Due Diligence

  • Due diligence scope may vary depending on the nature of the target, location and activities of the target business (as well as the time and budget available).

  • Enlist external consultancy support, especially where internal resources, expertise or sector specialist knowledge do not adequately cover ESG issues.

  • Consider the following in scoping due diligence:

Factors to consider when scoping your due diligence

Legal compliance

Consider legal compliance (current and reasonably foreseeable regulations) and non-regulatory risks or opportunities.

Pre-defined material thresholds

Apply a pre-defined materiality threshold to focus due diligence and findings (e.g. financial implications above a defined limit, significant reputational issues, potential for business interruption, legal compliance issues).

International standards

Consider international standards, as appropriate (e.g. IFC Performance Standards, Equator Principles) or good practice resources (e.g. Invest Europe GP Due Diligence Questionnaire).

Coverage of company’s operations

Ensure appropriate coverage of company operations, with site visits to higher risk operations.

Potential liabilities & reputational issues

Ensure that you identify and assess the following factors: potential liabilities, current/future capital or operational expenditure costs, need for additional human resources and management time inputs, previous and potential ESG reputational issues.

Resources needed for future ESG plan

Understand the steps required to address material issues post-acquisition, and the relative priority of each step.

ESG opportunities

Factor in ESG opportunities (e.g. new markets or income streams, eco-efficiencies, circular economy).

  • Present material issues from due diligence to investment committee.

  • Identify gaps in understanding, flag to investment committee, and address post-acquisition.