This edition of JSA Live features Gaurav G. Arora talking about the ESG Trends in M&A Transactions in India.
Transcript:
In recent years, Environmental, Social, and Governance Law issues have become a significant area of interest for businesses, governments, and individuals around the world – so much so that it has found its way into our day-to-day commercial lingo.
The corporations around the world have embraced the idea that businesses should be measured not just on traditional metrics such as economic shareholder return, but also by their environmental impact, commitment to social issues and the soundness of their corporate governance policies.
WELL! India is no exception to this trend!
The evolution of ESG laws is still at an early stage in India, where the focus is often on providing protections regarding the environment or workplace conditions rather than on disclosures or controls which is a hallmark of ESG regime. It is only recently that the Securities Exchange Board of India came up with mandatory ESG disclosure requirements for the top 1000 listed companies.
As more and more corporations come forward to incorporate ESG norms to create future value, ESG considerations have become a key tick box item while considering potential M&A transactions. This inclination is only predicted to increase over the next few years.
ESG and due diligence
In the recent times, we have observed that in several global acquisitions involving an India leg, there is a heavy focus on ESG related compliances during the due diligence stage. This includes aspects such as decision-making process within the board; incentive schemes for employees; disclosure and reporting obligations; supplier onboarding policy; compliance with anti-corruption regulations, etc.
ESG and transaction documents
Typically, representations and warranties included in any M&A transaction primarily seek to cover standard matters such as regulatory, legal, and environmental compliance. In the recent trends we see buyers pushing for ESG-focused representations and warranties – on matters such as climate change when manufacturing facilities form the primary asset, compliance with ISO standards, etc.
With investor activism at its peak and as the economy becomes volatile, only organisations that create shareholder value through holistic approach towards ESG are likely to do well.
Gaurav’s practice covers mergers & acquisitions, private equity, corporate structuring and restructuring, and general corporate commercial matters (including data privacy and white-collar crime investigations).