Philipp Weber
by Philipp Weber
Philipp Weber is a Corporate Partner in FPS’s Frankfurt and Dusseldorf offices and a specialist for M&A, joint venture, private equity and venture capital (cross-border) transactions. Philipp regularly acts for domestic and foreign PE and VC funds, corporations, growth companies and entrepreneurs. Contact Philipp.
The importance of environmental, social and governance principles (ESG) for companies has significantly increased in recent decades. This is due to the growing awareness of society and stakeholders regarding sustainability issues, driven mainly by the noticeable negative effects of climate change. Voluntary initiatives, such as the United Nations Global Compact and the Sustainable Development Goals, and regulatory approaches, like the European Green Deal and the German Supply Chain Act, are setting up new principles, standards, and rules.
These create new obligations and risks for companies and affect areas like governance, reporting, human resources, products and services, and procurement. For example, in January 2020 BlackRock unveiled its commitment to putting sustainability at the heart of its investment process, and in accordance with the Global Sustainable Investment Alliance about 36 percent of all its professionally managed assets currently are “sustainable” investments.
The extent to which ESG factors need to be considered in M&A, private equity, or venture capital transactions depends on their significance to the target, the purchaser and/or the investor. Such ESG considerations can arise from:
Unless solely regulatory issues (e.g. compliance with environmental laws) are concerned, ESG considerations will most likely be interdisciplinary issues that require appropriate coordination between the different due-diligence workstreams (e.g. technical, financial, HR, and/or legal).
Identified ESG issues or risks, depending on their significance, may lead to the transaction being terminated or may need to be addressed in the sale and purchase, investment agreement, or otherwise, for example, as follows:
When addressing these issues by way of warranties, guarantees, or indemnifications, special attention should be paid to the definition of the term “damage” to make sure that a possible negative impact on company valuation or reputation is adequately covered.
In case an investor does not acquire full control over a target, say in the context of a venture capital investment, the ESG aspects relevant to the investor (e.g. information required to fulfil regulatory fund reporting requirements) may need to be addressed in the shareholders’ agreement as follows:
FPS is one of the largest fully independent German law firms, with four offices in Germany. FPS currently employs over 130 lawyers and notaries. One of the firm’s core areas of expertise is national and international litigation as well as dispute resolution.
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