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KPMG M&A Survey Reveals that ESG Due Diligence Cancels Over Half of Operations

KPMG M&A Survey Reveals that ESG Due Diligence Cancels Over Half of Operations

In recent years, environmental, social, and governance (ESG) factors have gained significant attention in the business world. Companies are increasingly recognizing the importance of integrating ESG considerations into their operations to mitigate risks and drive sustainable growth. A recent survey conducted by KPMG sheds light on the impact of ESG due diligence in the mergers and acquisitions (M&A) landscape, revealing that over half of operations are canceled as a result of such assessments.

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 processes and the increasing scrutiny placed on companies’ sustainability practices.

According to the survey, 51% of respondents reported that they had canceled at least one potential deal in the past year due to concerns identified during ESG due diligence. This indicates a significant shift in the M&A landscape, where ESG considerations are now seen as critical deal-breakers. The cancellation of these operations demonstrates that investors and acquirers are increasingly prioritizing sustainable and responsible business practices.

The survey also revealed that ESG due diligence is becoming more comprehensive and sophisticated. While traditional financial and legal due diligence have long been standard practices in M&A transactions, ESG due diligence is now gaining equal importance. Companies are recognizing that assessing ESG risks and opportunities is crucial for long-term value creation and reputation management.

ESG due diligence involves evaluating a company’s environmental impact, social practices, and governance structures. It assesses factors such as carbon emissions, waste management, labor practices, diversity and inclusion policies, board composition, and ethical business conduct. By conducting thorough assessments, potential investors can identify any potential risks or liabilities associated with a target company’s ESG performance.

The survey findings also highlight the growing influence of stakeholders, including customers, employees, and regulators, in driving ESG considerations. Increasingly, these groups are demanding transparency and accountability from companies regarding their sustainability practices. Failure to meet these expectations can result in reputational damage, legal issues, and financial losses.

Furthermore, the survey reveals that ESG considerations are not limited to large corporations. Small and medium-sized enterprises (SMEs) are also recognizing the importance of integrating ESG factors into their operations. This trend reflects the broader shift towards sustainable business practices across industries and highlights the need for all companies to prioritize ESG due diligence.

The KPMG survey serves as a wake-up call for companies that have not yet embraced ESG considerations. It demonstrates that ignoring or neglecting these factors can have significant consequences, including the cancellation of potential M&A deals. As ESG continues to gain prominence in the business world, companies must proactively address sustainability issues to remain competitive and attract investors.

In conclusion, the KPMG M&A survey reveals that ESG due diligence is now a critical component of deal-making processes. Over half of operations are canceled due to concerns identified during ESG assessments, highlighting the growing importance of sustainable and responsible business practices. Companies must recognize the significance of ESG factors and integrate them into their operations to mitigate risks, drive long-term value creation, and maintain a positive reputation in an increasingly ESG-focused business landscape.

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