Due Diligence Trends: Silver’s Observations in 2026

Due diligence efforts continue to evolve in private markets. Managers are increasingly expected to assess sustainability risks and opportunities at target investments with the same rigor applied to financial, operational and legal diligence. Two distinct but complementary objectives define how managers approach this work:

• Immediate risk identification: a targeted review of financially material sustainability issues at a company that could affect whether a deal proceeds or how it is structured.

• Medium to long-term value creation: identifying opportunities to improve sustainability practices post-close in ways that reduce costs, mitigate risk, manage increased regulatory pressure, and enhance enterprise value during the holding period.

How these objectives are weighed often depends on investment strategy; fixed income and private credit investors may focus their due diligence efforts on risk identification, while private equity buyout investors may place more emphasis on value creation. At Silver, we recommend ensuring a firm’s approach to sustainability-focused due diligence is aligned with investment strategy, thematic pressures, and deal team needs. This approach results in tailored, succinct outputs that support investment decision-making and post-close company engagement.

Drivers of Enhanced Due Diligence Efforts

Several factors are driving the expansion of sustainability due diligence practices in private markets.

One key theme behind this expansion is the increased pressure to quantify the magnitude of sustainability risks and opportunities. As LPs and GPs mature their sustainability approaches, deal teams and sustainability leaders are being pushed to evaluate these risks and opportunities through the lens of revenue growth, cost reduction, and multiple optimization, in addition to traditional risk mitigation. Due diligence is where these efforts begin, and ensuring that outputs are meaningful and focused on material topics is key to successful sustainability outcomes for any investment.

The regulatory environment is another driver of this shift. Companies may be subject to sustainability disclosure obligations in one or more jurisdictions where they operate. For example, companies with exposure to the European Union must contend with an evolving regulatory landscape, including potential climate risk, supply chain and human capital disclosures (e.g., the Corporate Sustainability Due Diligence Directive and the Corporate Sustainability Reporting Directive), among others. In the United States, California continues to push companies toward climate-related disclosures (e.g., SB 261 and SB 253); other U.S. states are beginning to follow suit, with an expanding patchwork proposed legislation that would require disclosures related to labor, diversity, cybersecurity, and environmental risks. In addition to corporate-level regulation, many managers with obligations under the EU’s Sustainable Finance Disclosure Regulation may have additional diligence requirements, including an assessment of good governance or certain environmental or social characteristics. Other regulatory obligations, such as the manager-level Taskforce on Climate-related Finance Disclosure mandated by the UK FCA, may also drive diligence requirements.

A third driver is increased attention to specific sustainability-related risks by LPs. Limited partners may be required to report to their own stakeholders or regulators on specific sustainability risks, and in turn will expect managers to provide the requisite data from initial investment through exit. In other instances, LPs may require sustainability-focused due diligence to be completed for the investments they are exposed to as a function of their own approach to managing their risk profile.

Finally, emerging thematic risks also have impacted the expansion of sustainability-focused due diligence.  Cybersecurity has become a core component of this assessment. Diligence teams are expected to evaluate a target company’s security posture, incident history, and regulatory exposure – including obligations under rules such as the SEC’s amended Regulation S-P and analogous state and international frameworks – as part of a holistic sustainability review. In addition, exposure to artificial-intelligence risks at both the micro and macro-levels is increasingly a focus of sustainability diligence.

For deal teams, unaddressed sustainability risks, whether environmental liabilities, labor disputes, governance failures, or cybersecurity vulnerabilities, can surface as material liabilities post-close, which may impair fund returns and can lead to reputational harm. Today, a thorough due diligence process must account for these risks, and we anticipate these expectations will continue to grow.

