Climate Contract Playbook Edition 3
140
Helping raise climate change risks and issues during the initial screening assists in the following ways: • buy-side investors, financial sponsors and underwriters are able to identify climate-related risks (including reputational risks) or legal liability that they may determine to be unacceptable, thus diverting funds to more impactful deals; • ESG screening during the diligence phase ensures that ESG investment metrics and targets are aligned with internal and broader sustainable development standards; • the output from the DDQ will aid consistent and fulsome disclosure of climate change on the Company and its sector; and • uncover material issues that need to be monitored throughout the lifetime of an investment. 1. Borrowers and issuer (particularly borrowers and issuers with limited experience of ‘green’ products or green finance) 2. Underwriters, Buy-side Investors and Financial Sponsors 3. UNEP Finance Initiative and UN Global Compact 4. Investors 5. Policymakers 6. Precedent and Know-How Providers 7. Private Practice Firms 8. Professional Support Lawyers 9. Lenders This Capital Markets DDQ seeks to act as a starting point for such dialogue by providing a framework list of questions that market participants can address at the due diligence stage of the capital markets transaction. The DDQ has been developed to assist financial institutions to understand and evaluate a company’s approach to integrating material environmental factors into their business practices, and to understand where responsibility for doing so lies within its wider business structure. Additionally, the DDQ is aimed at encouraging consistency with existing guidance on sustainable development and climate goals. The due diligence questionnaire integrates existing guidance helping market participants better understand the potential sustainability impact and align with some of the broader UN sustainable development goals. This DDQ is intended to provide a suggested framework for market participants’ climate change due diligence with respect to both equity and debt capital markets transactions. From this baseline, investors, lenders, underwriters and companies are encouraged to tailor a list of questions to suit their broader objectives and their strategy, size, experience and resources. It is not meant to be comprehensive, nor to cover all ESG considerations and is intended to complement, rather than replace, existing due diligence processes. The aim is that uptake of this DDQ will help to streamline industry practices and encourage early discussion of ESG issues by investors, lenders, underwriters and companies. ESG factors and practices will vary depending on the company’s sector, business practices, geographical location, output and other factors, and that parties will require some level of flexibility in following or applying these or any other such considerations. Parties should carefully consider which of the items below are relevant for each company, industry and transaction as some of the questions may not be appropriate in the circumstances. We note that the DDQ may include certain questions that already form part of questionnaires prepared by underwriters, lenders, investors and other participants for use in existing due diligence processes. Please see Lola & Harry’s Questionnaire [Climate Change Due Diligence Questionnaire] for a comprehensive list of more general corporate and M&A transaction climate change due diligence questions.
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