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Green deals: the role of sustainability in M&A

GREEN DEALS: The role of sustainability in M&A

COVID-19, global lockdowns and the resultant economic downturn are changing how we do business. The emergency stop executed by the global economy has also slashed pollution and CO2 emissions. Businesses and governments are questioning over-extended global supply chains.

Even once the current crisis is over, we can expect some kind of ‘new normal’ in place, nudging the world closer to a more sustainable future. The pre-existing high profile of the climate crisis, plastic pollution and sustainable work practices is certain to come into sharp focus in 2021 and beyond.

Sustainability will become a critical part of M&A in the future. It could reshape regulation and how business risk is viewed. We see this having a major impact in three areas: 

  • Businesses that can demonstrate good sustainability practices will be worth more. Customers will be more loyal, and companies will command a premium for products and services and face lower regulatory costs.
  • Data showing sustainable practices will lower the risk for buyers – giving them confidence on everything from environmental liabilities to possible PR nightmares – potentially boosting multiples.
  • And the M&A process itself will benefit from becoming more sustainable. Optimised use of technology rather than travel to undertake negotiations and due diligence, for example, will make deals both more sustainable and efficient. 

Our adaptations around the pandemic tragedy are already showing us some ways to operate traditional business functions more sustainably. But as world governments become more serious about tackling the climate crisis, fresh regulation and scrutiny of all kind of business activity is inevitable.

But the E of ‘ESG’ – environment – is just one aspect for business leaders to weigh up. The S (social) and G (governance) are also certain to be subject to greater scrutiny in the post-pandemic world.

When Blackrock CEOs Larry Fink is warning portfolio companies of the importance of reporting on, and delivering against, the full spectrum of ESG concerns, we know this is no longer about PR.

So whether it’s vendor due diligence breaking down the human, social and environmental impacts of a business; or acquirers trying to gauge ESG risks against the backdrop of greater scrutiny and regulation, it’s an issue no deal-doer can now ignore.

Climate Change + M&A Report Covers