ESG Considerations in Acquisitions and Investments

Central to any business are its relationships with customers, suppliers, employees, and investors.

The day-to-day running, operations, and overall management pivot around these relationships and as such, these relationships have always been at the forefront of due diligence during acquisitions and investments.

Should any underlying issues come to light, there may be ramifications to the transaction, such as the inclusion of indemnity protection, recalculation of the purchase price, or the acquisition or investment could fall through entirely.

The past decade has seen the rise of structured frameworks focussed on Corporate Social Responsibility (CSR) and, more recently, Environment, Social, and Governance (ESG).

These frameworks provide meaningful metrics and benchmarks to assess a business's impact on its expanded list of stakeholders and its overall imprint on the community.

The B-Corp certification, a renowned initiative in this category, sets certain businesses apart in terms of their commitment to these values.

For a comprehensive look at B-Corp certification, you can refer to our dedicated blog post.

The winds of change suggest that ESG considerations will soon be mainstreamed into due diligence processes.

It is likely that moving forward, it will become more common to see due diligence questions specifically on ESG matters and ESG policies.

If a business is contemplating a sale or gearing up for a fresh investment round, it may be useful and worthwhile to consider these issues and factor in ESG metrics ahead of the proposed transaction.

In the world of acquisitions and investments, buyers and investors are now starting to demand a deeper, broader look into a business's relationships and commitments.

ESG considerations, once peripheral, are now influencing decision-making and shaping the trajectory of businesses globally.