ESG Considerations in Acquisitions and Investments

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The Importance of Traditional Relationships

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.

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The Importance of Traditional Relationships

Expanding the Horizon of Stakeholder Relationships

Modern businesses face a growing base of stakeholders, which they need to consider when making business decisions.

Beyond the traditional stakeholders, there are now compelling reasons for companies to acknowledge and account for their impact on and relationship with the larger community, both on local and global scales, and the environment at large.

This wider perspective introduces a host of considerations:

  • Ethical Standards: The inherent ethical practices that guide the business.
  • Supply Chain Ethics: How a business's partners and suppliers adhere to ethical standards.
  • Ecological Footprint: The business's overall impact on the environment.
  • Community Support: Efforts towards job creation, sustenance, and positive community involvement.
  • Philanthropy: The charitable actions and initiatives the company supports.

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Expanding the Horizon of Stakeholder Relationships

CSR and ESG: The New Pillars of Business Evaluation

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.

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CSR and ESG The New Pillars of Business Evaluation

Certifications: A Badge of Modern Excellence

For businesses, certifications like the B-Corp are not just badges but significant indicators of their forward-thinking nature, robust brand identity, and well-defined sense of purpose.

For investors and potential acquirers, such certifications serve as a testament to the business's commitment to a broader set of values.

The contemporary stakeholder, be it an employee, consumer, customer, or investor, is increasingly conscious and discerning.

They are likely to have a preference for and be more aligned with businesses that reflect their values and ethos.

Against this backdrop, a commitment to ESG can significantly influence talent retention, brand strengthening, and building trust with consumers.

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Certifications A Badge of Modern Excellence

Looking Ahead: The Future of Due Diligence

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.

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Looking Ahead The Future of Due Diligence

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If you need professional legal advice concerning ESG requirements in acquisitions and investments, please contact Myerson Solicitor's Corporate team on:

01619414000