KPMG M&A Survey Reveals ESG Due Diligence Cancels Over Half of Operations
In recent years, environmental, social, and governance (ESG) factors have gained significant importance in the business world. Companies are increasingly recognizing the need to incorporate ESG considerations into their decision-making processes, particularly when it comes to mergers and acquisitions (M&A). A recent survey conducted by KPMG sheds light on the impact of ESG due diligence on M&A operations, revealing that over half of the deals are being canceled due to ESG concerns.
The survey, titled “KPMG M&A Survey: The Rising Importance of ESG in Deal Making,” involved interviews with 2,000 global M&A professionals from various industries. The findings highlight the growing significance of ESG factors in deal-making and the potential risks associated with overlooking them.
According to the survey, 56% of respondents reported that they had canceled at least one deal in the past two years due to ESG concerns. This indicates a substantial increase compared to previous years, reflecting a shift in the mindset of investors and acquirers who are now prioritizing sustainability and responsible business practices.
The reasons for deal cancellations varied across different ESG categories. Environmental concerns were the most common reason for deal termination, with 38% of respondents citing issues such as pollution, climate change, and resource depletion as deal-breakers. Social factors, including labor practices, human rights violations, and community relations, accounted for 30% of deal cancellations. Governance issues, such as corruption, lack of transparency, and weak board oversight, were responsible for 28% of terminated deals.
The survey also revealed that ESG due diligence is becoming an integral part of the M&A process. 84% of respondents reported conducting ESG due diligence on target companies before finalizing a deal. This demonstrates a significant increase from previous years, indicating a growing recognition of the importance of assessing ESG risks and opportunities.
Furthermore, the survey highlighted the impact of ESG due diligence on deal valuations. 63% of respondents reported that ESG factors influenced their valuation of target companies. This suggests that companies with strong ESG performance are more likely to attract higher valuations and investment interest.
The findings of the KPMG survey emphasize the need for companies to prioritize ESG considerations in their M&A strategies. Ignoring or underestimating ESG risks can lead to deal failures, reputational damage, and financial losses. On the other hand, integrating ESG factors into decision-making processes can enhance long-term value creation, attract responsible investors, and contribute to sustainable growth.
To effectively incorporate ESG due diligence into M&A operations, companies should consider the following steps:
1. Develop a comprehensive ESG strategy: Companies should establish clear goals and objectives related to ESG performance and integrate them into their overall business strategy. This will help guide decision-making processes and ensure alignment with sustainability principles.
2. Conduct thorough ESG due diligence: Prior to finalizing any deal, companies should conduct rigorous ESG due diligence on target companies. This involves assessing their environmental impact, social practices, and governance structures to identify potential risks and opportunities.
3. Engage stakeholders: Companies should actively engage with stakeholders, including employees, customers, suppliers, and local communities, to understand their expectations and concerns regarding ESG issues. This will help identify areas for improvement and build trust among stakeholders.
4. Implement robust ESG reporting and monitoring systems: Companies should establish transparent reporting mechanisms to track and communicate their ESG performance. Regular monitoring and evaluation of ESG metrics will enable companies to identify areas for improvement and demonstrate their commitment to responsible business practices.
In conclusion, the KPMG M&A survey highlights the increasing importance of ESG due diligence in deal-making processes. Companies that fail to consider ESG factors risk deal cancellations and missed opportunities. By prioritizing ESG considerations, companies can enhance their long-term value, attract responsible investors, and contribute to a more sustainable future.
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- Source: Plato Data Intelligence.