The ESG factors of sustainability, social responsibility, and good corporate governance are also gaining increasing importance in M&A transactions and stand alongside other value creation factors.
Sustainability is also becoming increasingly important in the area 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 law firm MTR Legal Rechtsanwälte, which supports its national and international clients in M&A transactions.
The increasing importance of ESG is also reflected 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 give greater consideration to aspects of human rights and environmental protection in international supply chains. The companies are obliged 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 more closely considered and can pose a risk to planned corporate transactions. Identifying such ESG risks becomes a central element of the due diligence process.
If an ESG due diligence reveals that there are significant ESG risks, it can have a substantial impact on a planned corporate transaction. The risks may cause the sale price to drop significantly or even lead to the deal falling through.
Therefore, ESG risks should be appropriately considered in the sales negotiations. In the case of risks that are likely to result in a 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 first implements some sustainability standards before the transaction can be completed. Similarly, guarantees or indemnities can be agreed upon.
Thus, ESG has also become a central issue in M&A transactions. Identifying risks is possible through a tailor-made due diligence that uncovers hidden risks through a thorough examination.
In matters concerning M&A and ESG risks, experienced attorneys at MTR Legal provide advice.
