Inform Magazine

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n a swiftly moving and conscious society, environmental, social and corporate governance (ESG) is rapidly becoming a primary concern for regulators, investors, clients and

The determination of ESG obligations varies amongst industries, companies and even by the specific deal. Subsequently, companies must decipher between ESG motivated and ESG-conscious M&A. ESG-motivated transactions are pursued clearly to progress the buyer's ESG plan. The most common example would be in the carbon-intensive sectors. M&A is an influential factor in the energy sector’s shift to renewable sources of power; and within consumer products, the transition from animal to plant-based proteins has provoked a surge in M&A and partnerships. On the other hand, ESG-conscious M&A features an ESG angle across the M&A value chain, even if the motivating deal theory is not ESG related. A potential investor may, for example, complete due diligence to test if a target’s carbon footprint is aligned with the acquirer’s sustainability goals, unrelated to the deal rationale. Companies searching for transparent and socially

employees – and is also quickly rising towards the top of corporate agendas. With the urgency surrounding the matters, it is becoming a mark of a business' quality and a measure of their utmost ethics. Many now perceive a well devised corporate ESG strategy as a positive indicator for long-term revenue growth. In a global survey of 281M&A decision makers carried out by Bain & Company and stated in their most recent M&A report, 65% of these executives expect their own company’s aim of ESG to increase within the foreseeable 3-5 years. The majority of these participants also warrant higher deal valuations sourcing from ESG leadership. Alternatively, they anticipate this to be the case moving forward, suggesting the need for buyers to appropriately assess and value their target’s performance within this matter.

conscious supply chains will thoroughly analyse a potential acquisition vendor base. This ESG-conscious mindset is trending across industries, although different sectors will focus on different ESG topics. The starting point of this success begins with linking corporate ESG strategy to M&A by making sustainability part of each deal thesis. It means using corporate priorities as a level to evaluate each potential deal and find assets that will advance existing ESG initiatives as well as create

Various businesses have already adopted urgency by integrating ESG into their M&A processes. Consequently, this gives them an advantage in pursuing value creation opportunities and a lead in fulfilling their ESG priorities. Through the realisation of this as an M&A priority – an influencing factor in delivering deal value – these companies are often ahead of those that are yet to advance their M&A models to account for the increasing importance of ESG.

In a global survey of 281 M&A decision makers, 65% of executives expect their own company’s aim of ESG to increase within the foreseeable 3-5 years.

economic value. For example, leaders in the energy sector often refer to ESG schemes to assist them in meeting the expectations of investors and financiers to lower the cost of capital. Throughout other industries, ESG programmes can also add value by helping to maintain costs such as waste reduction. Environmental, social and corporate governance will continue to evolve and influence deal-making within the M&A sector. As numerous companies compete to flourish in a challenging economic environment and meet the rapidly transitioning consumer trends, they will also feel the additional pressure of demonstrating strong sustainability strategies that will offer more to a potential acquirer than its competition - and which ever way we look at it; that is typically the underlying rationale behind any M&A transaction.

When evaluating a target, acquirers now investigate further into greenhouse gas emissions, business ethics and supply chains. The traditional 'tick-box approach' to sustainability is simply not sufficient any longer. For example, a food producer recognised for its healthy and environmentally conscious produce utilised due diligence to understand a potential acquisition target’s performance on a range of ESG factors. The outcome revealed that the target, an ingredient company, had a positive environmental profile that surpassed competitors and had a strong positioning on consumer health that could competitively benefit the potential acquirer. In comparison to a competing company that solely actions the traditional requirements, the alternate business that has embedded sustainability to its core will ultimately win the attention of an investor or acquirer, with the promise to continuously thrive in ESG terms.

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