{"id":47672,"date":"2025-03-24T11:48:21","date_gmt":"2025-03-24T11:48:21","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=47672"},"modified":"2025-03-24T11:52:08","modified_gmt":"2025-03-24T11:52:08","slug":"how-esg-impacts-mas-and-dealmaking","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/how-esg-impacts-mas-and-dealmaking\/","title":{"rendered":"How ESG impacts M&As and dealmaking"},"content":{"rendered":"

By Atty. Kristine Torres\u00a0 and Atty. Mark S. Gorriceta<\/strong><\/p>\n

March 29, 2024 \u2013 <\/em>In the era of sustainability and growing concerns over climate change, environmental, social and governance (ESG) considerations have gained more significance in the context of mergers and acquisition (M&As) and dealmaking. Companies, investors and stakeholders are faced with increasing pressure to integrate ESG factors in business and investment decisions including M&As transactions.<\/strong><\/p>\n

<\/p>\n

Why ESG matters in M&As<\/strong><\/h3>\n

From the perspective of acquirers and investors, those who stand out with ESG compliance are perceived to be more attractive as M&A targets that not just create value for investors, but also help enhance reputational impact. Beyond showing profitability and scalability, in modern M&A deals, being environmentally and socially responsible and having good corporate governance as key investment criteria make an organization more desirable since they help acquirers enhance their reputation post-acquisition.<\/p>\n

ESG reporting and issuances<\/strong><\/h3>\n

The increased interest in ESG considerations can also be seen in the accelerated push for ESG or sustainability reporting and disclosures among publicly listed companies (PLCs). Aside from the growing stakeholder and investor awareness, there have been a number of regulatory developments in the Philippines on ESG reporting, since the earlier Code of Corporate Governance for Publicly Listed Companies, that introduced sustainability reporting and was released back in 2016 by the Securities and Exchange Commission (SEC).<\/p>\n

In 2019, the SEC released Memorandum Circular 4, Series of 2019, entitled \u201cSustainability Reporting Guidelines for Publicly-Listed Companies,\u201d which requires PLCs on a \u201ccomply or explain approach\u201d to submit a sustainability report as part of their annual report. In 2023, the SEC stepped it up by announcing that it is revising the said guidelines where PLCs will be required to submit narrative and sustainability reports that elevate the quality of sustainability reporting aligned with the latest developments in global sustainability frameworks.<\/p>\n

As ESG continues to gain traction and our Philippine regulators continue to steadily adopt policies and reporting frameworks on sustainability, there will be an increased demand for transparency in ESG disclosures, which should be addressed as well by private companies involved in M&A transactions.<\/p>\n

ESG due diligence<\/strong><\/h3>\n

This great attention to ESG and the government initiatives to step up the sustainability reporting framework also put more emphasis on the importance of ESG due diligence that continues to reshape M&A transactions. While review of the different facets of ESG such as labor, human rights, environmental compliance and corporate governance has long been part of a customary diligence investigation, it has only been relatively recently that specific focus on ESG considerations \u2015 both as value driver, and brand and reputation enhancer \u2015 is being made and weighed heavily in M&A decision-making processes.<\/p>\n

Legal and technical advisors play a crucial role in identifying risks and in helping companies prepare a remediation plan or mitigants.<\/p>\n

For example, for the buy-side, ESG due diligence covering the \u201cE\u201d component would focus on the compliance by the target company with national or local environmental regulations, checking environment-related risks, waste disposal, carbon dioxide emissions and climate policy, among others.<\/p>\n

For the \u201cS\u201d component, this will cover investigation of the social aspects such as human right law, labor standards, code of conduct, health and safety, data privacy, cybersecurity, diversity and equal opportunities for employees.<\/p>\n

Lastly, for the \u201cG\u201d component, this constitutes evaluating the corporate governance framework, risk management systems, internal policies for anti-bribery, anti-corruption and whistleblowing, and the oversight function of the board, among others.<\/p>\n

M&A documentation<\/strong><\/h3>\n

Closely linked with ESG due diligence, it is not uncommon to see ESG representations and warranties, as well as tailored-fit ESG covenants and indemnities in the definitive agreements, as risk-allocation tools. For impact investor-led deals, standard ESG representations and warranties are typically included.<\/p>\n

In some cases, and depending on the parties\u2019 negotiating strength, material adverse effect or material adverse change clauses would also capture scenarios on ESG risks, which, if present, will allow the buyer or investor to walk-away.<\/p>\n

Overall, the approach to ESG as it impacts M&A deals would vary depending on the industry of the target company, heavily influenced by the parties involved, their profiles and culture.<\/p>\n

One size does not fit all, but the approach should ultimately be risk-appropriate.<\/p>\n

 <\/p>\n

Sources:<\/p>\n

https:\/\/www.manilatimes.net\/2024\/03\/29\/business\/top-business\/how-esg-impacts-mas-and-dealmaking\/1938964<\/a><\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-47672","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/47672","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=47672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}