No Match Found
The use of environmental, health and safety (EHS) assessments in a pre-deal context is not new to private markets investors or project financiers. Asymmetric information and hidden compliance, reputational or legal risks arising from non-compliance with environmental or labor regulations or laws is commonplace, giving rise to an industry of EHS consulting firms whose aim is to uncover such risks or non-conformances and assess the immediate cost of remediation.
However, there is a growing need for a more holistic Environmental, Social and Governance (ESG) assessment, moving from a purely compliance-based approach, to identification of a broader set of sustainability risks and opportunities that is directly linked to deal valuation.
PwC’s 2021 Global Private Equity Responsible Investment Survey found that 66% of survey respondents rank value creation as one their top three drivers of responsible investing or ESG activity, with 49% of respondents integrating material ESG issues into their commercial assessment of investments.
We believe that there is significant value to be gained (or indeed lost) from sustainability factors. Our global ESG due diligence framework aims to identify strategic and priority issues and assess relative materiality of the target company versus its peers to provide insight on strategic sustainability positioning.
We focus on the most material specific ESG issues for the target company, based on business activities associated with its industry, size, and geographic footprint, and classify these as either compliance, risk, or opportunity related.
In-depth review of company operational materials, third party data, as well as interviews with management and employees and site inspections is critical to gaining an informed insight into how the company manages its ESG risks and how well it is positioned to capitalize on potential opportunities.
We use our findings to develop a sustainability roadmap for integration into your Value Creation Plan (VCP). Our recommendations are prioritized based on time horizon for deployment, with a short-term (< 1 year) focus on regulatory alignment and ‘quick wins’, medium term (1-3 years) focus on risk and strategic issues, and long term (3-5 years) roadmap to best practice.
Private Equity has a significant role to play in sustainably transforming businesses to be fit for the future. In doing so they can create long term value both for their investors and across their portfolio companies’ stakeholders. ESG due diligence should be a catalyst for this transformation – driving value, not just compliance.
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