The incorporation of ESG criteria (Environmental, Social and Governance) in the stages of due diligence ''investigation and in-depth analysis done before mergers, acquisitions, partnerships or investments are implemented 'is a relatively recent practice.However, it has gained ground slightly in recent years, reflecting the growing market concern with non-financial risks that directly impact the reputation, sustainability and long-term value of companies.
A due diligence ESG emerged as an evolution of traditional due diligence legal, accounting, labor, tax and financial. It is based on the pressures exerted by investors, consumers and regulatory bodies, which consider environmental, social and governance factors as essential criteria in the assessment of risks and opportunities. Thus, the adoption of the practice reflects a paradigm shift: ESG performance has come to be understood not only as a competitive advantage, but as a requirement for business perpetuity.
In practice, the process includes assessing whether the company respects environmental laws and adopts sustainable practices; verifying working conditions, diversity and human rights in the production chain; and analyzing governance structures, transparency, ethics and anti-corruption.
The first step towards achieving due diligence ESG is planning and scope definition.This means identifying the objectives of the due diligence; define relevant ESG criteria according to the sector, region and size of the company; and establish who are the members of the team responsible for carrying out the work. This can be composed of internal employees and also professionals linked to a specialized consultancy.
Subsequently, information should be collected, and documents and reports related to environmental policies (licenses, resource use, emissions, waste, environmental risk management, etc.), social (labor practices, diversity, health, safety and relationship with communities) and governance (control structure, ethics, etc compliance, transparency and anti-corruption). With all this in hand, it is important to talk to company leaders who are responsible for ESG and risk areas and, if possible, carry out technical visits in loco for verification of physical practices and structures.
After assessing compliance with laws and regulations, alignment with international standards (such as GRI, SASB, TCFD and OECD) and identifying potential risks (low, medium, high) as well as opportunities for improvement & compliance, a detailed report should be initiated. In addition to all information collected, recommendations should be suggested, such as possible corrective measures; and contractual clauses or guarantees should be indicated (if applicable a corporate transaction).
To conclude, it is possible to establish mechanisms for monitoring and monitoring ESG evolution within the company, with possible periodic audits or KPIs (acronym for Key Performance Indicators stories Key Performance Indicators) sustainable. The whole process contributes to the decisions made are more informed, assertive and sustainable, with mitigation of legal, financial and reputational risks.
