ESG - Risk Assessment and Due Diligence

There has been significant growth in sustainability-related legislation in the EU and in Germany in recent years, with the prospect of tougher regulation to come. Accordingly, ESG factors (environmental, social and governance) are taking on ever greater importance for businesses. Institutional investors and listed companies in particular already have a strong focus on ESG issues. 

We advise firms on all aspects of designing and conducting an ESG risk assessment. We also assist with establishing ESG risk management systems as part of the follow-up. 

The purpose of an ESG risk assessment is not just to check whether the company complies with current legislation and the latest sustainability standards and requirements, it also helps to determine whether it has engaged with the wider sustainability issues and legislative activity relevant to its business. Its internal and external processes should be aligned accordingly. The assessment thus establishes whether the company is prepared for both ongoing and future developments in relation to sustainability. If that is not the case, in a worst-case scenario there may be repercussions for the business model as well as reputational risks that impact the company’s goodwill and its brand and position in the market, in addition to the financial cost of remedying the situation. 

ESG not only plays an important role in day-to-day company management, it can also be an important factor in sales processes in the form of ESG due diligence on both the buyer and seller side. 

We can advise you on all aspects of conducting ESG due diligence. We then take the results into account in the transaction process and when negotiating the purchase agreement. Specific ESG risks that have been identified may affect the valuation and lead to buyer demands for special warranties and specific indemnities or an escrow mechanism for warranties. Armed with this knowledge, a buyer can ask the seller to implement ESG improvements prior to signing. Alternatively, resources and costs can be earmarked for post-merger integration measures, with this expense then being reflected in the purchase price.

Corporate digital responsibility

Another important aspect in the area of governance & risk compliance is handling digitalisation in an appropriate manner. In this context, corporate digital responsibility goes beyond merely fulfilling legal requirements. It aims at informational self-determination of all company stakeholders, irrespective of their position in the supply chain and within a company. This includes addressing all of the positive and negative impacts and the direct and indirect effects of using digital technologies for the purposes of your business, along with the relevant legal options. Legally compliant use of digitalisation for sustainable business operations in particular lies at the core of CDR, e.g. in the form of tracking solutions along value chains.

More information on digital regulation and digital transformation can be found on the following pages.

Topic Germany

Digital Regulation

Topic Germany

Digital Transformation

Using artificial intelligence (AI) applications in the corporate environment brings with it particular ethical challenges. These may include liability risks with regard to the use of such applications by the management board and supervisory board. AI applications need to meet special requirements in terms of accountability and making the results transparent. It is vital to avoid discrimination and to protect intellectual property and data.

Our experts not only have the legal expertise to implement digitalisation projects, they also understand the underlying technology and methodology. This allows us to complement the existing expertise in legal departments by contributing our in-depth specialist knowledge of corporate digital responsibility when new business models are being created or digitalisation is being rolled out in your organisation.