Environmental, Social, and Governance (ESG) considerations are a crucial component in M&A transactions for 80% of investors, with more than half planning to conduct ESG due diligence for most of their transactions in the next 24 months, according to a new report from KPMG.
The report, titled “Global ESG Due Diligence+ study 2024,” highlights that the primary benefit of ESG due diligence, as cited by investors, is the enhanced ability to identify risks and opportunities early in the transaction process. Companies neglecting ESG issues are often seen as less attractive and potentially riskier investments.
“We are observing an increasing number of transactions in the Polish market where, beyond the standard financial, tax, and legal assessments, in-depth analyses of environmental, social, or corporate governance issues are conducted. The findings from ESG studies provide investors with concrete data to formulate post-transaction action plans, enabling faster implementation of established strategies and acceleration of anticipated results. ESG due diligence addresses the growing needs of institutions financing or underwriting M&A transactions,” said Iwona Spryta, a partner in KPMG Poland’s Deal Advisory department.
The study reveals that 79% of experienced investors utilize ESG due diligence results to develop post-closing action plans, underscoring the importance of ESG analysis in long-term investment strategies. Furthermore, 45% of surveyed investors reported significant impacts from ESG due diligence on their transactions, with more than half of these impacts potentially being “deal breakers” that could lead to the pausing or discontinuation of a transaction.
“Seasoned investors in the transaction market understand that due diligence is not just about identifying risks but also about seeking added value. This value is achieved by pursuing strategic objectives within an ESG framework. ESG due diligence provides a better understanding of a company’s potential and identifies areas for implementing innovative practices, which in turn increases the transaction’s value and builds stakeholder trust,” added Katarzyna Wolczkiewicz, an associate director in KPMG Poland’s Deal Advisory department.
KPMG’s report is based on a global online survey of over 600 active M&A investors from 35 countries, supplemented by in-depth interviews with 50 respondents and market insights from KPMG’s ESG experts.
Source: KPMG and ISBnews
