ESG factors provide insights about a
company’s environmental, social and governance performance and policies. This
information helps investors to make ethical and sound investment decisions by
uncovering risks associated with any controversial or illegal behaviours.
Focus on
environmental, societal responsibility and governance issues, largely driven by
investor, customer, and other stakeholder demand, is on the rise globally, with
a failure to address these matters becoming detrimental both financially and
reputationally. Therefore, environmental, social, and governance criteria
is increasingly becoming an essential aspect of corporate due diligence around
the world as governments impose new regulatory requirements related to
integrity and sustainability. The recent months have seen a flurry of activity
on the ESG front across the public and private sectors. A string of directives
and regulations requiring ESG reporting and sustainability disclosures for
various industries were for example proposed and adopted by the European Union
in 20211.
On the other side of the Atlantic, US
President Joe Biden has made climate change and environmental justice
priorities of his administration. The ambitious Biden plan for achieving a
net-zero emissions economy by 2050, moved ESG up the corporate priority list. He
re-joined the Paris Agreement and signed a series of climate change, racial
equality and social justice executive orders.
In the Middle East too, there is a
growing maturity and understanding of ESG. The Abu Dhabi Global Market (ADGM)
has made considerable progress in developing a viable sustainable finance
ecosystem to support a diversified green economy and boost investment inflows.
The UAE became the first Gulf country to commit to net-zero carbon emissions by
2050. In April 2021, the UAE Securities and Commodities Authority (SCA)
released a circular indicating that all listed companies must submit a
standalone sustainability report every year2.
All this is changing the way
companies do business. Given the growing significance of ESG due diligence,
many companies walk away from deals that do not meet their ESG principles. Directors
and board committee members now play an important role in overseeing company
transparency on their sustainability initiatives and how best to build a
proactive and intentional ESG program that can be integrated into their core
business strategy and risk program.
How ESG Due Diligence Helps to Mitigate Risk?
ESG analysis provides valuable
insights about an organisation’s performance and ability to operate
successfully. It allows investors to mitigate risk by better understanding a
company’s risk profile and risk exposure. Starting from where a company
operates to which sector it belongs to and who its business partners and
customers are, it helps to identify any red flags to avoid unsafe investments. Therefore,
the way a company handles ESG issues can affect its long-term performance and
valuation.
How can you integrate ESG into your due diligence
processes?
Getting ESG due diligence right is
critical to managing risk and creating value. In fact, a comprehensive ESG assessment
is now a core part of the due diligence process. It assumes even greater
significance if an industry is perceived to have substantial environmental
impacts, employs vulnerable workers, or is known for a high incidence of bribery
and corruption. The potential risk areas are evaluated and incorporated into
the broader due diligence process. ESG reporting can be quite challenging and
complex. It is a lengthy and time-consuming effort to gather, organize and map
data to multiple reporting standards and frameworks for ratings agencies and
company stakeholders.
Cedar Rose’s due diligence solutions
Cedar Rose can uncover ESG violations
by conducting due diligence checks through source enquiries. These source enquiries
can determine if the subject’s corporate structure is well established and is
transparent with clear accountability lines, whether the subject has been
involved in any governmental violations concerning environmental laws or if the
subject has been involved in any social activities that better their community.
The results of these checks can help companies better understand who they are
dealing and enter compliant partnerships that are aligned with their own
company’s ESG values.
Cedar Rose’s multilingual research
teams, with over 20 years of experience, have a worldwide network of tried,
tested and reliable local connections and resources in the field and are able
to conduct international ‘boots on the ground’ investigations discreetly and
compliantly. It provides its
clients a better understanding of third parties such as customers, suppliers,
agents, distributors and consultants among others by conducting extensive investigations
on companies and individuals globally. In addition, being compliant with
international laws such as the Anti-Bribery Act and FCPA (Foreign Corrupt
Practices Act) makes Cedar Rose a trusted organisation by international brand
names, banks, auditors, governments, investors, journalists and peers within
the business intelligence industry.
For more information call +971 4 374
5758 or visit www.cedar-rose.com
Sources
1 Corporate
sustainability reporting | European Commission (europa.eu)
2 The
rise of ESG in the UAE: Mandatory ESG Reporting for UAE listed companies - Al
Tamimi & Company
