ESG corporate issues: M&A

We are delighted to announce our contribution of a chapter titled ‘ESG Corporate Issues: M&A’ in the recently published ‘Global ESG Handbook’ from Globe Law and Business Ltd, which is a guide for practitioners that draws together the various strands of ESG into one book, providing a valuable source of information in this fast-evolving area.

In recent years, Environmental, Social, and Governance (ESG) considerations have become increasingly critical for businesses. The rise in ESG-related regulations, litigation, investor scrutiny, shareholder and NGO activism, corporate commitments, and counterparty expectations has shone a spotlight on various ESG issues, and it is becoming increasingly necessary to look at corporate transactions through an ESG lens.

Our chapter explores how ESG issues are identified through the due diligence process, including commentary on the approach to ESG due diligence and how it can be scoped, the impact of identified ESG issues and how to manage these in the transaction documents and in post-closing integration.

Some of our insights outlined in this chapter include:

• ESG issue spotting and due diligence scoping:
  • Traditional due diligence processes are evolving to include ESG-related issues, particularly those that could lead to significant liability or impact brand value and reputation.
  • It is essential to identify financially or reputationally material issues early, especially if they are critical to the target or in alignment with the purchaser’s corporate strategy.
  • Relevant ESG topics should be identified and prioritised based on the target’s sector, industry, and jurisdiction of operation.
• Impact on Transactions:
  • Properly characterising the legal risks associated with ESG issues can be challenging and often a range of cross-practice inputs are needed to understand the full implications.
  • Identified ESG issues could lead to more challenging negotiations, value reductions, or even the termination of transactions.
  • The approach to managing and mitigation ESG-related risks will depend on the nature and the severity of the issues, the extent of information known about them, the length of time it might take to address them, the risk appetite of the purchaser and of course the overall bargaining position of the parties as a whole.
• Post-Closing Integration:
  • ESG considerations don't stop at closing; they must be managed through post-closing integration to mitigate risks and crucially, there must be sufficient financial and human resources in place to deal with issues after the deal has closed.

For an in-depth exploration of these topics, the full chapter and more can be found in ‘The Global ESG Handbook’, available for purchase here.

You can read an extract of our chapter below.