ESG Due Diligence Questionnaire for M&A and Capital Markets

Clauses

[Drafting note: capitalised terms relate to either a defined term in this clause or a defined term in the main due diligence question that these questions are designed to be inserted into.]

Introduction

We make this information request as part of our due diligence review in connection with the proposed [insert details of capital markets transaction] [insert details of M&A transaction] [insert details of investment opportunity] (Transaction) by the Company.

With respect to the questions below, unless otherwise specified, please comment only on any material changes that have occurred or come to your attention during the period from [last transaction or relevant time period] to the present date (the Applicable Period).

Reference in this information request to 'the Company' means each of [insert details of entities of the borrower or guarantor group] [insert details of target company] [insert details of the investee company] together with their subsidiaries (collectively, the Company).

Environmental 

1. Does the Company have an environment policy which sets out commitments and targets to improve the Company’s environmental footprint? If yes, please provide copies of any climate strategy or climate transition plan.

2. Describe the Company’s environmental and climate change reporting, if any, including its carbon and/or other GHG Emissions (including any Carbon Reporting), net zero emissions-reduction targets, sustainability goals and energy transition plans. Provide how and when the Company plans to meet its commitments (and the Company’s progress towards meeting those commitments), including whether any such target, goal or plan will include the use of offsets or renewable energy credits or whether any such target is science-aligned or has been externally verified or assured.  

3. If the Company does not measure and report its carbon and/or GHG Emissions, please explain why not and what steps the Company is taking to cover that gap.

4. Does the Company hold any shares and/or investments in fossil fuel businesses? If yes, please explain what engagement activities the Company is conducting to facilitate the phase-out of the underlying businesses or whether the Company is considering an exit.

5. Does the Company benchmark versus peers and/or industry standards? If yes, provide the result of the Company’s latest analysis. 

6. Has the Company performed an environmental or climate risk and opportunity assessment? If yes, please comment on the relevant key risks or opportunities control measures, improvements and corrective action plans put in place in response to any adverse impacts identified that cannot immediately be brought to an end and whether third parties are engaged for verification. If not, please describe how the Company assesses its environmental or climate risks, strategy and opportunities.

7. What are the Company’s scope 1, 2 and 3 GHG Emissions for the last 3 (three) years if known, and how are they calculated, assured and reported? Describe, if applicable, the use of independent verifications, benchmarking procedures and/or mitigation hierarchies.  

8. If the Company has decided not to calculate its scope 1, 2 or 3 GHG Emissions or has determined that its scope 1, 2 or 3 GHG Emissions are not material for disclosure purposes, describe on what basis such decision or determination has been made. 

9. What steps, if any, has the Company taken to reduce its GHG Emissions? 

10. Does the Company integrate climate-related and nature-related risks and opportunities in its organisational strategy and/or financial planning? 

11. Does the Company engage third-party specialists to assist with compliance with environmental obligations? If so, please provide details of those specialists and the relevant obligations they assist with.

12. Is the Company fully compliant with all relevant environmental permits or licenses or consents? 

13. In the last [3 (three)] years, has the Company been under review by, been sanctioned by, or been fined by any regulatory body regarding the Company’s environmental impact? 

14. What are the Company’s primary energy, water and raw materials sources? Describe the main environmental impacts of the Company’s activities, with a focus on energy, water, raw materials, soil and air, briefly setting out the Company’s sources of energy and its use of resources and/or contribution to pollution of the natural environment. 

15. If considered material, has the Company undertaken (or plans to undertake) initiatives to improve energy efficiency of operations and/or increase renewable energy or fuel sources?

16. Provide details of key waste streams generated and how these are managed and disposed of. Describe any obligations or liabilities the Company retains in relation to waste streams, or similar provisions included in its supply contracts, which could potentially have climate risks and the levers the Company must influence or mitigate such risks. 

17. Is there any soil or groundwater contamination, chemicals or hazardous substances used or present on any properties owned by the Company, including with respect to leaks, spills or any related legal or regulatory actions? If so, how does the Company manage the containment and disposal of the subject substances?

18. Is the Company’s advertising and marketing materials, and related product labels, aligned with latest taxonomy regulation?

