48 minutes | Mar 7, 2020

Due Diligence in Social Impact Deals

“Due Diligence in Social Impact Deals,” a podcast recorded from its panel at the Social Venture Circle Conference, is now available. While due diligence is part of many financings, mergers and acquisitions, joint ventures, and exits, traditional diligence does not evaluate social or environmental impact. Accomplished attorneys, Allen Bromberger, Bromberger Law, and Teresa Pahl, Hanson Bridgett, led the discussion to support impact investors to make clear, confident investment decisions and help social entrepreneurs prepare for this phase of growth.“What is the company doing to generate impact now, and what will it be doing in the future?” asks Bromberger. “Can the company capture this information, and if so, how do they do it? Is there a third-party standard, or are there internal metrics? Who collects and analyses the information? For social entrepreneurs and impact investors, these issues are critical.” Pahl and Bromberger reviewed the process of impact due diligence on a potential investee or, a social venture, for a merger or acquisition. They walked through various tools used:Narratives of Expected Impact, allowing investors to develop an understanding of the types of information that should be collected using impact due-diligence questionnaires and quantitative impact due-diligence toolsESG Diligence Questionnaires, addressing and reporting environmental concerns, from supply chain to climate change; social issues, such as labor laws, and health and safety; and governance factors, like business integrity and transparencyQuantitative Tools, from IRIS (Impact Reporting and Investment Standards) to the integration of the UN Sustainable Development goals—investors select relevant indicators based on strategy and impact themes, using IRIS metrics and SDG subjects Environmental Due Diligence, evaluating environmental permits and licenses, EPA correspondence, disposal methods, environmental liabilities, indemnification obligations, and moreScreening for Impact, collecting impact data, ensuring accountability to a fund’s impact-oriented mission—some create an “impact committee” to minimize the impact risk of the fund’s pipeline and help allocate time and resources“Think of due diligence as the comprehensive investigation for an investment opportunity to assess the risk, return, and impact,” said Pahl. “There are many measurement tools available, so decide which standards and benchmarks you want to measure the impact-related outcomes important to you. These guides create a scorecard to process information and compare investment options. Overall, focus on your impact risk vs. impact return and financial risk vs. financial return.”
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