Commercial banks (and lenders) should know what we define makes an environmental report “bad,” let’s be clear: a “bad” report is not simply one in which a Recognized Environmental Condition (REC) is identified. An REC may create headaches for buyers, sellers, and lenders, but that’s not the bad we’re talking about here.
The real concern is poor-quality reporting.
Commercial banks hire environmental consultants for one primary reason: to limit downside risk on a commercial loan. A “bad” report in this context is one that fails to do that—reports where the consultant’s work increases risk instead of reducing it. Unfortunately, this can happen when consultants are incentivized—sometimes directly or indirectly—by the very commercial bank that hires them.
The Low-Bid Trap
Many commercial banks believe they’re serving their clients well by driving down closing costs. This often means pitting a rotating list of environmental consultants against each other, with the lowest bidder winning the Phase 1 ESA work. On paper, it sounds efficient. In practice, it can erode quality.
When bidding becomes the primary selection tool, top-tier consultants leave the pool for better-paying work elsewhere. What remains are three types: highly efficient professionals (a positive), very small firms with limited capacity (a mixed bag), and low-overhead firms that cut corners to turn a profit (a serious risk). The latter group often produces weak reports, which can unknowingly leave a commercial bank exposed to significant lending risk.
Some low bidders also play another game—underpricing Phase 1 work with the intent of calling out marginal issues as RECs to secure more lucrative Phase 2 ESA projects. We see this tactic regularly.
The Repeat Business Problem
The opposite problem is the consultant who never finds anything wrong—especially with a high-volume commercial bank client. This “see no evil” approach may keep deals moving, but it can mask real environmental risks. Pressure to “not blow up a deal” can lead consultants to underreport findings, which ultimately increases the bank’s exposure.
Protecting Your Commercial Bank
The solution is not to abandon bidding altogether, but to strengthen quality controls. Implementing third-party reviews of both “clean” reports and those identifying RECs is essential. This review process should be candid, thorough, and free from conflicts of interest. Poor-quality consultants should be removed from the bidding pool—or at minimum, prevented from winning projects. While this may increase per-project costs, it significantly improves report reliability.
Another safeguard: prohibit the consultant who performed the Phase 1 ESA from conducting the Phase 2 ESA if one is required. This removes the incentive to “find” marginal RECs as a revenue strategy. Instead, require a detailed scope of work for any Phase 2 recommendations, ensuring all bidders price comparable scopes.
Our Role in Protecting Commercial Banks
A3 Environmental Consultants specializes in identifying and eliminating low-quality reporting risks. We offer confidential third-party reviews, meet or exceed ASTM E1527-21 standards, and produce reports that satisfy lender and agency requirements—including SBA, HUD, and USDA standards.
If you need expert oversight to protect your commercial bank from substandard environmental consulting, contact A3 Environmental Consultants at (888) 405-1742 or Info@A3E.com.
