KPMG M&A Survey Reveals ESG Due Diligence Cancels Over Half of Operations
In recent years, environmental, social, and governance (ESG) factors have gained significant importance in the business world. Companies are increasingly recognizing the need to incorporate ESG considerations into their decision-making processes, particularly when it comes to mergers and acquisitions (M&A). A recent survey conducted by KPMG sheds light on the impact of ESG due diligence on M&A operations, revealing that over half of the deals are being canceled due to ESG concerns.
The survey, titled “KPMG M&A Survey: The Rise of ESG in Deal Making,” involved interviews with 2,000 global M&A professionals from various industries. The findings highlight the growing significance of ESG factors in deal-making and the potential risks associated with overlooking them.
According to the survey, 51% of respondents reported that they had canceled at least one deal in the past two years due to ESG concerns. This indicates a significant shift in the mindset of deal-makers, who are now recognizing the potential financial and reputational risks associated with companies that do not prioritize ESG considerations.
The most common reasons for deal cancellations were related to environmental issues, with 32% of respondents citing concerns about pollution, climate change, and resource scarcity. Social issues, such as labor practices and human rights violations, were also significant factors, accounting for 27% of deal cancellations. Governance-related concerns, including corruption and lack of transparency, were cited by 21% of respondents.
The survey also revealed that ESG due diligence is becoming an integral part of the M&A process. Over 80% of respondents reported conducting ESG due diligence on target companies, with 61% stating that it has become a standard practice. This indicates a growing recognition of the importance of assessing ESG risks and opportunities before finalizing a deal.
Furthermore, the survey highlighted the impact of ESG due diligence on deal valuations. Nearly 70% of respondents reported that ESG factors have influenced deal valuations in the past two years. This suggests that investors and acquirers are increasingly factoring in ESG performance when determining the value of a target company.
The findings of the KPMG survey underscore the need for companies to prioritize ESG considerations in their operations. Ignoring or downplaying ESG factors can not only lead to deal cancellations but also result in reputational damage and financial losses. Investors and stakeholders are increasingly demanding transparency and accountability when it comes to ESG performance, and companies that fail to meet these expectations may face significant consequences.
To mitigate these risks, companies should integrate ESG considerations into their decision-making processes from the outset. This includes conducting thorough ESG due diligence on potential targets, identifying and addressing any ESG-related risks, and developing strategies to improve ESG performance post-acquisition. By doing so, companies can not only enhance their chances of successful M&A transactions but also position themselves as responsible and sustainable businesses in an increasingly ESG-focused world.
In conclusion, the KPMG M&A survey highlights the growing importance of ESG due diligence in deal-making. With over half of operations being canceled due to ESG concerns, companies cannot afford to overlook these factors. By incorporating ESG considerations into their decision-making processes, companies can mitigate risks, enhance their reputation, and create long-term value for all stakeholders.
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- Source: Plato Data Intelligence.