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Alternative Market Briefing

Other Voices: ESG's impact on M&A

Wednesday, July 27, 2022

By: Christopher Auguste, Alan Friedman from U.S. law firm Kramer Levin.

Environment, social and governance (ESG) or "sustainability" factors are criteria that are used to measure a company in a way that is not typically included in the company's financial statements. For example, ESG can include examining a company's (i) compliance with climate change mandates or carbon limits; (ii) stance on human rights, including with regard to its suppliers or distributors; or (iii) organizational and management structure. Traditionally, ESG has been underutilized as a tool in M&A transactions, but recent overall trends have brought these factors to the forefront as a method for both mitigating risk and enhancing value. As we will dive into below, ESG in M&A is important to consider - not only for potential buyers but also for potential sellers and their owners.

I. Current Uses of ESG in M&A Transactions

The vast majority of M&A transactions already consider and are conscious of certain ESG factors. This is most common during the fact-finding due diligence process. Standard in this process is the disclosure of material items that can cause future liabilities for the buyer, such as possession or disposal of hazardous materials that could violate environmental laws, or potential violations of labor or employment laws. For buyers, this helps mitigate risk as these potential sources of liability can be drafted around, while for sellers, having this surface-le......................

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