KPMG Survey Summary: ESG is Critical to Successful Deals
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Sustainability and ESG across the globe has become a massive priority to businesses. KPMG recently released their 2022 EMA ESG Due Diligence Study where they shared the results of their survey to find out what Environmental, Social, and Governance (ESG) due diligence (DD) means for dealmakers across Europe, the Middle East, and Africa. After surveying more than 150 active dealmakers the insights were profound. From struggling to define ESG DD, to division on how to integrate ESG DD into existing frameworks and strategy, all the way to seeing very clearly that ESG DD is a key priority, KPMG provides EMA dealmakers and strategy leaders with new ideas and motivation to drive forward their ESG DD capabilities. Today, Sustaira summarizes these findings for you!
ESG is a Key Consideration for Deal Makers
According to the 2022 EMA ESG Due Diligence study, dealmakers are more and more integrating ESG and Sustainability considerations into the deal-making process. Survey shows, that four out of five dealmakers say that ESG considerations are now on their M&A agenda. More than two-thirds of those surveyed said that they would be willing to pay a premium to a target who demonstrates a high level of ESG maturity in areas that align with their ESG priorities. This is a relatively new shift in the market to see investors willing to pay more. However, it is believed that there is a positive long-term correlation between sustainable business practices and financial returns.
“We believe sustainability is good for business…. We see good performance on ESG as a proxy for good management. And we know that good management drives the financial value of a company.” Said the Head of M&A at an industrial manufacturing company
Ultimately, ESG due diligence isn’t going anywhere soon and businesses will benefit from engaging here. The survey results also support the idea that investors are looking to significantly increase their use of ESG DD and believe in its value. The top reason mentioned by the survey that highlights clearly investor’s belief in ESG DD is as follows: “They believe in the monetary value of identifying risks and upsides related to sustainability at the pre-signing stage.” This is further highlighted by over half of respondents saying that red flags on ESG could halt deals or result in additional closing conditions.
KPMG U.S. ESG and Climate Services Leader Mark Golovcsenko, said:
“The data speaks loud and clear: Companies and investors are increasingly integrating ESG considerations into their M&A strategies, not only because it’s the right and responsible thing to do but also because of the value implications of ESG.”
ESG Due Diligence Has Challenges
Ultimately, when digging deeper into ESG DD there are significant challenges to carrying out the necessary actions to truly meet the expectations that investors are looking for.
Scope: 54% struggle to set a meaningful, yet manageable, scope for the exercise.
Data & Policy: 49% lack access to robust data or written policies on targets’ operating processes and practices.
Quantification: 45% have trouble quantifying the findings from their analysis
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Good ESG Due Diligence
While there are challenges, the 2022 EMA ESG Dude Diligence study highlights that we know what good looks like when it comes to ESG DD. It seems that currently, financial investors are leading the way in ESG DD maturity but based on what we know thus far, good looks like the following:
ESG DD having a dedicated team or workstream rather than being segmented and handled by multiple streams
There is a strong link between overarching corporate strategy and ESG DD
There is a focus on the upsides and value creation that ESG DD can bring, and not only the mitigation of risk
They are connecting ESG DD findings to post-closing actions and have long-term plans.
Setting Clear Priorities
Dealmakers are now defining their immediate priorities. Firstly, they must grasp their company's ESG strategy and pinpoint any significant areas or where their main sources of impact are. This approach helps to simplify ESG a little bit by providing areas to focus on. Secondly, a detailed "blueprint" for their ESG due diligence approach is crucial and should include both the conceptual framework and organizational structure. This then all comes back to having the proper allocation of sufficient budgets and resources to effectively achieve these goals, not only set them.
KPMG’s Advice
When diving into the world of ESG Due Diligence, the advice given is to draw on the experience and expertise of those around you. Watch what the leaders of the industry are doing and even consider leveraging outside advisors, programs, and processes. Read the full report here.
Sources:
Read the original overview here: https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2022/11/ema-esg-due-diligence-report.pdf
