KPMG M&A Survey Reveals that ESG Due Diligence Results in Over Half of Operations Being Cancelled
In recent years, environmental, social, and governance (ESG) factors have gained significant attention in the business world. Companies are increasingly recognizing the importance of incorporating 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 cancelled due to unfavorable ESG findings.
The survey, which involved 2,000 global M&A professionals, found that 56% of respondents reported cancelling at least one deal in the past two years due to ESG concerns. This highlights the growing significance of ESG factors in deal-making and the increasing scrutiny placed on companies’ environmental and social practices.
ESG due diligence involves assessing a company’s performance in areas such as carbon emissions, waste management, labor practices, diversity and inclusion, and corporate governance. It aims to identify potential risks and opportunities associated with these factors, allowing acquirers to make informed decisions about the target company’s sustainability and long-term viability.
The survey also revealed that 70% of respondents believe that ESG issues will become even more important in the next two years. This suggests that companies are recognizing the need to prioritize ESG considerations as part of their overall business strategy, not just during M&A transactions.
The cancellation of deals due to unfavorable ESG findings can have significant financial implications for both buyers and sellers. It underscores the importance of conducting thorough due diligence to identify any potential risks or liabilities associated with a target company’s ESG performance. Failure to do so can result in reputational damage, legal issues, and financial losses.
Furthermore, the survey found that 48% of respondents reported that ESG issues have caused delays in completing deals. This highlights the need for companies to proactively address ESG concerns and ensure compliance with relevant regulations and standards to avoid potential roadblocks in the deal-making process.
The increasing focus on ESG due diligence is not only driven by ethical considerations but also by the growing demand from investors and stakeholders for greater transparency and accountability. Investors are increasingly looking to align their portfolios with sustainable and responsible investment practices, and they expect companies to demonstrate their commitment to ESG principles.
In response to these trends, companies are starting to integrate ESG considerations into their overall business strategies. They are implementing robust ESG frameworks, setting targets, and reporting on their progress. This proactive approach not only helps companies mitigate risks but also positions them as attractive targets for potential acquirers who prioritize sustainability and responsible business practices.
The KPMG survey highlights the transformative impact of ESG due diligence on M&A operations. It serves as a wake-up call for companies to prioritize ESG considerations and ensure that they are effectively managing their environmental and social impacts. By doing so, companies can not only enhance their long-term sustainability but also increase their chances of successful M&A transactions in an increasingly ESG-focused business landscape.
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- Source: Plato Data Intelligence.