ashley Gowen | Research Analyst Email: [email protected] www.edrnet.com/edrinsight Unauthorized reproduction, distribution or use of EDR Insight’s Strategic Briefs and Technical Briefs is strictly prohibited. © 2012 Environmental Data Resources Inc. All rights reserved.
