ESG Due Diligence

For years ESG diligence was treated as a reputational hygiene check run late and read by few. That has changed. Environmental liabilities are real numbers that sit on the balance sheet whether or not they have been recorded, transition risk erodes the economics of carbon-intensive assets over exactly the horizon a fund holds them, and a growing share of capital now comes with conditions attached. Limited partners with their own mandates, and lenders pricing sustainability-linked facilities, increasingly make disclosure and performance a condition of backing a deal at all. An exposure that cannot be evidenced is no longer a soft risk; it can narrow the pool of buyers and the availability of debt.

We therefore scope ESG as a commercial workstream, not a scorecard. The question is never whether the target is virtuous; it is whether a specific exposure changes what you should pay, what you must protect against in the agreement, or what you will have to disclose and remediate once you own it. That framing keeps the work distinct from the governance-badge exercises that ESG diligence is sometimes reduced to, and anchors every finding to price, terms and financeability.

The environmental and climate half of the work is where the quantifiable liabilities usually sit. On the environmental side we scope contamination and legacy land use, the cost and obligation to remediate, and compliance with the water, effluent and air-pollution consents that govern Indian sites, where a breach can bring penalties, directions or closure from the pollution control boards. A site that has changed use, or operated for decades without an environmental baseline, can carry a clean-up liability that the accounts never captured and the seller has no incentive to raise.

On climate, the exposure runs two ways. Physical risk asks whether the asset itself, its sites and its supply lines, is vulnerable to water stress, flooding or heat over the hold. Transition risk asks what a rising cost on carbon does to the economics of an emissions-intensive business, and whether plant or reserves become stranded before the investment is realised. For an asset whose model quietly assumes today's energy price, that is not a distant ethical point; it is a direct hit to the return, and one an acquirer should price rather than inherit.

The governance and social side is less about single large numbers and more about durability and financeability. On governance we test board composition and independence, the controls around related-party transactions, and how cleanly ownership is separated from management, precisely because the promoter-led structures common in Indian targets often concentrate decision-making in ways an incoming institutional owner and its lenders will not accept. On the social side we look at labour and contract-labour compliance, occupational health and safety and past incident history, and the human-rights and modern-slavery exposure that runs through tiered supply chains a target has rarely mapped below its first tier. Land, consent and community history complete the picture, because a contested social licence can stall an asset long after the deal closes.

India adds a specific reporting dimension. Business Responsibility and Sustainability Reporting is now a live obligation for the larger listed companies and a fast-approaching one for IPO-track targets, and the gap between what a target discloses and what it could actually assure is itself a diligence finding. We size that readiness gap, read it against the buyer's own reporting obligations, and fold the whole ESG view into the integrated red-flag report so a contamination cost, a governance weakness or a disclosure gap is weighed against the full deal rather than in a silo. Where governance or leadership weakness is the finding, the ESG stream connects directly to the leadership diligence we lead ourselves.