Neotas ESG Due Diligence FAQs
ESG Due Diligence, or Environmental, Social, and Governance Due Diligence, is a process that organizations and investors undertake to assess the environmental, social, and governance factors associated with a potential investment, acquisition, or business relationship.
Environmental: Evaluating the company’s impact on the environment, including its carbon footprint, resource usage, waste management, and environmental compliance.
Social: Examining the company’s relationships with its employees, customers, suppliers, and communities. This involves assessing labor practices, diversity and inclusion policies, community engagement, and adherence to human rights standards.
Governance: Assessing the company’s corporate governance practices, including the composition and independence of the board of directors, executive compensation, shareholder rights, and transparency in financial reporting.
The key objectives of ESG Due Diligence include:
Risk Mitigation: Identifying potential ESG risks associated with the investment or business relationship and developing strategies to manage and mitigate those risks.
Value Creation: Identifying ESG-related opportunities that could create long-term value for the company or the investment portfolio.
Regulatory Compliance: Ensuring compliance with ESG-related regulations and standards that may impact the company’s operations.
Enhanced Decision Making: Incorporating ESG factors into investment and business decisions to make more informed and sustainable choices.
Stakeholder Engagement: Engaging with stakeholders, including employees, customers, investors, and communities, to understand their perspectives on ESG issues and incorporate them into decision-making processes.
ESG Due Diligence is becoming increasingly important as investors and customers prioritize sustainable and socially responsible practices. It helps organizations demonstrate their commitment to responsible business practices, address potential risks, and contribute to positive social and environmental outcomes.
Find below a selection of FAQs we face relating to ESG Due Diligence, our investigative platform and Due Diligence Reports.
Why is ESG risk assessment important?
Non-compliance with ESG regulations could lead to legal liabilities and fines for the buyer, while they may also inherit reputational damage. For private equity and investment firms looking to acquire a business, conducting ESG due diligence will help to prevent uncovering damaging information further down the line.
We already conduct ESG due diligence. What is Neotas’s differentiation?
We provide an external lens that does not rely on ‘self-reporting’. We can proactively monitor, in almost real-time all the key ESG risk factors. Beyond regulatory compliance, we can help predict future ESG risks and save losses (both monetary and reputational).
Does Open-Source Intelligence (OSINT) help the ESG decision-making process?
Yes. As ESG data is generally time-lagged, open-source intelligence techniques built into our Platform (ESG ‘trackers’) can generate almost real-time information. This will give you a clear picture of the ESG risks now and help to predict any potential issues. See more from Coller Capital on the use of OSINT for ESG due diligence.
When should you conduct ESG due diligence?
As early as possible in the due diligence process. Whilst we can quickly highlight any ‘red-flag’ issues, these may take time to rectify. These ‘red flags’ may delay a transaction, but we view this as preferable to later, writing down the valuation!
Will considering ESG risk give me a competitive advantage?
ESG compliance enhances a company’s valuation as well as reduces business and reputational risks. It also attracts quality investors and ensures compliance. Fixing ESG issues later can be very costly and can damage shareholder value.
How does ESG create value for organisations?
Companies with high ESG ratings typically exhibit a lower cost of capital, less volatile earnings, and lower market risk than companies with low ESG ratings. However, the lack of standardisation between ESG benchmarks as well as an incentive to provide AAA ratings might raise concerns as to the rigour of these checks – Neotas can help to ensure that your supply chain is as sustainable and as compliant as you claim.
What are the key risk indicators covered by ESG due diligence?
We will look at all aspects of a ‘digital footprint’ to uncover risk, whether that be financial crime, fraud, modern slavery, exploitation of works, unsafe workplace practices, environmental concerns. We have often uncovered risks where the client least expected it.
Can you provide international ESG risk management?
Yes, our investigations are global. We process over 200 languages and we are not limited by international jurisdictions. We select only the relevant ESG factors tailored to your circumstances and offer a complete service.
Is ESG due diligence a separate service provided by Neotas?
We are able to provide ESG due diligence either as a standalone service, or as an integrated part of our wider enhanced due diligence services. Our team will develop a solution that fits your business needs and budget.
What do your reports contain?
Our reports provide clearly flagged risks using a traffic light system (red/amber/green) with detailed evidence, a network association visual map, an audit trail and a list of all the sources used. We also look to enhance our reports by providing context to all the risks flagged.
If your question hasn’t been answered here, then we would love to hear from you. Contact us directly, or schedule a call below.
