ESG Real Estate Insights 2021 | Article #6 RE-thinking Due Diligence - ESG impact on M&A
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
ESG Real Estate Insights 2021 | Article #6 RE-thinking Due Diligence – ESG impact on M&A
RE-thinking Due Diligence – ESG impact on M&A| ESG Real Estate Insights 2021 Shedding light on the increasing role of ESG in real estate M&A deals 2
RE-thinking Due Diligence – ESG impact on M&A | ESG Real Estate Insights 2021
Shareholders and stakeholders General concept of ESG due diligences
Evidence is mounting that increasingly expect their companies’ Generally, ESG due diligences analyze the
business performance is management to focus on sustainability compliance of the targets with national
impacted by environmental, and contribute to global environmental and international regulations as binding
social and governance factors goals, to act socially responsible and to frameworks as well as non-codified
and recent developments become more inclusive and diverse. In stakeholder ESG-related norms and
demonstrate that the speed other words, issues such as human rights expectations. Further, it highlights the
at which those elements violations, environmental ruthlessness environmental, social, and governance
become material is increasing. or other ethical infringements can have status quo of a company.
Drivers of this accelerating vast negative influence on business as
change are, for example, the companies’ actions are increasingly With regards to the environmental
increasing transparency based impacting on how their stakeholders dimension, a due diligence includes
on improved data availability interact with and what shareholders the existence of internal policies,
around environmental, social demand of them. Consequentially, in the responsibilities and management with
and governance (ESG) factors, context of transactions, ESG aspects regards to several environmental aspects
society’s changing expectations constitute financial and reputational risks. (esp. energy, CO2 emissions, materials,
as public awareness of social Investors seek for more transparency water usage and waste) summarizing the
and environmental challenges before signing a deal to avoid potential ecological impact of the business model
increases and growing influence pitfalls linked to ESG concerns. This as well as how it interacts with all key
of investors as they integrate growing awareness for ESG amongst environmental stakeholders and works to
ESG factors into the core due investors gives rise to ESG due diligence mitigate its impacts.
diligence process. Hence, ESG which is evolving from a niche to a widely
has found its way to the Mergers known term and required competence in The social dimension covers policies and
& Acquisitions (M&A) business. the M&A business.1 responsibilities concerning social aspects,
The real estate industry has been such as human rights, labor standards,
a particular focus of regulatory Especially for deals in the real estate health & safety, diversity and equal
bodies, primarily as the sector industry, ESG due diligence enjoys opportunities among others.
contributes to 36% of EU CO2 increasing prominence as the sector faces
emissions1. ESG due diligences being closely monitored by governmental Finally, the governance dimension
provide meaningful insights for bodies and prudential authorities over constitutes of analyzing the risk
investors prior to a transaction. its environmental impact. The EU Action management systems, the existence of
This article sheds light on the Plan on Sustainable Finance should not corporate codes of conduct (anti-bribery,
general concept of ESG due be left unmentioned, as the included anti-corruption, etc.) and the transparency
diligences and its specifications EU Taxonomy defines the criteria for of board and management decisions and
and particularities with regards to ecologically sustainable activities and remuneration.
the real estate sector. investments, making the impact of the
investors’ business on the climate and It is of note that the approach to ESG due
other environmental criteria transparent. diligences is not a “one size fits all” approach
for all industries. Each industry presents
ESG due diligence takes the EU Taxonomy its own array of environmental impact
as well as other national and international and stakeholder interaction that must be
regulations into account. Vigilant considered. For example, a target in the
due diligences highlight red flags and chemical industry would have a particular
may optionally also assess risks and emphasis on the environmental factors
opportunities and future value creation such as disposal of hazardous waste,
potential (e.g. cost reductions through whereas for a target in the textile industry
increased energy efficiency). the focus may lay on the social factors such
as child labor or poverty wages. Hence, ESG
criteria need to be selected from a bouquet
of KPIs taking industry-specific and target-
specific factors into account.
1
European Commission: New rules for greener and smarter buildings will increase quality of life for all Europeans, April 2019.
3RE-thinking Due Diligence – ESG impact on M&A| ESG Real Estate Insights 2021
KPIs for the real estate industry machines are responsible for large parts Your Contact
For the real estate business with assets in of particulate matter and noise in urban
the utilization phase, environmental topics areas. Moreover, social KPIs need to Dr. Max Tucher
outweigh social and governance KPIs as include workers’ health and safety, such Director Operational Transaction
the industry’s impact on the environment as the exposure to hazardous chemicals Services | Financial Advisory
stands in the foreground. Due diligences or events (floods, fire, etc.), the existence Deloitte Germany
hence may focus on environmental of emergency response plans, trainings, mtucher@deloitte.de
KPIs such as the existence of an and compliance checks. Especially for
environmental policy (and a responsible the project development business, Dr. Julian Blohmke
team), its compliance with national and governance KPIs should include policies in Manager Sustainability Services |
international regulations, the usage of place such as anti-bribery, anti-corruption, Risk Advisory
renewable energy and the existence of and anti-money-laundering. Deloitte Germany
monitoring systems and regular disclosure jblohmke@deloitte.de
of sustainability reports. Additional As time is usually short for M&A decisions,
focus areas are the age of the buildings, the right selection of KPIs is crucial. Sophie Katharina Paul
the status of modernization and the Only an analysis of the appropriate Consultant Operational Transaction
recyclability of building materials. measures provides the management Services | Financial Advisory
and stakeholders with the information Deloitte Germany
For targets involved in real estate needed for making the right decisions. sophpaul@deloitte.de
project development, the list of KPIs An insightful ESG due diligence hence
should be extended to measures of the requires methodological and industry-
environmental impact of the construction specific expertise.
phase itself, as for example drilling
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member
firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte
Global”) and each of its member firms and related entities are legally separate and independent entities, which
cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related
entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services
to clients. Please see www.deloitte.com/de/UeberUns to learn more.
Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and
related services; legal advisory services in Germany are provided by Deloitte Legal Rechtsanwaltsgesellschaft
mbH. Our global network of member firms and related entities in more than 150 countries and territories
(collectively, the “Deloitte organization”) serves four out of five Fortune Global 500® companies. Learn how
Deloitte’s approximately 330,000 people make an impact that matters at www.deloitte.com/de.
This communication contains general information only, and none of Deloitte GmbH Wirtschaftsprüfungs
gesellschaft or Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related
entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional
advice or services. Before making any decision or taking any action that may affect your finances or your
business, you should consult a qualified professional adviser.
No representations, warranties or undertakings (express or implied) are given as to the accuracy or
completeness of the information in this communication, and none of DTTL, its member firms, related entities,
employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or
indirectly in connection with any person relying on this communication. DTTL and each of its member firms,
and their related entities, are legally separate and independent entities.
Published 06/2021You can also read
