ESG – Environment, Social and Governance
Nowadays, sustainability is a central pillar of any future-oriented corporate strategy and management and is crucial to future commercial success. More and more customers, investors, financial institutions, potential employees and the general public are evaluating commercial undertakings based on their environmental sustainability and the social responsibility of their actions. A company’s response to topics such as climate change, scarcity of resources and human capital, as well as risk and reputation management, are all components of Corporate Governance and simultaneously represent a crucial factor in market competition and the value of the business. Environmental, social and governance factors (ESG) are also becoming increasingly important in legislation and litigation with infringements leading to increased risks for reputation and liability. The experienced lawyers, auditors and tax advisors at Menold Bezler advise across all relevant fields on the multifaceted options and measures available to ensure sustainable corporate management.
Sustainability in Annual Financial Statements and Financial Reporting
Green audits and non-financial reporting require companies to disclose their environmental and social activities. Our auditors provide strategic support and tailored advice in this area, including the definition and implementation of measures. For example, we analyse sustainability concepts within companies, help with the preparation of climate impact reports and carbon footprint calculations. In addition, we review environmental sustainability figures (“Green KPIs”) relating to aspects such as the consumption of energy, water and raw materials, quantity of waste or greenhouse gas emissions. As for social sustainability KPIs, we also review employee development and training investments, among other things. Finally, we help companies to optimise non-financial reporting in business or management reports and to establish transparency by means of accompanying communication.
Sustainability aspects are also playing an ever-greater role for companies in need of financing in the form of green loans and loans featuring one or more sustainability components. For example, the energy efficiency of a building provided as collateral can affect the value of the real estate security and, thus, indirectly determine the interest rate. Sustainability considerations may also be a factor in the grant of development loans. The requirements imposed on borrowers by banks are also increasingly incorporating sustainability performance. This applies both to syndicated loans with green tranches and to bonded loans and corporate bonds.
Corporate Duty of Care in Supply Chain Organisation
Under the German Act on Supply Chain Duties of Care, German companies are responsible for upholding human rights all along their supply chain. This results in significant duties of care, such as the establishment of a risk management system, as well as documentation and reporting duties. From 2023, the law will apply to all companies with more than 3,000 employees; from 2024, it will also apply to those with over 1,000 employees. These duties also indirectly affect smaller companies which are required by the larger companies to comply with the applicable human rights standards and other regulations. Our experienced lawyers are specialised in the drafting and negotiation of purchasing and supply contracts to comply with and ensure fulfilment of the new corporate duties of care.
ESG Due Diligence in M&A-Transactions
In addition to legal, tax and financial due diligence, before any corporate transaction we also perform an ESG-analysis of environmental, social and organisational factors which can have a considerable effect on the valuation and, as such, can have consequences for both the calculation and negotiation of the sales price, as well as other contractual terms. The findings of the ESG due diligence may also have implications for the planning and implementation of subsequent integration measures as well as for the seller, who may be required to resolve any ESG issues identified prior to signing or closing. Our in-depth sectoral knowledge and commercial understanding are especially valuable here since relevant facts and figures for the ESG-analysis vary widely depending on the sector and specific company. This means we are ideally placed to identify and evaluate any potential risks posed by ESG-aspects such as pollution and emissions, workplace safety and human rights or compliance and IT-security. For service providers, for instance, there will be more focus on evaluating the working conditions rather than on environmental protection issues.
ESG in Real Estate Law
The real estate sector has a key role in environmental protection. Of the various ESG-criteria, sustainability is the most relevant for the real estate sector. Embedding Green Lease- and Green Building-Standards in construction contracts and lease agreements, as well as in service agreements such as asset management agreements, has been part of our daily work for many years now. These kinds of rules are no longer the exception, but the norm. Meanwhile, the demands of project developers and portfolio holders in this area have also grown, not least as a result of the EU taxonomy of sustainable activities and investors looking specifically for ESG-compliant real estate. To ensure that ESG-requirements are paid more than just lip service, it is vital that contractual agreements incorporate binding rules on these issues. With our longstanding expertise, we know the things that really matter. Get in touch to find out how we can help you.