ANNOUNCEMENTS
Financial Due diligence is one of the most important parts in a pre-investment/transaction process for an asset management or investment organization. Environmental, social and governance due diligence is becoming a norm in the recent years as it provides return on investment in the long term by growing revenue pools, saving on cash and carbon, lowering cost financing, improving hirings and retention, lowering regulator risks and higher valuations of the companies. There is also an increase in demand for ESG integration by stakeholders like consumers, employees, and regulators.
The study analyzes the current ESG Due Diligence process followed in the organization for clients and their targets. The objectives were to enhance client satisfaction and provide service differentiation to the organization. The three due diligence projects were performed on targets in the education technology industry, the biopharmaceuticals industry and professional and commercial services industry using the outside-in ESG due diligence process. It was found that the due diligence process differed according to the clients’ requirements and priorities. ESG due diligence is currently done in a compliance and subjective approach, a framework is required to make it more objective and have a set of criteria to evaluate the target company. Since it is currently based highly on the peer analysis to identify industry-leading practices, it is comparative in nature instead of following robust standards. The certifications currently provided by the targets are not transparent, and their effectiveness is not determined through the ESG ratings as well.
A certification robustness analysis tool was devised to rate certifications based on important criteria to help make investors informed decisions regarding the targets’ standards and claims. It was proposed to start building thought leadership around inside-out ESG due diligence to overcome data availability limitations and perform a comprehensive due diligence in the US market and build a standard framework for devising an upliftment plan for the target organization.
Keywords: ESG Due Diligence, investment process, general partners, responsible investing, certification analysis.
