Sustainability and Environmental due diligence

Posted on January 13, 2011 by


Introduction

Awareness among the shareholders brought environmental, social and governance issues into very sharp focus. Consumer’s demand for sustainable products suggests that sustainability is becoming a business requirement.

Sustainability

The word “sustainability” is derived from the latin word “sustinere” (‘tenere’  to hold; ‘sus’ up) and has been in connection with sustainable development.

Sustainability can be explained as ‘making sure that present needs are met without compromising the needs of future generations’. Sustainability can be viewed as a process of operational efficiency and continued improvement of environmental, socially conscious and economic performance. Sustainability-related issues can positively and negatively impact the value of a deal, and should be assessed along with the target’s growth potential, financial health and market position.  It is linked with operational efficiency and continued improvement of environmental, social consciousness and economic performance.

Business Opportunities

Depletion of Natural resource, uncontrolled Energy consumption, GHG emission and Climate change are both risks and opportunities to the businesses.  Such growth that depletes ecological balance can be termed as uneconomic growth and it leads to a decline in quality of life. Minimising such growth can provide opportunities for local businesses.

Legal Issues

Reporting on sustainability initiatives might forestall the company’s operations and growth on legal side.  It can bring trade laws and other mandatory regulations under heavy legislations.  Regulations limiting uses of Natural resources such as water and energy all implicate legal compliance risks, as well as has the potential to alter a company’s operating margins in a significant way.

Conclusion

Managing business responsibly and sensitively, and ensuring inclusion of social, economic and environmental factors in the decisions making process ensures long-term business success.  Private equity investors showing their interest towards the sustainability profile of the company. Therefore sustainability due diligence should include an evaluation of top management’s attitude and willingness to pay company’s attention. Dependence on natural resources, relevant emissions, and pollution management should be regularly identified and monitored. By assessing these issues through the top integrity will result into potentially greater value.

 

 

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Posted in: Sustainability