Mergers & Acquisitions 2022 Annual Review

2022 M&A ANNUAL REVIEW ESG Due Diligence. Increasingly, buyers are conducting ESG diligence as part of their standard diligence process, with tailored focuses depending on the acquirors’ ESG priorities and reporting and compliance requirements, as well as target companies’ nature of business and value propositions. ESG-Specific Deal Terms. In the M&A context, many ESG issues overlap with and are captured generally by the broad representations and warranties traditionally included in M&A transaction documents. However, representations and protective provisions are increasingly added or expanded to address specific ESG issues that could result in significant litigation, regulatory, or reputational risks. For example, compliance with laws and data privacy representations may be expanded to cover industry standards, best practices, or other soft laws, or specific representations may be included on sexual harassment or forced labor where such issue might be prevalent in the jurisdictions where the target operates. Buyers also may request representations regarding current compliance, and covenants to take steps to enable compliance after the acquisition, with the increasing ESG disclosure requirements, as noted above, as well as covenants to take steps toward meeting specific ESG metrics to reduce negative impacts or increase positive impacts (or both). ESG-Linked Acquisition Financings. For M&A transactions that rely on debt financings, ESG factors may also come into play, as acquirors may tap into sustainable financing products that reward positive ESG metrics with lower cost of capital. For example, in August 2022, the Carlyle Group launched a decarbonization-linked financing program under which borrowers will receive a pricing benefit based on the achievement of decarbonization targets or other climate-related metrics. 18 For more information regarding the CSRD, please see our client alert, Corporate Sustainability: EU to Expand ESG-Related Reporting Obligations. Increasingly, acquirors are conducting ESG diligence as part of their standard diligence process, with tailored focuses depending on the acquirors’ ESG priorities and reporting and compliance requirements, as well as target companies’ nature of business and value propositions. For more ESG content resources, you can view MoFo’s GCs and ESG: Inaugural Benchmarking Survey , Asia Funds ESG report, or listen to previous episodes of ESG Influencers – Leading Transformative Change , our monthly conversation series.