Private Equity Investors Lead the way in ESG in M&A
This month, Deloitte released a new a new poll that shows that private equity investors (PEI) could be paving the way when it comes to ESG diligence procedures and considering ESG provisions in M&A. According to the poll, PEIs are leading by factors of two or three compared to their corporate peers when it comes to the use of ESG clauses in deal contracts and routine ESG due diligence.
“Across the board, there is growing recognition that ESG due diligence can provide investors with meaningful insights prior to a transaction… Pre-deal ESG diligence can span many categories, ranging from a target company’s ability to comply with current and proposed regulations to existing voluntary green efforts around climate, sustainable supply chain, workforce conditions and energy usage. So, it’s easy to see a future where ESG considerations can have a meaningful impact on many M&A transactions.” - Brian Lightle, Deloitte Risk & Financial Advisory partner specializing in M&A, Deloitte & Touche LLP.
This poll of over 330 PEIs and in-house corporate M&A professionals were asked a series of questions during a Deloitte webcast in December of 2022. The result of this pole showed the following highlights:
49.6% of PEIs and 43.2% of corporates conduct some form of ESG pre-deal diligence.
PEIs are nearly 3 times as likely as corporates to approach ESG due diligence consistently and formally. PEIs coming in at 26.8% versus corporate M&A Professionals at 9.3%
PEIs are almost twice as likely as corporates to include ESG Clauses in M&A Contracts. According to this pole about a quarter of PEIs included clauses compared to the 14.1% of their corporate counterparts.
Overall while PIEs and M&A professionals alike are expected to have ESG considerations become more and more prevalent, its clear that PEIs are leading the way. Tanay Shah, Deloitte Consulting M&A ESG and Strategy & Diligence Practice Leader, said:
Photo by Chris Montgomery on Unsplash
“Private equity investors report being more prescriptive in their approaches to ESG during the dealmaking lifecycle, which could be key to their rosy outlook on M&A… As scrutiny of ESG programs and practices grows in dealmaking and regulatory regimes worldwide, it’s likely dealmakers will uncover other innovations like ESG clauses in deal contracts that can help bridge the gap between due diligence and risk to keep deals on track — all aiming to create more transparency for investors and value for the broader market.” -Tanay Shah, Deloitte Consulting M&A ESG and Strategy & Diligence Practice Leader
Sources:
https://www.nbcnews.com/science/environment/climate-change-un-ipcc-rcna75670
https://www.euronews.com/green/2023/03/17/what-is-the-ipcc-report-heres-what-to-expect-from-the-latest-un-climate-change-assessment?utm_source=Linkedin&utm_medium=Social
https://report.ipcc.ch/ar6syr/pdf/IPCC_AR6_SYR_SPM.pdf
https://www.ipcc.ch/
