Model clause

Capital Markets ESG Due Diligence Questionnaire

Gordon's DDQ

A capital markets focused due diligence questionnaire (DDQ) requiring the company to provide information regarding its impact on and considerations of climate change issues for the present and future.

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Why use this?

This Capital Markets DDQ seeks to act as a starting point for ESG dialogue by providing a framework list of questions that market participants can address at the due diligence stage of the capital markets transaction.

The DDQ has been developed to assist financial institutions to understand and evaluate a company’s approach to integrating material environmental factors into their business practices, and to understand where responsibility for doing so lies within its wider business structure. Additionally, the DDQ is aimed at encouraging consistency with existing guidance on sustainable development and climate goals.

The DDQ integrates existing guidance helping market participants better understand the potential sustainability impact and align with some of the broader UN sustainable development goals.

The DDQ is not meant to be comprehensive, nor to cover all ESG considerations and is intended to complement, rather than replace, existing due diligence processes.

Helping raise climate change risks and issues during the initial screening assists in the following ways:

- buy-side investors, financial sponsors and underwriters are able to identify climate-related risks (including reputational risks) or legal liability that they may determine to be unacceptable, thus diverting funds to more impactful deals;

- ESG screening during the diligence phase ensures that ESG investment metrics and targets are aligned with internal and broader sustainable development standards;

- the output from the DDQ will aid consistent and fulsome disclosure of climate change on the Company and its sector; and

- uncover material issues that need to be monitored throughout the lifetime of an investment.

How it promotes a net zero future

The aim is that uptake of this DDQ will help to streamline industry practices and encourage early discussion of ESG issues by investors, lenders, underwriters and companies.

Disclaimer - please read

The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Introduction

We are making this information request as part of our due diligence review in connection with the proposed [insert details of capital markets transaction] (“Transaction”).

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

The references to the “Company” mean each of [insert details of entities of the borrower/guarantor group] together with their subsidiaries (collectively. the “Company”).

Additional Definitions 

Net Zero Target means a net reduction of Greenhouse Gas Emissions from all operations [including value and supply chains] to zero by a specified date so there is a balance between sources and sinks of Greenhouse Gases in a calendar year and for each subsequent year thereafter.

Science-Based Targets means a [organisation/corporate] target to reduce Greenhouse Gas Emissions that is in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement, that is to limit global warming to below 2 degrees Celsius and above-pre-industrial levels, and pursue efforts to limit global warming to 1.5 degrees Celsius.

Carbon Budget means the aggregate of [value] tonnes of Carbon Dioxide Equivalent of Greenhouse Gas emissions permitted within a defined period.

Greenhouse Gases (“GHGs”) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) or otherwise specified by the UNFCCC, and which currently include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3).

Greenhouse Gas Emissions (“GHG Emissions”) means emissions of Greenhouse Gases over a specified area and period of time, each expressed as a total in units of carbon dioxide equivalent (CO2e) [and calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard or such other equivalent and generally recognised greenhouse gas emission calculation methodology]

Carbon Reporting means reporting of Greenhouse Gas Emissions in rounded tonnes of carbon dioxide or Carbon Dioxide Equivalent (CO2(e)) to the [COMPETENT AUTHORITY] on an annual basis in accordance with the requirements of Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of Greenhouse Gas Emissions pursuant to Directive 2003/EC of the European Parliament and of the Council, including verification of reports in accordance with Regulation (EU) No 600/2012 of 21 June 2012 on the verification of Greenhouse Gas Emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council.

Environmental

# Question

1. Sustainability Overview

What does the Company regard as the most important sustainability issues that its business faces? Does the Company have an environmental or sustainability policy which sets out commitments and targets to improve the Company’s sustainability standards, including its environmental footprint, examples of where the Company has mapped its impact against the UN Sustainability Development Goals and/or where the Company has applied any other external sustainability standards. If yes, please provide the relevant details, including a copy of such environmental or sustainability policy.

2. Climate Change/Energy Efficiency

Has the Company set a Net Zero Target, a Science-Based Target or a Carbon Budget? Does the Company assess, monitor and report its carbon and/or other Greenhouse Gas emissions through Carbon Reporting or otherwise, including benchmarking versus peers and/or industry standards? If yes, please provide the results of the Company’s [latest/last [number of]] analyses.

Does the Company assess and disclose climate risks and opportunities with regard to the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD)? If so, please provide copies of any internal or external TCFD reports.

