ESG and M&A: Creating Sustainable Value

​In recent years, Environmental, Social, and Governance (ESG) considerations have evolved from a peripheral concern to a core element of corporate strategy, and this shift has profoundly impacted the landscape of mergers and acquisitions (M&A). Companies are increasingly recognizing that strong ESG performance can enhance reputation, reduce risks, and unlock value in M&A transactions. This heightened focus on ESG is driven by several factors, including:

• Increased investor scrutiny: Investors are increasingly incorporating ESG factors into their investment decisions, demanding greater transparency and accountability from companies.
• Regulatory pressure: Governments worldwide are implementing stricter ESG regulations and reporting requirements, compelling companies to prioritize sustainability.
• Consumer demand: Consumers are increasingly favoring businesses with strong ESG credentials, driving companies to adopt sustainable practices throughout their operations and supply chains.
• Growing awareness of ESG risks: Companies are becoming more aware of the financial materiality of ESG risks, including climate change, social unrest, and governance failures.

Data Highlights the Growing Importance of ESG in M&A

The growing importance of ESG in M&A is reflected in recent data and surveys:

• According to a 2024 Deloitte survey, 84% of executives indicated that ESG factors were a significant consideration in their M&A decisions, up from 79% in 2023.
• A 2023 PwC report found that 77% of investors consider ESG performance to be a key factor when evaluating M&A targets.
• Data from Refinitiv shows that ESG-related M&A deals accounted for over 20% of global M&A volume in 2023, a significant increase from previous years.

These figures underscore the growing recognition of ESG as a critical driver of value and risk mitigation in M&A transactions.

Challenges of ESG in M&A

Integrating ESG considerations into M&A presents a unique set of challenges:

• Valuation and Measurement: Accurately valuing and measuring ESG factors can be complex, requiring specialized expertise and methodologies.
• Data Availability and Reliability: Obtaining reliable and comparable ESG data across different companies and jurisdictions can be challenging.
• Integration and Implementation: Integrating ESG factors into post-merger integration plans and ensuring effective implementation can be complex.
• Reputational Risks: Failure to adequately address ESG risks in M&A can lead to reputational damage and financial losses.  

Maximizing Value Creation

ESG considerations can significantly impact the value and tax implications of M&A transactions. Companies need to assess potential ESG-related risks and opportunities throughout the deal lifecycle, from due diligence to post-merger integration.

For instance, acquiring a company with poor environmental practices could expose the acquirer to significant environmental liabilities and remediation costs. Conversely, acquiring a company with strong ESG performance can enhance the acquirer's reputation, attract investors, and potentially unlock tax benefits related to sustainable investments. 

How van Berings Can Inform M&A Negotiations

van Berings recognizes the complexities of navigating ESG considerations in M&A transactions. Our team of legal and tax experts plays a crucial role in guiding clients through this evolving landscape. We offer a comprehensive suite of services designed to help businesses maximize value and minimize risks:

• Facilitating ESG Due Diligence: We assist in identifying and assessing ESG-related tax risks and opportunities, providing a comprehensive understanding of the target company's ESG profile.
• Educating Deal Teams: We provide expert guidance on the tax implications of ESG factors in M&A transactions, ensuring that deal teams are well-informed and equipped to make strategic decisions.
• Reducing Risk: Our expertise in ESG due diligence helps identify and mitigate potential risks, protecting your investment and reputation.
• Enhancing Value Creation: We help you identify ESG-related opportunities to unlock value and drive sustainable growth.
• Improving Deal Execution: Our guidance on tax and legal considerations ensures a smooth and efficient transaction process.
• Increasing Stakeholder Confidence: Our focus on transparency and accountability builds trust with investors, customers, and other stakeholders.

Conclusion

ESG has become a central theme in M&A activity, requiring companies to prioritize these considerations throughout the deal lifecycle, from due diligence to post-merger integration. By collaborating with experienced legal and tax advisors like van Berings, companies can face the complexities of ESG in M&A, maximize value, and align with their sustainability goals.