What is ESG due diligence?
ESG due diligence examines environmental, social and governance issues relevant to an investment, acquisition or business relationship. It brings together information about the organization, its activities, existing controls and potential concerns so decision-makers can assess the implications and agree on appropriate follow-up.
It is more than confirming a company’s positive claims. The work may uncover missing evidence, adverse impacts, operational exposure, weaknesses in implementation or opportunities to improve the business. The scope depends on the transaction and the context.
A questionnaire is useful for collecting information, but the review also needs to examine the supporting evidence. ILPA’s investor due diligence resources illustrate the role of structured ESG questions in investment decision-making. A fund-manager questionnaire and an operating-company review serve different purposes and should not be used interchangeably without adaptation.
This guide explains the collection and review workflow, including how AI can assist with documents while keeping assessment and investment decisions with the appropriate people.
Define what is being reviewed
Start with the entity, activities, locations, transaction and decision. A review of a fund manager is not the same as an assessment of a manufacturing facility. A company-level policy may not tell you how each site operates.
Agree on who owns the overall diligence process and which questions require specialist review. Record the time period and the evidence available before setting expectations about the conclusions the team can support.
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| Scope question | What to record |
|---|---|
| Which entity or relationship? | The company, fund, investment or supplier and its relevant boundaries |
| Which activities and locations? | The sites, operations and relationships in scope |
| Which decision? | The transaction or review the evidence will inform |
| Which criteria? | The applicable internal method and professional or legal requirements |
| Who reviews? | Responsibilities for collection, assessment, approval and follow-up |
Formal obligations depend on the relevant jurisdiction and circumstances. A general evidence guide should not be treated as a complete legal checklist or assurance standard.
A practical ESG due diligence question set
The questions below are planning examples. Adapt them to the activity and use the appropriate sector expertise rather than requesting the same documents from every organization.
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| Area | Question | Possible supporting evidence |
|---|---|---|
| Environmental operations | Which environmental issues are significant for these activities? | Relevant measurements, assessments, permits and management records |
| Workforce | How are workplace conditions, concerns and corrective actions reviewed? | Policies, appropriate operational evidence and protected worker input |
| Community relationships | How are affected communities engaged and concerns addressed? | Engagement records, issues raised and response evidence |
| Business relationships | How are relevant supplier and partner risks identified and followed up? | Scope maps, assessments, findings and action records |
| Governance | Who owns important decisions, controls and exceptions? | Decision rights, approvals, relevant policies and review findings |
| Implementation | What evidence shows the stated practices are used? | Current records, samples, assessments and unresolved exceptions |
A policy answer establishes what the organization says its policy is. Implementation needs additional evidence. Equally, the absence of a document in the current data room does not automatically establish the absence of the practice.
Keep answers and documents connected
For each question, retain the response, supporting files, source date, relevant scope and review status. If a document applies to only one site or an earlier period, make that visible.
Record versions rather than overwriting the file that supported the original review. A changed policy or corrected figure may affect several findings. The team needs to know which conclusions should be revisited.
Keep unavailable evidence distinct from reviewed evidence. An unreadable scan, missing appendix or inaccessible attachment should not result in a completed review status merely because a file was uploaded.
Documents are not the only source. Interviews, inspections, operational data and appropriately protected stakeholder engagement may be needed. The OECD’s responsible business conduct guidance treats due diligence as an ongoing process concerned with adverse impacts, rather than a document-collection exercise alone.
A worked example: the policy is current, but the coverage is unclear
This fictional example illustrates a diligence review. It is not a customer case or a compliance finding.
A company answers that all operating sites follow a training requirement. It uploads a current policy and attendance records for two of its three sites. The third site appears in the corporate overview but not in the attendance files.
A useful review produces a precise gap: “The supplied records cover Sites A and B. Evidence for Site C has not been provided for this period.” It should not claim that Site C failed to train staff unless the evidence supports that conclusion.
The reviewer asks a targeted follow-up. The company supplies a separate record, which is checked against the scope and period. The review history retains the original gap and the basis for the updated conclusion.
If the new file remains incomplete, the memo should say so. A clear unresolved question is more useful than an unsupported green or red score.
Write findings that another reviewer can inspect
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| Finding element | Example content |
|---|---|
| Question and criterion | What the team was assessing and under which definition |
| Source and scope | The document, passage or record, with date and coverage |
| Observation | What the evidence actually says or shows |
| Interpretation | The reviewer’s conclusion and reasoning |
| Uncertainty | What remains missing, conflicting or unverified |
| Action | The clarification, specialist review or follow-up required |
Separate reported allegations from established findings. Protect sensitive sources and avoid distributing identifiable worker or community information when a restricted review or aggregate summary is sufficient.
