Five Key Benefits of a Local Perspective During International Environmental and Social Due Diligence

The international environmental and social due diligence (ESDD) process can be challenging for even the most seasoned professionals, particularly in Asia Pacific (APAC). The location is unfamiliar, the risk profile is unclear, and challenges are amplified by complex regulatory landscapes, diverse cultural context, language barriers, and varying levels of market maturity. Collaborating with a local partner is an effective strategy to mitigate risks and navigate uncertainties. The selection of an appropriate partner is a critical component of a successful due diligence process.  

Many multinational firms offer environmental due diligence services, and these experts offer different kinds of assessments in many countries around the world. Although their geographical coverage is vast, many of these firms lack a key ingredient to success: a true, genuine local perspective. This article highlights how a local perspective can help provide unique insight for the environmental and social due diligence process in mergers and acquisitions.

Why Local Expertise Matters in Environmental and Social Due Diligence (ESDD):

1. Knowledge of Local History and Market Insights

An EHS consultant with a local perspective will understand the specific historical circumstances surrounding an identified issue, and their team of specialists will turn the typical “snapshot” of the due diligence process into a complex analysis. Local businesses understand the history of the country, the reputation of the different stakeholders, and the previous history of the acquisition target in an intimate way.

Besides acting as a historical reference, local consultants can also use their historical knowledge to contribute to the implementation of the diligence process in several ways. They can help identify possible issues which are not clearly apparent, like tensions between different groups of stakeholders. They can suggest areas to focus the process more effectively by considering what other issues have come up in past investigations. They can help identify priorities for compliance actions based on their relationship with and understanding of local regulators. This historical knowledge, when combined with their company’s technical expertise, offers unique value and insight to due diligence professionals that will help ensure a more accurate and successful examination of the target.

In APAC, historical circumstances can significantly impact business operations and stakeholder relations.  Local consultants possess a deep understanding of the nuances surrounding past political events and economic shifts. Countries like Japan and South Korea have long industrial histories, while emerging markets like Vietnam and Indonesia have undergone rapid economic transformation. These dynamics create unique challenges and opportunities that local consultants are well-equipped to navigate.

Local consultants have intimate knowledge of the country's history, the reputation of various stakeholders, and the acquisition target's previous history.
 

2. Appropriate Mindset and Operating Experience

A local consultant offers unique insights into regional challenges, unlike foreign professionals working remotely. A potential risk identified while due diligence will be analyzed using a broad understanding of the impact on the client, the local risk profile, the regulatory environment, and the operational challenges present in the region. The due diligence exercise will incorporate many of the unique insights that can be gained only by working locally in the region, which provides significant value to clients, especially those operating in parts of the world where they’re unfamiliar.

In Asia Pacific, this is vital due to the diversity of business practices, regulatory standards and cultural norms across different countries.  For example, due diligence in Australia might focus on strict environmental compliance, while in developing economies, risks could stem from inconsistent regulatory enforcement or informal practices that may pose reputational risks. 

3. Cultural, Social and Language Proficiency

Cultural, social, and language barriers can significantly impact successful completion of due diligence.  Some countries cultures prioritize relationship-building and trust, such as Thailand and Malaysia; while others such as Japan emphasize consensus-driven decision-making. Understanding these nuances is crucial to ensure a communications and management approach will be well received.

Understanding of the social context provided by the local partner can support and guide a foreign investor to successfully complete the due diligence. This can include recognizing the importance of community engagement in regions where local communities strongly influence environmental and business decisions, such as parts of India, Indonesia, or the Philippines. Local consultants can gather complex social intelligence and assess factors like community sentiment, labour dynamics, and local stakeholder priorities.

Language barriers are a frequent challenge, with documents available only in local languages and critical discussions requiring interpretation. Without skilled local partners who are fluent in both technical and conversational language, foreign professionals risk missing important details or encountering miscommunication.

4. Practicalities around Regulatory Climate

Qualified local consultants intimately understand the regulatory climate of their countries. They understand which current regulations are most important, the intent behind those regulations, and how the regulations are enforced in practice. Some regulators take a very strict stance on certain issues and a more collaborative approach on others. This insight requires a long history of operational experience in-country and cannot be effectively gained by foreign personnel who are visiting only for a short-term project. A proper risk analysis also considers potential future changes to the regulatory climate, and local experts are best positioned to offer this kind of advice. 

APAC’s regulatory landscape is both dynamic and fragmented, presenting a complex environment for businesses. Some countries, like Singapore, offer transparent and predictable regulatory frameworks, making it easier to navigate compliance requirements. Other countries are growing in maturity, reflecting updates in regulations and evolving requirements for compliance.  Concurrently, APAC is influenced by other countries' regulatory requirements as well as global trends in best practices. 

Local EHS consultants play a crucial role in this environment. They offer guidance on current rules and anticipate changes, helping businesses remain compliant and strategic. Their deep understanding of local regulations and ability to foresee regulatory shifts are invaluable.

5. More Effective Post-Transaction Support and Services

After the due diligence process is completed, local partners continue to support in a crucial role. Post-transaction integration  requires careful consideration of cultural, operational, and linguistic factors. Maintaining business continuity after a merger or acquisition is particularly challenging in a foreign country. A misalignment of expectations around working hours and methods, cultural practices, compensation, or other relevant issues can damage a company. New employees must be onboarded into the acquirer’s business using a method that creates buy-in and a feeling of ownership. All of these services are done more effectively by partnering with an effective local partner who understands the history, culture, and politics of the country.
 

Local partners assist in implementing integration strategies, managing cultural differences, and ensuring compliance with local regulations. This support is essential for achieving a seamless transition and long-term success in the new market.

Looking for support with an international merger or acquisition? Check out our global network of over 6,000 local experts on the ground who can support you in Environmental and Social Due Diligence Services!

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