In Corporate M&A and Private Equity Transactions, a Firm’s ESG Profile Is in Sharper Focus

In conversations with corporate clients we often point out three important factors driving their sustainability journey: (1) the steady increase in investor interest in corporate ESG performance; (2) internal stakeholders pressuring their employer to start or enhance the journey, and (3) competitive forces as peer companies in their respective industries or sectors enhance their ESG efforts.

Here’s another force for corporate boards and C-suites to now consider: in this year’s Deloitte survey of corporate leaders and M&A leaders examining key trends in M&A and private equity (PE), ESG is in sharper focus. In the introduction, Deloitte states:

“Across the deal life cycle, better data, improved measurement, and deeper understanding of ESG are key factors shaping dealmaking for M&A leaders. The results of our 2024 ESG in M&A trends survey show a bold embrace of the role of ESG in M&A strategies that seize opportunity and create additional value.”

According to the findings of Deloitte’s survey, which is our Top Story below, corporate and private equity (PE) leaders have a growing appreciation for the ways that ESG factors can drive value.

The annual survey that began in 2022 is supervised by Sarah Corrigan, Managing Director of MYA and Restructuring Services, and Brian Lightle, Deloitte Partner overseeing M&A Transaction Services. Highlights of the 2024 survey include:

• The growing proliferation of accurate, reliable, comparable ESG data, and more comprehensive ways of parsing the data, is helping in assessing valuations, portfolio management, and strategic targeting in M&A practices.
• Being able to have more confidence in ESG profiles and better understanding of the acquirer’s own ESG profile can provide more confidence in the transaction being considered. (From the first survey conducted in 2022 to the 2024 results, survey respondents reported now have a “very high” or “high” confidence, moving to a 91 percent level in 2024.)
• While the consideration of ESG factors in transactions is low (the percentage of M&A leaders having a dedicated approach for management of ESG factors is only 12%), 19% see ESG as now important in the regulatory context. Financial services organizations lead in adopting ESG approaches and PE respondents are working to address ESG factors.

Respondents told Deloitte that while consideration of ESG factors in M&A activities can drive the process, the approach can also help acquirers build and enhance their own ESG strategies and goals. What ESG data should an acquirer look at in their analysis of the target? Start with a better understanding of the organization’s own ESG data.

According to Deloitte: ESG in M&A strategy is becoming a rationale to influence which deals to seek; 74% of companies say they have looked at possible targets while considering their own portfolios or their own investments from the ESG perspective; 67% says the same about their divestiture strategies.

At G&A Institute our team isr assisting our corporate clients enhance their ESG profiles as they set their respective acquisition, divestiture, or exit strategies. This is now another key driver for addressing risk and opportunities through increasing focus on a firm’s sustainability journey.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.