Due Diligence Best Practices: Silver’s Observations in 2026

Effective sustainability-focused due diligence is not a one-size-fits-all exercise. The risks and opportunities that are relevant to a specific investment will vary by industry, geography, business model, deal structure, among other factors. Many managers fall into the trap of one-size-fits-all sustainability diligence, which leads to generic, check-the-box style outputs that have limited utility for deal teams and companies alike.  In our due diligence work, we have identified best practices that support managers to consider these risks:

• Nuanced materiality approach. Managers, and those acting on their behalf, may leverage established frameworks such as the Sustainability Accounting Standards Board (SASB) materiality standards to identify the topics that are most likely to be financially material for target investments. While this is an important step, SASB (and other frameworks) should not be treated as a single source of truth when identifying potential areas of risk. Effective sustainability due diligence requires a customized, nuanced approach to understand the issues that are most likely to be material to a target company.

• Begin sustainability work early. Managers that identify the set of risks and opportunities to be evaluated earlier in the due diligence process may create synergies with other diligence workstreams, such as legal and insurance. Further, this provides an opportunity for management teams to provide details about sustainability topics that would not be available through document review (e.g., future plans to mitigate climate-related risks). Initiating this review later in the investment process may compromise the depth and breadth of sustainability reviews.

• Map regulatory exposure. Managers should review a target company’s geographic footprint, customer base, and supply chain to identify existing and future compliance obligations. Climate-related regulations warrant particular attention: achieving and/or maintaining compliance can be capital intensive, and failure to anticipate those costs can meaningfully affect deal economics.

• Assess cybersecurity risks. Diligence teams should evaluate a target company’s information security program, including its data classification practices, incident response capabilities, and vendor risk management processes. Regulatory exposure – such as obligations under the SEC’s amended Regulation S-P or applicable state privacy laws – should be identified and assessed alongside the company’s current compliance posture. Material gaps or prior incidents warrant close attention, as unresolved cybersecurity risk can translate into post-close liability and reputational harm.

• Develop a forward-looking view. Sustainability risks and opportunities play out over time. A target company that is low risk today may face meaningful headwinds as regulatory requirements tighten, investor expectations evolve, or market dynamics shift. Sustainability-focused due diligence should consider how the company’s risk profile may change over the anticipated holding period and identify opportunities for engagement and post-close action.

In 2026, the case for sustainability-focused due diligence is straightforward: unidentified sustainability risks translate into financial risk. Managers that take a rigorous, deal-specific approach to diligence are often better positioned to understand and address financially material risks prior to investment.

Silver’s Approach

Silver takes a customized approach to sustainability-focused due diligence. No two due diligence engagements are identical, and our process reflects that reality.

We begin by identifying key areas for review, informed by a manager’s priorities, industry frameworks, and our team’s experience and expertise, developed through years of due diligence work across multiple sectors and asset classes.

From there, Silver develops a deal-specific document request list, engages with company representatives where appropriate and practicable, and conducts a thorough review of company documents, third-party information, and reports from other diligence streams. The output is a tailored review of the target company’s sustainability profile paired with actionable recommendations, prioritized by materiality, for the manager to consider. Throughout this process, we partner directly with deal teams to ensure that our approach is aligned with their views on the company and their priority risk areas.

Silver’s due diligence offering is flexible by design. Depending on the needs of the manager and the deal timeline and complexity, we can provide:

• A comprehensive due diligence report covering the target’s full sustainability profile;

• A focused red flag review for deal teams seeking a rapid assessment of the most significant risks; or

• A scoped review, tailored to a particular risk area

In all cases, we seek to identify meaningful recommendations and post-close KPIs that set managers up for post-close sustainability monitoring and engagement activities.

In addition, our cybersecurity due diligence offering draws on our team’s deep familiarity with the SEC’s regulatory framework – – as well as applicable state and international requirements. We work with deal teams to evaluate a target’s security program, identify material vulnerabilities and compliance gaps, and develop prioritized findings that can inform deal structuring, post-close remediation plans, and ongoing risk management. Where warranted, this work can be scoped as a standalone cybersecurity red flag review or integrated into a broader sustainability diligence engagement.

Interested in discussing how Silver can support your firm’s due diligence process? Reach out to Silver’s Sustainability Risk & Strategy Team at [email protected] and our Cyber Team at [email protected].