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ESG due diligence is an important component of both the "sell-side" and the "buy-side" in transactions.

ESG Due Diligence

Conducting objective ESG due diligence is relevant for all parties involved in a transaction in order to create transparency, identify risks and opportunities and initiate sustainable transformation processes that are relevant for both companies and investors.

  • Objective: ESG due diligence focusses on the status quo of a company. The aim of ESG (vendor) due diligence is to concentrate on the risks and at the same time highlight the opportunities and value drivers of the transaction object that may be relevant for sellers and buyers.
  • Risks and opportunities: The early identification of risks and opportunities is already crucial in the first phase and for the successful continuation of a transaction. When conducting ESG due diligence, international and national regulations and standards in particular play an important role in determining the basis for analysing a company's ESG performance. The relevant ESG issues for companies depend on the industry and sector, as well as the products, services and locations.

Elements of ESG Due Diligence

In addition to qualitative analysis and presentation, ESG due diligence also includes consideration of the important KPIs of a potential target company in the transaction business, which are indispensable for corporate investors, financial investors or private equity firms (PE). The most important KPIs and PAIs (Principal Adverse Impacts) are based on the applicable regulations such as the CSRD, EU taxonomy, SFDR etc.. In addition, the analysis of climate protection and climate adaptation in connection with e.g. the TCFD (Task Force on Climate-Related Financial Disclosures) and EU taxonomy is nowadays one of the most important elements in ESG due diligence.

Valuable Insights from the ESG Due Diligence Study

We asked around 150 active experts and consultants what role ESG already plays for a company as part of due diligence and what future trends can be expected. We have summarised the results in the publication "2022 EMA ESG Due Diligence Study".

For more information, click here for the full study: 2022 EMA ESG Due Diligence Study - KPMG Global, Dashboard and Webinar

Our ESG due diligence for your company or next transaction project

KPMG's ESG Due Diligence Framework is designed to support private equity firms and corporates in the transaction context and supports the sustainable development of ESG profiles of portfolio companies through the recurring ESG assessment. The integrated ESG due diligence framework created by KPMG includes both the assessment of the legally required qualitative requirements and the recording of the legally required quantitative KPIs and PAIs. KPMG's robust and flexible ESG due diligence framework enables a transparent and holistic presentation of a company, provides a clear scope and can be used for both a "high-level" ESG assessment and a "deep-dive" ESG assessment.

Your advantages at a glance

  • Identification of ESG risks and opportunities: Early identification of ESG risks and opportunities within buy-side and sell-side transactions to take action to improve value-critical issues and uncover value creation potential.
  • Risk mitigation: Mitigation and minimisation of legal, financial and reputational risks identified in relation to environmental, social and governance factors within the company, suppliers and partners.
  • Fulfilment of requirements: Identification of the requirements to be met and complied with by investors or companies and their suppliers and partners that are subject to the increasing ESG factors and regulations.
  • Creating transparency: Creating or increasing transparency by disclosing the necessary ESG key figures and implemented measures.
  • Improved decision-making: Informed decision-making through a comprehensive assessment of a company's ESG performance and in the selection of suppliers and partners.
  • Improved reputation: Improved image of a company through visible initiatives with environmental, social and governance factors and commitment to sustainability.  
  • Increased value creation: Identifying opportunities and value creation potential of ESG factors, designing sustainable value creation approaches and increasing the value creation of companies. Ensuring ESG standards among suppliers and partners in order to minimise risks in the supply chain.
  • Increase the chance of a deal: ESG due diligence can help make transactions easier and more likely to close.

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