The ESG factors of sustainability, social responsibility, and good corporate governance are becoming increasingly important in M&A transactions and are emerging alongside other value creation factors.
Sustainability is also becoming increasingly important in the field of M&A. Thus, in corporate transactions, the ESG factors Environment (sustainability), Social (social responsibility), and Governance (good corporate governance) play an important role, explains the business law firm MTR Legal Rechtsanwälte, which supports its national and international clientele also in M&A transactions.
The increasing importance of ESG is also evident in various legislations, such as the Supply Chain Act, which came into force in Germany at the beginning of 2023. The aim of the law is to take greater account of human rights and environmental protection aspects in international supply chains. The companies are obligated by the law to implement various due diligence obligations.
Environmental protection, human rights, resource conservation, water scarcity, or workplace conditions are just some of the elements that need to be given more attention and can represent a risk in planned corporate transactions. Identifying such ESG risks becomes a central element of the due diligence examination.
If it becomes apparent during so-called ESG Due Diligence that significant ESG risks exist, this can have considerable effects on a planned corporate transaction. The risks can lead to the sale price dropping significantly or even the entire deal falling through.
Therefore, ESG risks should be adequately considered in sales negotiations. For risks that are recognizable and could result in measurable damage, this can be factored into the purchase price. If the damage is still abstract and could arise under certain circumstances, e.g., due to a poor reputation of the company, it can be agreed that the company for sale will first implement some sustainability standards before the transaction can be completed. Likewise, guarantees or indemnifications can be agreed upon.
Thus, ESG has also become a central topic in M&A transactions. Identifying the risks is possible through a tailored Due Diligence that uncovers hidden risks through thorough examination.
In questions regarding M&A and ESG risks, experienced lawyers at MTR Legal provide advice.
