ESG due diligence when selling a business: how to prepare

ESG due diligence when selling a business is the part of the buyer’s investigation that checks your environmental, social and governance risks: fines and enforcement, health and safety, data protection, treatment of staff, supply chain, energy use and carbon emissions. Buyers use it to find liabilities that could cost them money after completion. To prepare, gather three years of compliance and incident records, measure your carbon footprint, write down the policies you already follow, and fix anything a buyer could use to chip the price.

None of this needs a consultant for a typical owner-managed business. It needs a few weeks of organised effort, ideally before you instruct an adviser.

Why do buyers ask ESG questions when you sell a business?

Three reasons come up again and again:

• Private equity buyers report to their own investors. Once they own your business, they will collect ESG data from it every year, often using the EDCI metrics (see our guide to EDCI metrics). They want to know what they are inheriting.
• Trade buyers have reporting duties and customers of their own. Your emissions will become part of theirs, and your suppliers part of their supply chain.
• Lenders and insurers ask too. Acquisition finance and warranty and indemnity insurance both involve their own questions.

Underneath all three is a simple worry: an issue that costs money after completion and was not reflected in the price.

What ESG questions will a buyer ask?

Many private equity firms build their questionnaires from the Invest Europe ESG due diligence questionnaire, designed for use both before investment and during ownership. Invest Europe refreshed its wider GP ESG Due Diligence Guide in 2024. This table summarises the questions in its general section and the evidence that answers them.

Area	What the buyer asks	Evidence that answers it
ESG governance	Who handles ESG day to day? Is ESG on the corporate risk register? What KPIs are reported to the board?	Named owner, risk register extract, ESG report
Environment	Do you have an environmental policy with commitments and targets? Do you monitor and report greenhouse gas emissions? What are your main energy and water sources?	Environmental policy, carbon footprint, energy bills
Compliance	Any environmental permits, breaches or enforcement action in the last three years?	Permit list, correspondence with regulators
Health and safety	Is there a signed H&S policy, risk assessments and incident statistics for three years, including lost days?	H&S policy, accident book summary, risk assessments
People	Formal contracts for all staff? Minimum wage compliance? Grievance process? Anti-discrimination and diversity policies?	Staff handbook, payroll summary, policies
Data	What is your data security policy? Any cyber breaches in the last three years? ISO 27001?	Data protection policy, breach log, Cyber Essentials certificate
Supply chain	Supplier code of conduct? Supply chain risk assessments? Modern slavery?	Supplier checks, modern slavery statement if required
Governance	Board structure, women on the board, anti-bribery and corruption, whistleblowing, gifts policy	Code of conduct, board list, conflicts register

What ESG red flags do buyers look for?

Policies you have not written down are an inconvenience. These are the issues that can change the deal.

Red flag	Why it matters to a buyer	What to do before marketing
Unresolved enforcement or fines	A cost, a reputational issue and possibly a sign of weak controls	Close it out and keep the paper trail
Serious H&S incidents or HSE action	Possible claims, prosecution and insurance cost	Show the investigation, what changed and the current record
Data breaches or no ICO fee paid	Most UK organisations that process personal data must pay the ICO data protection fee	Check your registration, log past breaches and how they were handled
Leased premises below EPC E	Under the Minimum Energy Efficiency Standard, landlords in England and Wales cannot continue to let commercial property rated below E without a registered exemption	Ask your landlord for the EPC rating and check the lease
Larger premises facing tougher rules	The government’s June 2026 interim response proposes EPC B from 2031 for rented buildings over 1,000 square metres, subject to secondary legislation	Know the rating and who pays for upgrades under the lease
Missing modern slavery statement	Required if turnover is £36 million or more	Publish one, or confirm the duty does not apply
Green claims you cannot evidence	“Carbon neutral” or “net zero” without data invites challenge	Remove the claim or back it with figures

The EPC point catches people out. If your business rents a site with a poor rating, the buyer may ask whether the landlord can lawfully renew the lease and who carries the upgrade cost. Smaller buildings stay at the EPC E minimum under the current proposals, so for most small firms this is about checking, not spending.

How does ESG evidence protect the value of your business?

We are not going to quote a percentage uplift, because there is no reliable figure for small UK businesses. What good ESG evidence does is more practical.

