Remember the good old days? Due diligence involved a pretty straightforward checklist. You’d hire an environmental consultant, they’d do their thing, and you’d have a clear picture of a property’s environmental health. If you found something, you and your client had options. You could negotiate, walk away, or structure the deal to handle the risk. That was then.
If you’re in commercial real estate, you may have noticed the ground shifting under your feet. A perfect storm of evolving environmental, social, and governance (ESG) standards, paired with new, stricter state-level regulations, is rewriting the rules of the game. Those simple checklist days are gone. Today, you must navigate a complex and often contradictory landscape that requires a new level of savvy and creative problem-solving.
The changes represent a fundamental shift in how we identify, report, and manage environmental risk. And those who are ready to embrace and adapt it gain a serious competitive advantage.
The great ESG divide: Federal stalemate, state-level action
ESG has been a hot topic for years, but the regulatory conversation has gotten a whole lot louder in 2025. On one hand, you’ve got a federal regulatory landscape that feels, well, stalled. Legal challenges have put the SEC’s proposed climate disclosure rule, once seen as a massive game-changer, on indefinite hold. Its pause has left people wondering what’s next and created a vacuum for state governments to step in.
Some states, like California, are leading the charge with new, comprehensive climate disclosure laws (like SB 253 and SB 261 signed into law in 2023) that are setting a de facto national standard. California’s economic might means that if you do business there, you’ll likely need to meet its standards — and those standards may very well ripple across the country. It’s a classic “California effect” scenario, where one state’s strict rules become a benchmark for others.
But here’s where things get interesting (and confusing). At the same time, a growing number of states are passing what’s known as “anti-ESG” bills. These laws are often a response to political pressure and are designed to restrict financial institutions from considering climate risk and other ESG factors in their investment decisions. It’s a direct push-back against the broader ESG movement.
Now you’re faced with a bizarre, fragmented regulatory environment. You could be operating in a state with strict new climate disclosure laws, while a neighboring state has laws preventing you from even using ESG data in certain financial assessments. It’s a real-world conundrum that adds layers of complexity to everything from underwriting to asset management.
The key takeaway? You can’t rely on a one-size-fits-all approach. You must be hyper-aware of the specific regulatory landscape in every state where you do business. Fun times, right?
The DEP’s proposed SRRA changes
While the ESG debate plays out on a national scale, a more immediate and potentially costly shift is happening at the state level with environmental regulators. For example, the New Jersey Department of Environmental Protection (NJDEP) has proposed a series of significant amendments to its Site Remediation Reform Act (SRRA), often referred to as SRRA 2.0. And these changes could completely upend how you handle commercial real estate transactions.
This proposal’s most controversial part? A change to who must report the discovery of contamination. Under the current system, only those legally responsible for a discharge — a property owner or operator — are required to report it.
Proposed amendments to the SRRA would change the process, with the new rule requiring any person who discovers a hazardous material discharge to report it to the NJDEP. In other words, a non-LSRP environmental consultant, lender’s representative, or prospective buyer’s consultants conducting pre-acquisition due diligence would be legally obligated to report it.
Why is this proposal a big deal? Imagine this scenario: Your client is a prospective buyer who wants to perform a Phase II environmental site assessment. They’re interested in a property but want to confirm a potential issue they saw on a Phase I report. They hire a consultant who, during the Phase II assessment, affirms that there’s a problem. Under the proposed rule, the moment the consultant confirms and reports it to the NJDEP, the current property owner becomes a “responsible party” for a costly remediation, even if your client walks away from the deal.
This risk isn’t just hypothetical. If you’re a property owner, why would you allow a prospective buyer to do a Phase II assessment on your property, knowing it could trigger a cleanup obligation that leaves you with a huge bill and no buyer?
Critics believe this change would have an immediate chilling effect on CRE transitions. It could lead to sellers refusing to allow buyers to conduct proper due diligence — or buyers simply walking away from the deals that seem too risky to even investigate. CRE transactions could fall, resulting in fewer remediations, since property sales often serve as a way for owners to finance cleanups. The proposal also raises concerns about attorney-client privilege and could impose reporting obligations on a range of third parties, from lab techs to lenders.
Balancing compliance and cost
So, what can today’s CRE professional do? Spoiler alert: Do not ignore these changes. They have a direct impact on the value of a property, the structure of a deal, and your professional liability. The key is to get ahead of the curve and adopt a new playbook.
- Embrace proactive due diligence, not reactive response.
The old model was reactive; you found a problem and reacted to it. The new model requires a proactive approach. As a seller, consider conducting your own comprehensive assessments before listing your property.
This strategy allows you to identify and address issues on your own terms and present a “cleaner” picture to prospective buyers. It’s an upfront cost, but it can save you from a deal falling apart and a potential massive cleanup bill later. - Get creative with transaction structures.
With the new reporting requirements, you can’t assume a deal is off the table if contamination is found. Explore outside-the-box solutions to balance risk. Those solutions might involve environmental escrow agreements, where a portion of the purchase price is held in reserve to cover remediation costs.
Environmental insurance is also becoming a more common tool for mitigating risk. These tools can give buyers and sellers confidence that the cleanup will be handled without either party incurring a massive, unexpected expense. - Lean on your network of experts.
Now more than ever, your success depends on the team you’ve assembled. Your environmental consultant doesn’t just complete a checklist — they’re a strategic partner who can help you navigate these complex regulations and offer solutions. Your legal counsel should be an expert in this niche area so they can help you understand the latest regulatory changes and draft agreements that protect your client. - Educate your clients.
The most important thing you can do is to bring your clients along on this journey. Help them understand how due diligence has evolved. Explain the new risks associated with reporting requirements and how a proactive, strategic approach can save them time, money, and headaches down the road.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 90 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
