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Due diligence can be a legal obligation, but the term more commonly applies to voluntary investigations. It may also offer a defence against legal action. A common example of due diligence is the process through which a potential acquirer evaluates a target company or its assets in advance of a merger or acquisition. [1]
This due diligence should investigate the other party's management team. Many mergers and acquisitions fail because of human resources and management-related issues, such as cultural clashes. These incidents occur because of different cultural values or different individual beliefs. [ 9 ]
Businesses must carry out due diligence to ensure the products do not come from land that was deforested after 31 December 2020. [4] This includes collecting the geographic coordinates of the plots of land where the commodities were produced. [5] Commodity production must also comply with the laws in the country where they were produced. [4]
Due diligence is the amount of diligence required to avoid negligence in professional activities. It commonly arises in major acquisitions where the legal principle of caveat emptor ("let the buyer beware") requires the purchaser to make diligent inquiries about the property or service being sold.
The Standard allows some discretion for each national authority to determine the due diligence approach, but only within minimum standards determined by the OECD: "The term "reportable account" means a [Jurisdiction A] reportable account or a [Jurisdiction B] reportable account, depending on the context, provided it has been identified as such ...
The Corporate Sustainability Due Diligence Directive 2024 (2024/1760) is a directive in European Union (EU) law to require due diligence for companies to prevent adverse human rights and environmental impacts in the company's own operations and across their value chains. [1] It was adopted in 2024. [5]
The reporting entity must undertake this identification process before it provides the customer with a designated service, or as soon as practicable afterwards. A reporting entity must implement additional due diligence measures and risk management systems where the PEP is high money laundering or terrorism financing risk, or is a foreign PEP.
Specifically, the proposed Corporate Sustainability Due Diligence Directive will cover the same measures as the German Supply Chain Act and is built to level the playing field for ESG initiatives and the people throughout the supply chain.