Why corporate social responsibility is now part of due diligence – by Drew Hasselback (National Post – July 29, 2015)

The National Post is Canada’s second largest national paper.

The rising potential of human rights cases and securities class actions, along with some new Canadian government regulations, show that if a company pays lip service to corporate social responsibility, it does so at its peril.

Indeed, lawyers tell me it’s becoming standard for them to include a review of a target company’s public statements on CSR when they conduct their pre-transaction due diligence.

Digest that thought for a moment. Grandiose statements on CSR that might have once been dismissed as mere public relations fluff are now becoming red flags that could threaten pending M&A deals.

Due diligence traditionally focuses on flagging the legal risks that might emerge from a company’s contracts or financial obligations. A target company might express support for a set of voluntary third-party CSR protocols, but not give them much legal weight because they’re not binding contracts or laws enforced by a government.

Yet signing on to these statements brings with it legal risk. A buyer will want to know whether a target company has lived up to its CSR commitments.

Why buy a company that could carry with it the risk of a human-rights related lawsuit?

“Increasingly, there’s added value for lawyers to be able to spot those things while they’re doing traditional legal due diligence,” says Michael Torrance, an associate with Norton Rose Fulbright Canada LLP.

The importance of CSR for mining companies has changed rapidly. The government of Canada last year announced an “enhanced” CSR strategy that threatens to cut off diplomatic support to Canadian companies with operations overseas who fail to comply with some recognized international standards.

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