[Niklas Heinzelmann]

In the context of current global economic volatility and regulatory complexity, how do you approach the integration of ESG (Environmental, Social, and Governance) criteria into the due diligence process, and what impact do you foresee this having on valuation adjustments and deal structuring in cross-border M&A transactions?

[Gabriel Caser]

Focusing specifically on the “E” in the ESG context, I believe cross-border transactions need to be addressed on a case-by-case basis, as each country has its own pace and specific approach to environmental challenges. For example, Brazil lags behind Europe in carbon market regulation, so emission-related disbursements may appear as a quality risk factor rather than directly impacting the final valuation. On the other hand, in more developed markets, environmental criteria tend to be incorporated into valuation adjustments using traditional tools such as earn-outs, escrow accounts, and representations and warranties, ensuring alignment in the sales and purchase agreement.

[Jennifer Schram]

In the current environment, I don’t see ESG as a separate diligence workstream, it’s increasingly a risk and value lens that cuts across traditional financial, legal, and operational diligence, particularly in cross-border transactions where regulatory asymmetry and enforcement risk are high. During due diligence, the way I’ve seen ESG integrated most effectively is by anchoring it to decision-relevant questions rather than abstract scoring:
– E: What environmental liabilities, transition costs, or capex requirements could realistically crystallize over the hold period, given the direction of regulation rather than today’s baseline?
– S: Where do workforce practices, supply-chain exposure, or community relationships create execution or continuity risk post-close?
– G: How robust are governance, controls, and compliance mechanisms—especially in jurisdictions where regulatory enforcement is uneven or evolving?
The key shift I’m seeing is away from treating ESG as a reputational overlay and toward treating it as a forward-looking risk adjustment, particularly under economic volatility where downside protection matters more than upside optionality. From a valuation and deal-structuring perspective, ESG findings rarely translate cleanly into headline valuation discounts on Day 1. Instead, they tend to show up in: 1) Normalization and cash-flow adjustments (e.g., future compliance costs, remediation capex, or control uplift), 2) Risk-sharing mechanisms such as earn-outs, escrows, indemnities, or contingent pricing tied to regulatory outcomes, 3) Structuring choices, including phased acquisitions, carve-outs, or post-close remediation covenants where ESG gaps are understood but not yet quantifiable. In cross-border deals, regulatory divergence (e.g., EU vs. LATAM or APAC) makes this even more pronounced. Buyers increasingly underwrite not just the current ESG position, but the trajectory risk—how quickly local standards are likely to converge with global norms, and who bears that transition cost. Overall, I see ESG diligence having a growing impact less on headline price negotiation and more on deal architecture and risk allocation. In volatile markets, the ability to clearly separate what is a manageable transition issue versus a true value impairment is becoming a critical differentiator in getting deals done.

[Micah Goldfus]

I think ESG integration is particularly relevant when ESG practices are core parts of company or brand identity and an acquisition may dilute brand value. There are numerous examples out there, but one that comes to mind is L’Oreal’s acquisition of the Body Shop. There was a cultural mismatch both for employees and customers, which led to declining sales. On the other side, it’s worthwhile to consider is an acquired company’s ESG positions may negatively impact the acquirer as well – for example, while Ben and Jerry’s has been an overall financially sound acquisition for Unilever, more outspoken activism has caused Unilever considerable reputational and financial risk.

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