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Over the past decade, we have seen a significant shift in investor interest towards companies that are sustainable and have strong ESG (environmental, social and governance) plans/initiatives underway. In many industries, governing bodies are strengthening regulations with regard to efficiency standards, supply chain/material utilization, and carbon output. Shifting regulations are also having an impact on new product development / service decisions. Overall, sustainability is playing a key role in the competitive nature and performance (outcomes) of companies in most industries, particularly those within the industrial manufacturing, food and beverage, and transportation sectors.
Given the growing interest from the investor community in ESG, does it make sense to hire an energy/sustainability specialist within your internal corporate development team to help evaluate environmental DD risks (or strengths)?
https://www.jdsupra.com/legalnews/esg-the-new-must-have-in-the-due-6235944/
Environmental DD grows in importance with acquirers that have already established significant goodwill in CSR activities and Foundation activities.
Environmental due diligence, as you pointed out, is certainly growing in importance given the increasing focus on environmental, social and governance (ESG) across all industries. With the strong emphasis on ESG factors, companies are likely to delve deep into the ESG compliance level and activities that the acquisition target/ potential merger partner embark on.
I was part of a divestiture for a remote workforce accommodations company, and a large part of that deal was on future environmental reporting per Environment Canada and under OSHA. For example, if anymore than a liter of oil leaks in an environmentally sensitive area, a report needs to be issues with a full description of how clean up was conducted and inspection results if warranted. All reporting are public and assigned to the company Health and Safety record.
To hire a sustainability specialist (not necessarily and energy specialist), yes, it makes sense and almost all large corporations have done that. Given my humble interactions with some of those specialists though, companies must be a bit more careful as some of those specialist are too focused on one or two fields, and are not always up-to-speed with recent updates to standards and reporting practices, which really could expose their employers to high risks given the attentions investors give to ESG nowadays as you mentioned.
From my experience, It’s more effective to hire a contractor who is doing environmental DD: contractor’s specialists are not only examining documents, but also visit the sites personally.
As a representative of the Buyer we could not managed to lobby Environmental W&I as the Seller would point out that the site is open for environmental DD.
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