19. Describe any litigation, investigations, claims, complaints or allegations, pending or threatened relating to the Company’s claims in respect of its environmental or climate risk disclosures, public commitments, advertising or marketing (so-called greenwashing claims) which is material in context.

20. Describe, to the extent applicable to the Company’s business, the Company’s level of readiness to comply with pending climate risk disclosure regulations and frameworks.

21. Describe any financial statement line items that include climate change-related accounting metrics. Are there any internal controls over financial reporting created to support climate change accounting?

22. Has the Company recognised any financial provision in its financial statements to address any environmental liabilities or claims?

23. Describe any environmental obligations the Company includes in its supply contracts, including emissions measuring protocols and the effect of climate risks on its suppliers and customers. Does the Company conduct any audits or ongoing monitoring of vendors or suppliers in its supply chain with respect to environmental obligations?

24. Please provide details of how the Company embeds achievement of its environmental and climate targets into its contracts and relationships with other parties, including contracts for the supply of goods or services. 

25. Is the Company's choice of supplier influenced by sustainability performance and, if so, what factors are considered? 

26. Please provide details of any [material] contracts which the Company considers to be not environmentally friendly (or where a more sustainable option was rejected due to other factors, such as economic factors) and any rights of termination or renegotiation for this reason. 

27. Does the Company consider circular economy principles, origin of resources and/or sustainable or local sourcing within its procurement policies? If so, please provide details.

28. If the Company’s business involves the production and supply of goods, what, if any, steps have been taken to minimise environmental impacts of the company, for example, to use recycled goods or packaging where possible, to use environmentally friendly production methods, to offset carbon footprints and so on.

29. If the Company undertakes any activities to offset its carbon emissions, please confirm: 

a. whether the Company has an offsetting strategy; 

b. whether the offsetting strategy adheres to best practice standards on offsetting set out in the Oxford Principles for Net Zero Aligned Carbon Offsetting as updated from time to time (the Oxford Principles). 

c. if the offsetting strategy does not adhere to best practice standards set out in the Oxford Principles, where it deviates from such best practice and the steps and associated costs required to make it comply and adhere to best practice.

30. What, if any, steps have been taken to minimise the environmental and related social impacts of the Company. For example, to:

a. use recycled goods and packaging where possible; 

b. use environmentally friendly production methods; 

c. use local, low carbon materials and labour; 

d. implement circular economy and zero waste principles;

e. give surplus materials to community projects; 

f. invest in training for low carbon product manufacturing; 

31. If the Company’s business is operated online, are customers provided with the option to offset the carbon footprint of delivering the Company’s goods or services at the point of sale?

32. Does the Company use any renewable energy technologies? If so, please provide details. 

33. Are any of the Company’s facilities certified to meet the requirements of an accredited green building programme (for example, Building Research Establishment Environmental Assessment Method (BREEAM))?

34. Please disclose any risks concerning biodiversity, ecosystem services and land use. 

35. Are there any operational dependencies and potential impacts on biodiversity and nature? If so, are there any associated risks and how are they managed? 

36. Is the Company aware of any business activities, practices or outcomes that have produced a substantial negative environmental impact? If so, please provide details.

37. Does the Company have a policy to align its lobbying activities, trade association memberships and public policy positions with Paris Agreement Goals? If so, please provide details. 

38. Does the Company conduct and/or publish a review of its trade associations’ climate positions or alignment with Paris Agreement Goals? 

Social

[Drafting note: drafters may want to expand the questions in this section to include targeted questions relating to just transition issues (such as retraining for lost jobs, supply chain effects and so on), depending on the context of the sector or industry that the company is operating within. This could include questions on climate risks involved in the transition and any plans to mitigate losses (such as, job losses) that may arise from the transition.]

73. Does the Company have formal Health and Safety, Anti-Discrimination, Diversity, Whistle-blower, Data Privacy, Tax Transparency and Human Rights or Fair Labor Standards* policies and procedures in place? Please briefly describe such policies, their scope (indicate whether they cover employees, contractors and direct and indirect suppliers) and the relevant responsibility, reporting lines and scope of coverage. 

