Due Diligence: Operations, Governance & Strategy

Financial success and sustainability are not mutually exclusive, and due diligence considerations can help organisations assess financial risks and opportunities associated with their operations. From tax to corruption, due diligence policies have widespread implications for corporate behaviour, putting pressure on companies to align their strategies accordingly.

The brief...

In this blog post, we explore the relationship between due diligence and sustainability reporting, the importance of stakeholder engagement in the process, and how it all ties into enterprise risk management. We also look at what kind of impact new global policies could have on businesses and why they need to remain up-to-date with developments in the field.

What is due diligence?

First things first - what is due diligence? In short, it is a way of assessing potential risks or opportunities attached to a certain action or investment decision. It involves understanding all the details related to a company's operations – from its supply chain impacts to its operations and corporate governance systems – before making any strategic move. This process is especially valuable when launching new products or services that come with significant environmental or social liabilities.

The four fundamental aspects of Due Diligence

Due diligence and Sustainability

The connection between due diligence and sustainability reporting is clear: disclosures need to cover as many areas as possible so that investors can make informed decisions. As part of this process, companies should be aware of international expectations set by authoritative instruments including OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights (UNGPs). GRI Universal Standards are designed exactly for these purposes - they help identify materiality assessment impacts throughout value chains while enabling levels of transparency around corporate performance metrics.

Due diligence and Risk Management

Due diligence considerations can further provide input into an organisations enterprise risk management system as well as promote investor confidence in a company’s financial health by recognising potential threats associated with undervalued stakeholders' interests early on. Doing so requires meaningful stakeholder engagement - input from those closest to a company's business activities needs to be made public in order for meaningful analysis to be conducted. Furthermore, tracing raw materials used in production back through the supply chain allows for proper assessment of potential risks related to undervalued stakeholders' interests.

Due diligence and Business Operations

Due diligence is an integral component of any business operation. To give you a start, here are 10 ways a company could incorporate due diligence into their operations:

1. Establishing and following trade policies and procedures.
2. Reviewing all agreements to recognise and maintain confidentiality.
3. Examining the company's capitalisation, revenue, margin trends, competitors, and industries.
4. Analysing valuation multiples for potential investments or acquisitions.
5. Comparing each competitor's strengths and weaknesses in terms of products, costs, and earnings.
6. Identifying key information from future partners before entering into any agreement with them.
7. Carefully examining all financial information before making a purchase or investment decision.
8. Verifying the business structure and operations of a potential acquisition target or partner company.
9. Investigating the assets, liabilities, contracts, benefits, and potential problems of a company before investing in it or entering into any agreement with it.
10. Creating due diligence reports that include organisation information, financials, intellectual property details, employee records, tax records etc., to ensure that all relevant data is taken into account when making decisions about investments or acquisitions.

In conclusion

There are already a growing number of national laws requiring greater accountability from corporations regarding their environmental and social impacts – trends that will only increase over time as global policies become more stringent in this regard.

Companies will need to stay alert regarding emerging standards around the world if they are going to remain compliant with international expectations while achieving business goals at the same time. Being able to accurately assess both financial risks and opportunities tied to due diligence considerations is key here - sustainable profitability lies within reach if organisations learn how use due diligence properly.

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