Alternatively, has the Company performed another form of environmental or climate change risk and opportunity assessment? If yes, please provide details of the assessment. If not, please provide details of: (i) any known or reasonably foreseeable climate change risks; (ii) any potential impact of extreme climate events (such as floods or drought); and (iii) any current or proposed climate change laws and regulations that might impact upon the Company’s business, in each case in relation to the Company’s operations, business and supply chain. Please also provide details of any adaptation or resilience measures adopted (or proposed to be adopted) by the Company to mitigate risks of physical climate changes.

Has the Company undertaken any audits of energy efficiency and/or energy reduction opportunities? Is the Company obligated to undertake energy audits (for example, under the EU Energy Efficiency Directive or similar)? If so, please provide examples of: (i) any energy efficiency audits; and (ii) any energy efficiency improvement programs/initiatives the Company implemented recently.

3. Raw Materials

What are the Company’s primary energy, water and other raw materials sources? Has the Company experienced, or does the Company anticipate experiencing, any issues associated with sourcing these materials? In particular, does the Company maintain records of water use and use of other primary raw materials in the production process? What measures are in place to ensure sustainable water and raw materials use in the production process?

4. Emissions through Carbon Reporting or otherwise, including benchmarking versus peers and/or industry standards? If yes, please provide the results of the Company’s [latest/last [number of]] analyses.

5. Biodiversity

Please disclose any risks concerning biodiversity, ecosystem services and land use. Are there any operational dependencies and potential impacts? If so, are they appropriately mitigated, associated potential risks are effectively managed, and potential opportunities for biodiversity enhancement identified?

Social

# Question

6. Please outline any community relations projects, education and/or social awareness relating to the Company’s services/products including examples of where it has mapped against [UN SDG 8 (Decent Work and Economic Growth)/insert relevant social UN SDG].

7. Do you have formal procurement and supply chain ethical standards in place, including making sure that modern slavery does not occur in your supply chains? If so, please discuss and/provide further details.

8. Please provide copies of the Company’s formal health and safety, anti-discrimination, diversity (including gender), data privacy, human rights and safeguarding policies in place. How often are the policies reviewed?

9. Describe any actual or suspected breaches of the policies listed in 8. that the Company has experienced, including the nature of the breach, types of data compromised (in relation to the data privacy policy), any actual or threatened regulatory investigations, reporting obligations, remediation and effect on the Company and its customers. Describe the Company’s view of how the measures it takes to guard against and respond to breaches of such policies compare to industry standards and legal requirements.

10. Please provide confirmation that the Company adheres to [local minimum wage standards in all the jurisdictions it has employees] [the applicable requirements in respect of wages, working hours, gender equality, labour contracts and occupational health and safety issues, set out in the International Labour Organisation of the United Nations].

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

12. Please discuss any class-action lawsuits (employee related) and material social related legal, regulatory complaints, claims or enforcement actions over the Applicable Period, associated with employees, suppliers, local communities, regulators or any other key stakeholders?

Governance

# Question

13. Does the Company have a specific ESG budget and ESG training programs? Is there an evaluation system or oversight mechanism (KPIs) of ESG concerns mapped against [the UN Sustainable Development Goals [and/or such other applicable assessment standard/ metric]?

14. Does the Company convene a shareholders’ meeting at least annually? Do the shareholders vote on the board of directors’ composition and compensation? What is the term of each board member? Do any of the directors’ terms of employment include ‘golden parachute’ provisions? If so, please provide details.

15. Please provide details on the composition of the board of directors: including the total number, number of independent members, number of women and number of minorities. Are anti-discrimination and diversity considered in determining the composition of the Company’s board?

16. How are ESG-related matters or monitoring and reporting issues brought to the board’s attention? Is there any specific board member (or committee) that is specifically tasked with ESG-related matters? If so, what is their qualification?

17. Please provide details of the Company’s audit committee (the “Audit Committee”) including composition and policies.

18. Who is the firm’s auditor? How long has the current audit partner been involved with this engagement? Within the Applicable Period has the Company had a material dispute over accounting practices with its auditor, including any compliance or other issues at the Company or any of its consolidated subsidiaries? If yes, what actions were taken and how have these issues been resolved?

19. Please discuss any material litigation or legal proceedings (actual or threatened) brought by any minority shareholder of the Company during the Applicable Period. What safeguards are in place to ensure that minority shareholder rights (with respect to access to information and voting rights) are fair and transparent?

20. Please discuss any material corporate governance and/or ethical related regulatory or employee claims, breaches, investigations, enforcement, litigation action (pending or threatened) relating to issues such as anti-bribery, fraud, corruption, unfair labour practices, human rights abuses, and other malpractices.

21. Does the Company have a whistle-blower policy? Please provide details, including any complaint procedures, remediation processes, protections against retaliation and ensuring anonymity.

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