*[Drafting note: consider whether it is appropriate to extend the enquires to expressly cover topics such as human trafficking, servitude, forced labour or child labour. What is appropriate will vary depending on the mix of jurisdictions involved and an assessment of whether there are substantive risk issues in this area based on the relevant facts.]

74. Who in the Company is responsible for overseeing data privacy and security? Please provide insight into the Company’s data privacy and data security policies, how often they are reviewed and whether they are reviewed by an external party. Does the Company provide training to all employees on this topic? Has the Company had any recent breaches of customer data?

75. Does the Company have formal supply chain standard requirements in place? If so, please discuss and/or provide further details. Do the Company’s contracts with suppliers and sub-contractors include provisions in this regard? Does the Company conduct any audits or ongoing monitoring of vendors or suppliers in its supply chain with respect to human rights, labour considerations and/or other social matters?

76. Please outline any community relations projects, education and/or social awareness relating to the company's services or products.

77. Please outline any engagement activities and strategies implemented by the Company to address any negative impact its services or products may have on external stakeholders (especially local communities and indigenous peoples) and what processes the Company has in place to embed feedback from impacted stakeholders into their business operations.

78. What efforts does the Company take to identify and monitor potential human rights and labour issues, ensure workers know their rights and promote compliance with such matters by its direct and indirect suppliers?  

79. Is the Company in compliance with the Modern Slavery Act 2015?

80. Describe any efforts or policies the Company has to identify, mitigate and address bias, discrimination and/or harassment based on protected classes, including, but not limited to, [gender, race, ethnicity, religion, language, LGBTQIA+ status, veteran status, disability and age].

[Drafting note: consider adding or deleting protected classes based on the jurisdiction(s) in which the Company operates.]

81. Please discuss any legal proceedings and investigations and material social or environment-related legal, regulatory complaints, claims or enforcement actions within the last [3 (three)] years, associated with the policies set forth in [question 22] to the extent that the Company, its owners, principals, directors or corporate affiliates have been implicated and/or employees, suppliers, local communities, regulators or any other key stakeholders. Describe any litigation, investigations, claims, complaints or allegations, pending or threatened regarding the Company’s social impact.

82. Does the Company’s health and safety policy include workplace risk assessments? If so, please provide details, including how often they are reviewed and updated.

83. Does the Company conduct an employee survey? If so, please provide the percentage of employees that responded to the survey in the last [3 (three)] years.

84. Has the Company had any social-related legal, regulatory complaints, claims or enforcement actions in the past [3 (three)] years, associated with employees or key stakeholders?

85. In the past [3 (three)] years, has the Company been the subject of any employee-related class action lawsuits (whether a closed or ongoing)?

86. Please provide confirmation that the Company adheres to local minimum wage standards.

87. Is there a formal procedure for employees’ general questions, views, concerns or grievances? If so, please provide details. If not, how are such matters addressed at the Company? 

88. Are employees represented on (or otherwise able to interact with) the Company’s Board, or with its governance and other committees?

89. Are workers permitted to join a union or otherwise engage in collective bargaining? If so, how many employees are currently represented by a union or subject to a collective bargaining agreement? Is the Company’s relationship with the labour unions, and its workforce more generally positive? Please provide details of any material labour disputes during the last 3 (three) years. 

90. Does the Company enable and/or encourage members of staff, suppliers, customers or other third parties or stakeholders to contribute to the global transition toward Net Zero through engagement, information sharing, access to finance, capacity building or any other type of climate leadership? If so, please provide details.

91. Details of any pay, benefits or remuneration of any of the Company’s employees, directors or shareholders that is linked to achievement of any of its climate or sustainability-related targets.

92. Details of any information provided or training given to the Company’s employees regarding climate change-related issues in so far as they affect its business.

93. Details of any other activities the Company undertakes to educate its employees about climate change-related issues generally, or to consult with them about potential changes to business activities or practices which would have a positive environmental impact.

94. Details of any ‘green’ employment benefits, terms or initiatives offered to the Company’s employees and their level of take-up.

95. Does the Company have any policies in place to reduce the carbon footprint of employee travel or commuting?

96. Does the Company embed climate policy engagement throughout its organisation (for example, by employee and business network education)? If so, please provide details.

