KPMG M&A Survey Reveals that 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, and this trend is particularly evident in the mergers and acquisitions (M&A) landscape. A recent survey conducted by KPMG sheds light on the impact of ESG due diligence on M&A transactions, revealing that over half of operations are canceled as a result.
The survey, titled “KPMG M&A Survey: The Growing Importance of ESG in Deal Making,” involved interviews with 1,000 senior executives from companies across various industries. The findings highlight the growing significance of ESG factors in deal-making processes and the potential risks associated with neglecting these considerations.
According to the survey, 57% of respondents reported that they had canceled at least one potential M&A transaction in the past two years due to ESG concerns. This indicates a substantial increase compared to previous years, reflecting the growing awareness and scrutiny surrounding ESG issues. The cancellation of these operations can have significant financial implications for both buyers and sellers, underscoring the importance of conducting thorough ESG due diligence.
The survey also revealed that ESG considerations are increasingly being integrated into the overall deal-making process. Seventy-eight percent of respondents reported that they now include ESG factors in their initial screening of potential targets, up from 48% in 2017. This shift demonstrates a clear recognition of the materiality of ESG issues and their potential impact on business performance and long-term value creation.
When it comes to specific ESG factors, climate change and carbon emissions were identified as the most critical considerations by 63% of respondents. This reflects the growing global focus on addressing climate change and transitioning to a low-carbon economy. Other important factors include labor practices, human rights, and supply chain sustainability.
The survey also highlighted the challenges faced by companies in conducting effective ESG due diligence. Lack of standardized reporting and inconsistent data quality were identified as the main obstacles, making it difficult for companies to assess the true ESG performance of potential targets. This underscores the need for greater transparency and standardization in ESG reporting to facilitate more accurate assessments and informed decision-making.
The findings of the KPMG survey emphasize the increasing importance of ESG considerations in M&A transactions. Companies that fail to adequately address ESG issues in their due diligence processes risk facing reputational damage, regulatory scrutiny, and financial losses. Conversely, those that proactively integrate ESG factors into their decision-making can unlock opportunities for value creation, improved risk management, and enhanced long-term sustainability.
As the business landscape continues to evolve, it is clear that ESG considerations will play an increasingly critical role in M&A transactions. Companies must adapt to this changing landscape by incorporating robust ESG due diligence processes into their deal-making strategies. By doing so, they can mitigate risks, identify value-enhancing opportunities, and contribute to a more sustainable and resilient business environment.
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- Source: Plato Data Intelligence.