• It shortens diligence. Clear answers mean fewer follow-up questions, and a stalled process costs owners momentum and sometimes the deal.
• It reduces price chips. Buyers often adjust the price, or ask for retentions, when they find something late. Issues you disclose and have already fixed are much harder to use in negotiation.
• It narrows warranties and indemnities. Gaps in records tend to be met with broader warranties or specific indemnities in the sale agreement. Good records give your lawyer more to push back with.
• It shows the business runs without you. Written policies and measured figures signal that knowledge is not all in the owner’s head, which matters to every buyer.

A measured carbon footprint helps here too. It turns a vague “we are fairly green” into a figure in tCO2e, split by Scope 1, Scope 2 and Scope 3, with energy in kWh and emissions per employee. A private equity buyer can drop those numbers straight into its own reporting.

A 90-day ESG preparation plan

Start this before you instruct a broker or corporate finance adviser if you can. It runs alongside tidying your accounts.

1. Days 1 to 15: name an owner and set the scope. Pick one person, decide your reporting period (usually your last financial year) and list your sites, vehicles and staff numbers.
2. Days 15 to 30: measure your footprint. Start your ESG Now report. An office business without vehicles usually takes 20 to 30 minutes; one with vans or a workshop takes 30 to 45. Answers save as you go, so you can fetch a bill and come back.
3. Days 30 to 45: pull three years of records. Accident book, lost-time incidents, HSE or council correspondence, breach log, ICO registration, fines and permits.
4. Days 45 to 60: check premises. EPC ratings for every site, lease terms on repairs and improvements, and any landlord correspondence about energy efficiency.
5. Days 60 to 75: close easy gaps. Your ESG Now action plan shows which policies you already have and which are worth adding. A signed environmental policy, code of conduct and H&S policy turn several “no” answers into “yes”.
6. Days 75 to 90: write your ESG summary. One page: your footprint, what is measured and estimated, policies in place, incidents and how they were resolved, and improvements in progress.

How long will yours take?

Pick the option that sounds most like your business. You will see a realistic time, what to have nearby and a head start on the questions.

Which sounds most like you?

Sole trader working from homeConsultants, designers, developers, coaches10 to 15 minSole trader or freelancer in a co-working spaceA desk at a WeWork, Regus or local hub10 to 15 minSmall team in a co-working or serviced officeStartups and agencies with 2 to 25 people15 to 20 minSME with its own office and no vehiclesProfessional services, tech firms, studios20 to 30 minSME with vans, cars or regular staff travelTrades, field services, consultancies on the road30 to 45 minShop, cafe, workshop or product businessRetail, hospitality, makers and manufacturers30 to 45 min

Your estimate

About 30 to 45 minutes

Around 55 to 60 questions, most of them multiple choice

A bit more detail, and a much stronger report.

Vehicles are often the biggest part of a small firm's footprint, so this is where your report gets really useful. Fuel receipts or mileage logs both work, and estimates are fine too.

Handy to have nearby

• Fuel card statements, receipts or rough annual mileage per vehicle
• A recent energy bill for your office or yard
• Your headcount and any training records

Missing something? Estimates are fine, and you can come back to any answer later.

Vehicle emissions are the area grant funders and green lenders most want to see. Having them measured puts you ahead.

Start with this profile

First report free. No card needed.

What goes in the ESG section of the data room?

Keep it organised so a buyer’s adviser can find each item in seconds. A sensible structure:

• Reports: your ESG report and carbon footprint with calculation appendix
• Policies: environmental, H&S, code of conduct, data protection, modern slavery statement if required
• Records: three-year incident summary, enforcement and fines log, breach log, ICO registration
• Premises: EPCs, leases and any landlord correspondence on energy efficiency
• Certifications: Cyber Essentials, ISO standards, B Corp or others you hold

Our ESG data room checklist covers this in more detail. It is written for fundraising, but the structure works just as well for a sale.

What if the buyer sends a very long questionnaire?

Large private equity templates are written for companies with ESG teams. Answer what applies, mark the rest as not applicable with a one-line reason, and add a covering note explaining your size. “We are a 22-person business with one site. Where a question assumes a formal management system, we have described our current practice.” Buyers expect short answers from small companies. What they remember is whether the answers were honest and backed by evidence. Our guide to ESG due diligence questionnaires has example wording for gaps.

Start with the figures

The carbon footprint is the part most owners have never done, and it underpins half the environmental questions. ESG Now uses the GHG Protocol and UK Government conversion factors matched to your reporting period, and labels every figure as measured, estimated or a data gap. It is not independently assured, so describe it as a self-assessed footprint with the method shown.

Your first report is free, with no card needed. Start your report and you will have your footprint, ESG report and action plan ready before the first buyer call. For more support, see the small businesses hub.