97. Has the Company taken any steps to help underrepresented groups access new green job opportunities? If so, please provide details. 

Governance

101. Describe the board’s general approach to corporate governance (does the board have a classified board structure, do shareholders have the right to call special meetings and/or act by written consent, do certain corporate actions require a supermajority vote by investors)? 

102. How is the composition of the board determined?

103. Is diversity taken into account when appointing board members?

104. Is there an independent board chair?

105. Please provide the composition of the board: total number, number of independent members, number of women, number of minorities, number of LGBTQIA+ members. 

106. Does the Company disclose its board and C-suite level demographic diversity? 

107. Does the Company have an ESG Policy? If so, is the ESG Policy made publicly available? If not, does the Company have any plans to implement such a policy in the next 12 (twelve) months? Where appropriate please identify any intentions or concepts with respect to ESG that the Company has identified as relevant. 

108. Describe the board’s and senior management’s oversight with respect to ESG matters, including climate change, human rights, human capital and compliance-related matters. How often does the board of directors or a board body or committee receive updates regarding ESG-related matters? Does the Company have one or more persons responsible for implementing ESG-related objectives? How are ESG-related matters brought to the board’s attention? 

109. Does the Company have a specific ESG budget? Are there ESG training programs? Is there an evaluation system or oversight mechanism related to ESG concerns?

110. Describe any ESG-related policies and practices to address, monitor and report on material ESG-related risks and opportunities. 

111. What percentage of the current directors have been on the board for at least [3 (three)] years? What is the term of each director?

112. Does the Company convene a shareholder meeting at least annually? Do the shareholders vote on board composition? 

113. Does the Company monitor controversies, misconduct, penalties, incidents, accidents and/or reportable events with respect to any ESG-related matters? If so, describe any material instances within the last 3 (three) years.  

114. What safeguards are in place to ensure that minority shareholder rights (with respect to access to information and voting rights) are fair and transparent?

115. Please describe any ESG-related metrics factored into management performance evaluation or compensation? 

116. Please discuss any ESG controversy (including negative news media coverage) affecting the Company over the last 3 (three) years.

117. Please describe whether the Company is in violation of the ILO Declaration on Fundamental Principles and Rights at Work, the UN Global Compact, the UN Guiding Principles on Business and Human Rights and/or OECD Guidelines for Multinational Enterprises. 

118. Please describe any corporate governance and/or ethical related employee claims, breaches, enforcement or litigation action relating to issues such as anti-bribery, fraud, corruption, unfair labour practices, human rights abuses, and other malpractices. Please provide details of any third party (regulatory or otherwise) investigations, litigation, or prosecution.

119. Does the Company have a code of conduct? If so, how is it communicated to employees, and how is it monitored or maintained?

ESG reporting

120. Does the Company engage in any ESG-related reporting? 

121. Does the Company have an ESG-related framework? If so, is all reporting related to ESG in accordance with this? 

122. What sustainability criteria are set out in any ESG-related framework? 

123. Is any ESG-related framework aligned with (as updated periodically):

[Drafting note: to be used depending on the industry of the issuer and purpose of the capital markets issuance.]

a. the UN's Sustainable Development Goals?

b. the International Capital Market Association (ICMA) Social Bond Principles?

c. ICMA Green Bond Principles?

d. the Loan Syndications and Trading Association's Green Loan Principles?

e. any other base for determining the core components of the framework?

124. Has any ESG-related framework been verified by a third-party opinion provider? If so, which opinion provider and what is the date of their last opinion? 

125. How often is any ESG-related framework updated?

126. Will the Company publish an impact report in relation to sustainable finance raised under any ESG-related framework? If so, what criteria or KPIs will be reported?

127. Will auditors or another external third party sign off on any use of proceeds and/or impact reporting information? 

128. Is the Company a member of Principles for Responsible Investment (PRI)?

129. Has the Company obtained, or is in the process of obtaining, an ESG rating or has the Company had any other discussions or correspondence with any ESG rating agency? If so, please provide details. Please discuss the main points or concerns raised by such agencies. 

130. Has the Company incorporated, or will it incorporate, climate-related risk factors into its annual report? If not, please discuss any plans to do so in the future.