Environmental and Social Due Diligence (ESDD)
An unresolved contamination issue, a gap in operating permits, or a dispute over working conditions can influence an investment decision. Understanding these issues before a transaction gives buyers and lenders a clearer basis for assessing costs, agreeing conditions, and planning improvements.
Our environmental and social due diligence services help investors, financial institutions, and businesses assess companies, industrial facilities, and development projects. Each review is scoped around the transaction, the site’s activities, and the requirements of the parties involved.
What Does Environmental and Social Due Diligence Involve?
Environmental and Social Due Diligence (ESDD) examines a company or project’s environmental and social risks and its capacity to manage them. It draws on available records, site observations, and discussions with management and other relevant stakeholders.
The assessment considers questions that matter to the proposed investment: Are there significant gaps against applicable requirements? Could historical activities have affected the site? Are working conditions and safety arrangements adequately managed? What improvements may be needed, and which should take priority?
The ESDD report brings these findings together, explaining their significance and identifying any uncertainties that require further investigation.
When Is an ESDD Assessment Needed?
The reason for commissioning an assessment shapes its scope.
In a merger or acquisition, a buyer may need to understand the target company’s environmental liabilities, operational risks, and potential expenditure on corrective measures.
For project finance or refinancing, the review may focus on gaps against a lender’s environmental and social requirements and the actions needed to address them.
In an industrial property transaction, historical land use and possible soil or groundwater contamination may require closer attention. Investment funds may also commission ESDD to establish priorities for managing environmental and social risks after acquisition.
What We Review
An operating manufacturing plant presents different issues from a proposed energy project or an undeveloped site. We therefore define the review around the activities, location, and risks of the asset.
Environmental Conditions and Practices
The environmental review may cover permits and approvals, air emissions, wastewater discharges, waste handling, hazardous materials, and water and energy use. It also considers evidence of historical contamination and the need for additional site investigation.
Biodiversity, resource availability, and climate-related risks are included where relevant to the project and the assessment requirements.
Workers and Communities
The social review examines working conditions, employment practices, workers’ rights, occupational health and safety, and contractor arrangements. Depending on the project, it may also address community health and safety, land acquisition, impacts on livelihoods, cultural heritage, and risks affecting vulnerable groups.
Stakeholder engagement and grievance mechanisms are reviewed to understand how concerns are raised, recorded, and addressed.
Management Capacity
Policies are one part of the assessment. We also examine how responsibilities are assigned, whether staff have the resources to carry them out, and how the business monitors performance and follows up on corrective actions.
Applicable Standards and Requirements
The reference framework is agreed at the start of the assignment. It takes account of applicable national requirements, financing conditions, and the standards relevant to the transaction.
IFC Performance Standards
The IFC Performance Standards on Environmental and Social Sustainability are a reference for assessing environmental and social risks in private sector investments.
They cover eight areas: risk and impact management; labor and working conditions; resource efficiency and pollution prevention; community health, safety, and security; land acquisition and involuntary resettlement; biodiversity and living natural resources; Indigenous Peoples; and cultural heritage.
Where these standards apply, the ESDD review identifies gaps and the measures needed to address them. The relevance of each standard is assessed against the circumstances of the project. IFC Performance Standards
EBRD Environmental and Social Requirements
For transactions involving EBRD financing, the review considers the requirements applicable to the project. The EBRD Environmental and Social Policy 2024 includes the Environmental and Social Requirements (ESRs).
The assessment confirms which policy version and requirements govern the project by reference to its financing documentation. EBRD Environmental and Social Policy
World Bank Group EHS Guidelines
The World Bank Group Environmental, Health, and Safety Guidelines provide technical references for Good International Industry Practice.
The General EHS Guidelines and relevant industry-sector guidelines support the review of issues such as emissions, wastewater, hazardous materials, occupational health and safety, and community safety. Their application takes account of the project’s hazards, risks, and local conditions. World Bank Group EHS Guidelines
Equator Principles
Where financing falls within the scope of the Equator Principles (EP4) and involves a participating financial institution, the review is scoped to reflect the relevant assessment, independent review, and action-planning requirements. Equator Principles
ASTM Environmental Site Assessment Standards
Where a transaction requires a specific review of site conditions, ASTM E1527-21 provides a reference for Phase I Environmental Site Assessments. This work includes records review, historical research, interviews, and site reconnaissance.
If the assessment identifies a need to investigate potential contamination, a Phase II assessment may involve targeted sampling and laboratory analysis. ASTM E1903-19 provides a reference for this process.
Phase I and Phase II assessments address environmental site conditions. They may form part of a wider ESDD assignment, whose scope also includes social issues and management practices. ASTM E1527-21, ASTM E1903-19
How the Assessment Is Carried Out
We begin by agreeing the purpose of the review, the assets included, the reference requirements, and the reporting deadline. This helps focus the work on the questions the client needs answered.
The document review establishes an initial picture of the business and highlights missing information. Where included in the scope, site visits and interviews allow us to examine operating practices and follow up on issues identified in the records.
Findings are then assessed against the agreed requirements. The report distinguishes significant risks, gaps requiring corrective action, and matters that remain uncertain because further information or investigation is needed.
What You Receive | Deliverables
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Frequently Asked Questions
How does ESDD differ from environmental due diligence?
Environmental due diligence focuses on environmental conditions and associated risks. ESDD also considers social issues, such as labor practices, community impacts, and stakeholder engagement, together with the systems used to manage them.
Will soil and groundwater testing be required?
Testing depends on the site history, the findings of the initial review, and the purpose of the assessment. Where there is a reason to investigate potential contamination, the scope of sampling and analysis is defined around the questions that need to be answered.
How long does an ESDD assessment take?
Timing depends on the number of sites, the complexity of the operations, access to documents and personnel, and any specialist investigations. The reporting programme is agreed when the scope is defined.
What determines the cost?
The main factors are the number and location of facilities, the depth of review, site visit requirements, specialist input, and the lender’s reporting expectations. A proposal can be prepared once these requirements are understood.
Discuss Your ESDD Requirements
If you are assessing an acquisition, arranging project finance, or reviewing an investment, send us a brief description of the asset, its location, and your expected transaction timetable.
We can then define the scope of the assessment, identify the information needed, and prepare a proposal.
