Addressing ESG Issues in Cross-Border M&A Transactions－The Expanded Role of Legal Counsel－

The attention paid by companies around the world to environmental, social and governance (“ESG”) issues in their corporate management has increased significantly in recent years, driven among other things by heightened demand for such attention from shareholders, employees, customers and other stakeholders, as well as regulators. The growing need for companies to consider ESG factors in their management extends to M&A transactions in which they may become involved. Concerns regarding ESG issues are likely to be particularly acute in the cross-border M&A context, where a company is acquiring an overseas target company that may be subject to a different set of ESG standards and practices. In light of the foregoing, legal counsel advising acquirors in cross-border M&A transactions (whether as outside deal counsel or as in-house counsel) will be required to play an expanded role by being familiar with ESG concepts and capable of dealing with ESG matters. Accordingly, this paper seeks to (i) review the main components of the current international ESG landscape and (ii) explore the practical role that legal counsel can play in identifying and addressing ESG issues in the context of cross-border M&A deals. Among other things, legal counsel will need to monitor trends and developments in international ESG-related disclosure standards and in specific laws and regulations of key jurisdictions pertaining to sustainability disclosure and sustainable corporate governance. Legal counsel will also need to understand the principal areas of ESG risk faced by acquirors generally in cross-border M&A transactions, as well as coordinate closely with the acquiror client in a particular transaction to know the client’s key ESG-related interests and concerns with respect to the transaction. Based on such monitoring, understanding and knowledge, legal counsel (working together with their clients and local counsel) should be able to effectively advise their acquiror clients in identifying and addressing ESG risks and issues in cross-border M&A deals, including through legal due diligence of target companies and ESG-related contractual provisions in transaction agreements.