Due Diligence

Environment, Social and Governance Due Diligence

Environmental, social and governance issues can materially impact businesses. The risks and liabilities need to be understood and mitigated.

Environmental, social and governance issues can materially impact businesses.

Environment, Social and Governance Due Diligence

Failure to consider environmental, social and governance issues and opportunities during the transaction process could impact value and successful execution of the deal.

Issues such as contaminated land liabilities, environmental compliance expenditure, rising energy prices and waste landfill costs can affect value if managed inappropriately. More recently, high-profile food safety and child labour cases have illustrated the broader nature and importance of ‘non-financial’ sustainability factors. They require a deeper and wider assessment across the entire value and supply chain.

Before the financial crisis, investors typically saw environmental due diligence as a risk management tick-box exercise to secure financial institution funding. However, post-credit crunch, there appears to be a greater focus on responsible investment. We are seeing an increased appetite for the potential upsides (e.g. cost savings, additional revenue streams) of the sustainability agenda, in a transactional context. Strategies to manage energy (buy better, use less and self-generate) and waste (convert waste to an asset) are transforming the environmental due diligence process.

Investors should take stock of these issues during due diligence, to ensure they can clearly articulate the opportunities and risks that could affect value.

Examples of the financial implications associated with the sustainability agenda that KPMG has identified on recent projects include:

  • €70m annual energy cost saving opportunity for an investment of €90m for a manufacturing business. We presented a fully-funded solution to the client meaning they could fund the investment without using their own capital
  • £450k of enhanced capital allowances were not claimed for energy efficiency infrastructure investments at a leading manufacturer
  • £1m of capital expenditure upgrades required to replace refrigeration equipment due to environmental regulation at a European food processing facility

Clients use our services to:

  • Understand the commercial and financial implications of sustainability factors in the investment process (M&A, IPOs, IBRs, Insolvency)
  • Reduce transaction costs and time by being part of the integrated financial due diligence team
  • Identify cost saving opportunities, generate cash and increase profitability

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