“The data speaks loud and clear: Companies and investors are increasingly integrating ESG considerations into their M&A strategies, not only because it’s the right and responsible thing to do but also because of the value implications of ESG,” said KPMG U.S. ESG and Climate Services Leader Mark Golovcsenko last July 27, 2023
ESG due diligence is on the spotlight when analyzing risks and opportunities. ESG (Environmental, Social, and Governance) factors are becoming crucial for business performance evaluation, impacting operations, stakeholder engagement, and deal-making in the corporate world. Investment opportunities with strong ESG track records are gaining higher valuations, prompting buyers to conduct ESG due diligence (ESG DD) earlier in the process.
A recent survey by KPMG features insights from over 200 M&A practitioners in the U.S. and Europe, Middle East and Africa (EMA) on how ESG due diligence affects their M&A transactions.
Findings from a survey of 150+ dealmakers in the EMA region reveal two key trends:
- ESG Due Diligence Enhances Value:
- 80% of dealmakers include ESG in their M&A agenda.
- Over 67% are willing to pay more for targets aligned with their ESG priorities.
- 66% see significant ESG concerns as potential dealbreakers.
- ESG DD Challenges:
- 54% face difficulty defining a meaningful scope for ESG DD.
- 49% lack access to robust data and policies about targets’ practices.
- 45% struggle to quantify the outcomes of their ESG DD analysis.
Addressing these challenges:
- Scope:
- Established frameworks and ratings providers offer guidance on common ESG topics.
- Tailor ESG DD for target-specific factors and stakeholders’ perspectives.
- Data and Policies:
- Identify gaps in data and policies as part of the due diligence process.
- Benchmark gaps against industry best practices and regulatory requirements.
- Quantification:
- Calculate financial impact through emissions trading schemes and risk/opportunity assessments.
- Consider costs of remediation efforts and quantify benefits of positive ESG activities.
Source: KPMG
Enhancing ESG due diligence can unlock value and drive more sustainable deal-making. These insights underscore the increasing importance of ESG DD in shaping business strategies and transactions.
Source: KPMG
