ESG questionnaires can be useful. They can also make due diligence worse.
That sounds harsh, but the problem is familiar to anyone who has watched a diligence process turn into a document chase. The questionnaire gets longer. The data room gets fuller. The answer pack becomes more impressive. And yet the investment team may end up knowing less about the decisions, pressures and trade-offs that will matter after money goes in.
The danger is not that questionnaires exist. The danger is that they become a substitute for judgement.
In my conversation with Ross Butler on Fund Shack, we talked about the way investors can drown companies in questions while still missing the live risk. You can watch or listen to the full episode on Fund Shack.
More questions can mean less clarity
A questionnaire creates a comforting sense of coverage. If it asks about anti-bribery, whistleblowing, modern slavery, climate, sanctions, data protection, health and safety, diversity, suppliers, governance, training and board oversight, it feels comprehensive.
But comprehensive is not the same as useful.
The longer the list, the easier it becomes for everyone to slip into process mode. Management answers the question asked, often with help from advisers. The investor scores the response. Gaps become action items. The underlying business may remain largely unexamined.
That is how diligence can become theatre: visible activity, weak diagnosis.
The policy wall problem
Many ESG and integrity questionnaires reward the existence of documents.
Do you have a policy? Do you have a code? Do you train employees? Do you require suppliers to comply? Do you have a reporting channel?
Those are reasonable starting points. They are poor finishing points.
A company can have a neat policy suite and still have no practical way to spot fraud, challenge a powerful founder, escalate bad news, manage a risky distributor or understand how commercial pressure changes behaviour.
The more the process depends on written artefacts, the more it favours companies that are good at producing artefacts.
AI can make the noise louder
AI will not automatically solve this. In some cases, it may make the questionnaire problem worse.
It is now easy to generate more questions, longer evidence requests and polished summaries. That may help with administration, but it can also inflate diligence work without improving the underlying risk view.
If the prompt is generic, the output will often be generic. If the workflow rewards completeness, AI can make completeness cheaper. That does not mean the questions are sharper.
The better use of AI is not to produce a longer questionnaire. It is to help identify where the business model, growth plan, geography, incentives and operating model create specific integrity risks worth testing.
Start with the investment thesis
Better diligence starts with the business, not the template.
Ask what the company is trying to do:
- Which markets will it enter?
- Which products, services or sites will scale fastest?
- Which decisions will move away from the founder or central team?
- Which suppliers, distributors, agents or contractors become more important?
- Where will speed, margin or growth targets create pressure?
- What would be hard for the board or investor to see?
Only then should the questionnaire follow.
That order matters. If the template leads, the process asks everything equally. If the investment thesis leads, the process asks what matters most.
Keep the evidence practical
The best evidence is often operational rather than ornamental.
Instead of asking only for the whistleblowing policy, ask what concerns have been raised, how they were triaged, how retaliation risk was managed and what changed afterwards.
Instead of asking only for the supplier code, ask which third parties can win business, move money, influence public officials, handle customer complaints or create safety, labour or environmental exposure.
Instead of asking only for anti-bribery training completion, ask where employees or intermediaries are under pressure to win, accelerate, discount, conceal or improvise.
That kind of evidence is harder to package, but it is usually closer to the truth.
A better questionnaire is shorter after the first pass
This is the test I like: after learning about the company, can we make the questionnaire shorter?
If every company gets the same 500 questions, diligence is probably under-prioritised. If the process can identify the 30 questions that really matter for this company, in this sector, at this stage of growth, with this investment plan, the work becomes more useful.
The aim is not to let companies off lightly. It is to spend effort where it can change the decision, the price, the conditions, the post-investment plan or the board’s attention.
What investors should change
Keep the questionnaire, but demote it.
Use it as a tool, not the method. Let it gather baseline information, then spend the serious time on context, controls and culture:
- Context: what journey is the company about to take?
- Controls: where could the operating model outrun the systems around it?
- Culture: how do people make decisions when targets, pressure or loyalty pull against the formal rule?
That will usually produce fewer questions, better conversations and a clearer view of what needs fixing.
The problem with ESG questionnaires is not that they ask too much. It is that they often ask too much before anyone has worked out what needs asking.
Review note
- Gap filled: NW-012, a podcast-led article on ESG questionnaire overload and diligence quality.
- Closest archive neighbours checked: Box-Ticking & Strategic Risk; 80/20 Principle of Assessments; Dull and Dutiful Due Diligence.
- Why distinct: focuses on investor diligence workflow and AI-generated disclosure volume, rather than a broad critique of ESG.
- Recommended video asset placement: full Fund Shack YouTube recording embedded at the top; replace with a tighter questionnaire-specific clip if one becomes available.