April 8, 2022

Due Diligence: How to Approach ESG Issues

By now, the succession of high-profile scandals involving companies like Boeing and Activision Blizzard have convinced even the most jaded observers (like me, for instance) that allegations of poor performance on ESG-related issues can have a devastating impact on a company’s business. That means identifying potential trouble on the ESG front is critical for buyers – but how exactly do you do that when conducting due diligence?

That’s the question that this recent Cooley blog attempts to answer. It identifies some of the big picture ESG issues that need to be considered and offers some practical advice on how to get your arms around them. This excerpt discusses conducting due diligence on employee retention issues:

In today’s changing workplace climate, the ability of a target to retain workers, especially compared to its industry peers, may provide some indication of any hidden ESG issues in the workplace. At the very basic level, buyers should closely review retention statistics. Savvy buyers may also want to review more “soft” indicators of employee satisfaction. This includes a review of the scope of the benefits available to employees – from parental leave, miscarriage and/or surrogacy/in vitro fertilization support to work-from-home flexibility policies – and an examination of the ways in which management values and considers the views of employees.

For example, does the company have a formal review process? Are there town hall meetings with management? And in what ways do employees participate in the success of the company? The overall satisfaction of employees may indicate whether the company is at risk of floundering in an environment where workers have growing power.

Other due diligence topics covered by the blog include board governance, management’s attitude toward ESG issues, the target’s approach to potential sexual harassment issues, workplace diversity, environmental impact and geopolitical risks.

John Jenkins