A source citation lets a reviewer check the basis. It does not independently verify the source or guarantee that the interpretation is correct.
How AI can assist ESG due diligence
AI-assisted document review can help locate relevant passages, organize responses by criterion, compare statements across files and prepare a list of evidence gaps. These tasks can reduce the time spent searching and copying information.
The method still needs clear definitions. “Has a policy,” “has evidence of implementation” and “has an independently assessed effective practice” are different categories. If they are collapsed into one label, a fast analysis can still produce a misleading memo.
Test the process with contradictory documents, outdated versions, scanned pages and a claim whose evidence is genuinely missing. Reviewers should be able to correct the proposed finding and preserve their reasoning.
Do not promise that AI flags every unsupported claim or detects every relevant risk. Make processing coverage, unread files and review status visible. Keep legal conclusions, materiality judgments and transaction decisions with qualified people.
The AI document analysis guide covers the source-review workflow. For repeated text coding and connected numeric evidence, see qualitative and quantitative analysis.
Prepare a memo that supports a decision
A practical memo states the review scope, important findings, evidence quality, unresolved questions and recommended next steps. Distinguish a confirmed observation from an estimate, a management statement and a requested clarification.
For each important issue, identify the owner and the decision required. A proposed condition or action belongs to the appropriate transaction and governance process; software should not silently turn it into an approved obligation.
A summary score can be useful within a defined method, but it should not hide a serious unresolved issue. Preserve the evidence and reasoning beneath the summary so another reviewer can understand how it was reached.
Carry the findings into post-investment monitoring
After the transaction, the team should not have to reconstruct the rationale from a folder of old attachments. Retain the approved findings, unresolved questions, commitments and follow-up dates with the relevant company or investment.
Define what should be updated and what can remain as stable context. A later return may need new operating evidence without requiring the company to repeat every registration detail.
Keep organizational identity separate from investments, sites and periods where needed. One company may have several activities or agreements. A stable company identifier alone does not make every figure comparable.
Continue with ESG portfolio management and portfolio monitoring software for the recurring review process.
Evaluate the whole workflow, not a checkbox-versus-AI claim
ESG and diligence platforms vary. Some already provide document analysis, workflows and source trails. It is not accurate to say that every questionnaire tool merely files attachments or archives the record permanently at close.
Sopact’s relevant approach connects data collection, contextual records, analysis and governed review. Evaluate whether it reduces the work your team currently repeats across documents and spreadsheets while preserving the assessment controls you need.
- Can the reviewer move from an answer to the relevant source and scope?
- Can the team distinguish missing evidence from a negative finding?
- Can changed criteria and revised files trigger an identifiable review?
- Can sensitive information stay restricted in shared summaries?
- Can approved findings carry into the next monitoring period?
- Can ordinary staff maintain the process without rebuilding it each cycle?
Measure preparation, document review, clarification, reconciliation, quality checks and ongoing administration. A reduction in manual searching is useful; it does not eliminate specialist assessment or independent assurance where required.
Build the evidence process before the next deal
The portfolio evidence course helps structure recurring collection and review. For a positive-impact thesis, use the distinct questions in impact investing due diligence. Managing ESG issues and establishing an intended impact case overlap, but they are not the same task.
Watch: connect diligence and portfolio evidence
This video explains a portfolio reporting workflow across sources. It supports the handoff discussion and does not replace legal review, specialist assessment or assurance.
Frequently asked questions
Is ESG due diligence only a pre-investment check?
It often informs an investment or transaction, but findings and commitments should feed ongoing monitoring and relevant due diligence processes. Preserve the handoff rather than treating the review as an isolated file.
Does having a policy establish implementation?
No. A policy documents a stated approach. Assess appropriate evidence of how it is used in the activities and locations under review.
Does missing evidence mean a company failed the requirement?
Not automatically. Record the gap and seek appropriate clarification. An absence in the supplied files is different from a confirmed absence of the practice.
Can AI perform the complete ESG review?
AI can assist with document organization, extraction and review preparation. Qualified people remain responsible for consequential interpretation, legal judgments and investment decisions.
How is impact due diligence different?
Impact due diligence examines the intended positive social or environmental contribution and the evidence and risks around that thesis. ESG diligence examines relevant environmental, social and governance issues in the investment or relationship.
Choose your next step
American Heart Association Ventures
Explore portfolio evidence in practice. This story does not certify an ESG diligence method or establish compliance.
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