ESG concerns reshape M&A decisions

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Reflecting a notable transformation in the mergers and acquisitions (M&A) landscape, a recent Deloitte survey has revealed that over 70% of companies have abandoned potential acquisitions due to ESG concerns. This trend underscores the increasing importance of sustainability considerations in corporate dealmaking.

Key findings from the survey

The survey, which involved 500 M&A leaders from corporations and private equity firms across North America, Europe, the Middle East, and Asia Pacific, highlighted several crucial insights:

• ESG integration in M&A processes: There is a notable rise in the integration of ESG factors into M&A processes. 99% of respondents now measure the potential impact of transactions on their ESG profiles, a significant increase from 92% two years ago.
• Defined ESG metrics: 57% of respondents use clearly defined metrics to evaluate ESG impact, up from 39% in the previous survey.
• Increased confidence in ESG evaluation: Over 90% of leaders express high or very high confidence in their ability to accurately assess a target’s ESG profile, compared to less than 75% in 2022.
• Abandoned deals due to ESG concerns: 72% have decided not to proceed with acquisitions due to ESG concerns, a substantial rise from less than half in the prior survey.
• Valuation influences: 83% are willing to pay a premium for assets with strong ESG attributes, while 67% seek discounts for negative ESG profiles, reflecting a growing influence of ESG on deal valuations.

ESG as a strategic lever

According to Tanay Shah, M&A ESG Leader at Deloitte, advancements in ESG strategies have made ESG considerations a standard part of the pre-close process for both corporates and private equity firms. This integration is driving more informed decision-making and reflecting the increased availability and clarity of ESG-related data.

Brooke Thiessen, Partner at Deloitte Canada, emphasised that ESG concerns are now weighed as seriously as commercial or operational issues when deciding to proceed with or abandon deals; “Abandoning a deal is certainly not an easy decision. While commercial or operational concerns are often the main reasons for walking away from a deal, ESG red flags are increasingly being considered with the same level of seriousness to either pause or end deal activity.” This highlights the shifting priorities in the corporate world, where sustainability and ethical considerations are becoming integral to business strategies.

SI Engage: Managing ESG engagement

In this rapidly changing environment, tools like SI Engage are becoming crucial for companies and investors aiming to integrate ESG considerations into their operations. Here’s how SI Engage is enhancing the ESG engagement process:

• Efficient data management: With SI Engage, fund managers can easily create and manage engagements with minimal effort. The platform supports various data formats, including simple screenshots, making it versatile and user-friendly.
• Enhanced collaboration: SI Engage facilitates seamless collaboration among stewardship teams and operating officers. It ensures that high-quality insights are readily accessible, promoting more effective and impactful decision-making.
• Quick reporting: The platform enables rapid planning, tracking, and reporting of ESG activities. This allows investors to stay ahead in the fast-paced world of ESG considerations, ensuring they can respond swiftly to emerging trends and requirements.

By leveraging SI Engage, companies can better navigate the complexities of ESG integration, making informed decisions that align with their sustainability goals and enhance long-term value. As the findings from Deloitte’s survey highlight the growing influence of ESG on M&A activities, SI Engage stands out as a vital tool for achieving responsible and strategic growth. Get in touch to find out more!