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.
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:
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