ESG Due Diligence

ESG Due Diligence in Transactions

Sustainability-related issues are having an increasing impact on company valuations, investments, financing, and long-term business development. In connection with acquisitions, investments, and other strategic transactions, it is therefore becoming increasingly important to understand how environmental, social, and governance-related issues can affect a business's risk profile, growth potential, and future value creation.

BDO helps investors, companies, and other stakeholders identify, analyse, and assess sustainability-related risks and opportunities through ESG Due Diligence (ESG-DD). The work is tailored to the scope of the transaction, the business's risk profile, sector, and the investor's priorities, and can be carried out either as an integrated part of a broader due diligence process or as a standalone ESG track.

In many engagements, we analyse a business's exposure to sustainability-related risks linked to, for example, climate, the environment, working conditions, human rights, the supply chain, business ethics, governance, and regulatory requirements. The focus is often on identifying areas that could have financial, operational, or reputational impact, as well as assessing the business's level of maturity, processes, and ability to manage sustainability-related issues over time.

We also work to identify potential opportunities related to, for example, transition, energy efficiency, sustainable business models, improved risk management, and growing demands from customers, investors, and other stakeholders.

The work typically includes a review of documentation, policies, processes, reporting, and ESG-related KPIs, as well as interviews with relevant parts of the business. Depending on the scope of the engagement, the work can also include analyses related to, for example, climate data, CSRD readiness, the EU Taxonomy, climate risks, the supply chain, or sustainability-related legal and regulatory risks.

We work closely with both investors and businesses to create practical, business-relevant input for decision-making, where sustainability issues are considered in relation to the business's strategy, valuation, risk profile, and long-term development.

Managing sustainability risks and strengthening responsible business practices

The EU's Corporate Sustainability Due Diligence Directive (CSDDD) aims to strengthen how companies address human rights, environmental impact, and responsible governance within their operations and value chain. The directive introduces stricter requirements for companies to identify, prevent, manage, and monitor adverse sustainability-related impacts linked to their own operations, subsidiaries, and business relationships.

Although the implementation of the CSDDD is still evolving within the EU, many companies already need to start analysing how their ways of working, governance, and processes may be affected by upcoming requirements and growing expectations from investors, customers, and other stakeholders.

Common challenges in ESG Due Diligence and CSDDD work

• Transparency and traceability in the value chain 
   Many organisations find it challenging to gain sufficient visibility into their supply chains and business relationships, particularly within complex or global value chains.
• Identifying and prioritising sustainability risks 
   It can be complex to identify which sustainability-related risks and adverse impacts are most material to the business and its business relationships.
• Data collection and quality assurance
  Access to relevant, reliable ESG data often varies across suppliers, investments, and geographic regions.
• Integration into corporate governance and processes 
   Many organisations find it challenging to integrate ESG due diligence processes into existing ways of working for risk management, procurement, and governance.
• Evolving regulatory requirements and expectations 
   Ongoing developments around the CSDDD and other sustainability-related regulations mean companies need to continuously adapt their processes and ways of working to new requirements and market expectations.