Environmental, social, and corporate governance (ESG) is rapidly becoming front of mind for regulators, investors, customers, and employees—and it is rising to the top of corporate agendas as well. Many now view a well-devised corporate ESG strategy as a positive indicator for long-term revenue growth.
In our recent global survey of 281 M&A executives, 65% expect their own company's focus on ESG to increase over the next three years. This view extends to M&A. More than half of surveyed respondents either see ESG leadership as justifying higher deal valuations or expect this to be the case in the future, indicating a need for buyers to appropriately assess and value their targets' ESG performance.
But are corporate buyers accounting for ESG in their M&A process today?
Not yet, according to our survey. Only 11% of respondents say they extensively assess ESG during the deal-making process on a regular basis. In fact, out of 10 elements of the corporate M&A process, ESG was the least-emphasized dimension. Many are struggling to determine how to embed the process of assessing the ESG implications of an acquisition into their M&A strategy.
Some companies are ahead on this curve. By incorporating ESG into their M&A process, they have set themselves up with an advantage in pursuing value creation opportunities and a head start in meeting their ESG imperatives.
By beginning to unlock ESG as an M&A priority and a factor in delivering deal value, these companies move ahead of the majority of companies that have yet to evolve their M&A models to account for the growing sophistication of ESG. They've discovered that the traditional check-the-box approach to sustainability issues falls short. When assessing targets, they dig deeper on issues ranging from greenhouse gas emissions to DEI, and from business ethics to supply chains.
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