The Importance of ESG in M&A

ESG factors are becoming increasingly important in the M&A market.

According to a 2022 report by Bain & Company, only 11% of M&A executives say they extensively assess environmental, social, and corporate governance (ESG) in the deal-making process on a regular basis today, but 65% expect their company’s focus on ESG to increase.

Recognizing ESG considerations presents growth opportunities and ensures that advisors find the right acquirer or acquiree for your business. Analyzing ESG factors helps advisors to understand how good an investment a business will be, as well as how well a business’s corporate culture will mesh with your own. Assessing businesses through this lens becomes increasingly important as ESG is proving to be a fundamental mark of business quality.

Companies and their consumers are pushing for more environmentally friendly solutions for economic and social reasons. Saving on energy costs and fulfilling social responsibilities are at the forefront of many companies’ agendas.

As the public continues to demand more transparent and socially conscious business practices, an environmentally centered supply chain, for example, becomes imperative in M&A discussions. An M&A advisor will screen a company of interest for non-financial performance indicators such as sustainability or level of conscientiousness so you can make an informed decision.

Social considerations are especially important for post-merger experiences. A confluent corporate environment with a similar work experience, community, and employee culture is a significant factor when merging companies. A good M&A advisor understands this and works to ensure a seamless continuation of company culture along the merger process.

Corporate governance includes tax strategy, policymaking, and rights and responsibilities of executives, board members, and shareholders. Companies with agreeable policies on their board of directors, management, and shareholder engagement are more likely to be a better fit than companies with differing governance structures. Governance structure is analyzed during the due diligence stage, and an M&A advisor can provide you with invaluable assistance in interpreting the structure of a company.

Finding an M&A advisor who understands the importance of ESG factors is essential in finding the right fit for your business and in ensuring that you make the most from your life’s work.