Sustainability Shakeup: 70% Companies Scrap Merger & Acquisitions Over ESG Concerns

New Delhi, June 8, 2024: While it comes to mergers and acquisitions (M&A), sustainability has taken the center-stage in the entire process of the deal-making. This trend has been underscored by a recent survey conducted by the global professional services firm Deloitte wherein over 70% of M&A leaders have opted out of the potential acquisitions due to environmental, social, and governance (ESG) concerns. The survey findings tell us that majority of the leaders have expressed their willingness to even pay more for targets with strong ESG attributes.

The survey involved 500 M&A leaders from companies and private equity firms with a revenue of at least $500 million and $1 billion in assets, respectively across Europe, North America, Middle East and Asia Pacific regions.

The key finding reflect a notable integration of ESG factors throughout the M&A process. These considerations are increasingly influencing target evaluations, due diligence, final decision-making and valuation assessments. The shift has been observed with sustainability-related data becoming readily available and companies deepening their understanding of ESG issues.

For instance, over 99% of the participants shared that their organizations track and measure the potential impact of an M&A transaction on their ESG profile. Two years ago, this percentage was 92. This means that in the last two years, 7% more organizations have started measuring the potential impact of an M&A transaction on their ESG profile.

Furthermore, 57% of the participants said that they do so with clearly defined metrics. A couple of years ago this number was 39%. This shows a difference of 8% two year ago. In the 2022 survey wherein 75% participants expressed their confidence, over 90% now assert a high or very high level of confidence in effectively assessingthe ESG profile of potential acquisition targets.

In the prior survey by Deloitte two year ago, less than 50% of the respondents had reported that they would not proceed with a potential acquisition due to concerns about the target’s ESG profile, while this number is now 72%. It means that ESG issues and the ESG profile of a company has a significant, and growing, impact on deal-making decisions.

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