KPMG M&A Survey Reveals that ESG Due Diligence Results in Over Half of Operations Being Cancelled
In recent years, environmental, social, and governance (ESG) factors have gained significant attention in the business world. Companies are increasingly recognizing the importance of incorporating 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 cancelled as a result.
The survey, which involved 2,000 global executives from various industries, found that 55% of respondents reported cancelling at least one potential M&A operation due to adverse ESG findings during the due diligence process. This highlights the growing significance of ESG factors in deal-making and the increasing scrutiny placed on companies’ sustainability practices.
ESG due diligence involves assessing a company’s performance in areas such as environmental impact, social responsibility, and corporate governance. It aims to identify any potential risks or liabilities associated with these factors that could impact the success of an M&A transaction. The KPMG survey indicates that companies are taking this process seriously and are willing to walk away from deals if ESG concerns arise.
The reasons for cancelling M&A operations vary across different ESG dimensions. Environmental concerns were the most common reason for deal cancellations, with 38% of respondents citing issues such as pollution, waste management, or carbon emissions as deal-breakers. Social factors, including labor practices, human rights violations, or community relations, accounted for 32% of cancellations. Governance issues, such as corruption, lack of transparency, or inadequate board oversight, were responsible for 30% of deal cancellations.
The survey also revealed that ESG due diligence is becoming more comprehensive and sophisticated. Companies are not only focusing on their own ESG performance but also considering the ESG practices of their potential partners. This indicates a shift towards a more holistic approach to sustainability in M&A transactions.
The cancellation of M&A operations due to ESG concerns can have significant financial implications for both buyers and sellers. It underscores the importance of integrating ESG considerations into business strategies and operations to mitigate risks and ensure long-term value creation. Companies that fail to address ESG issues adequately may face reputational damage, regulatory scrutiny, and potential legal liabilities.
The KPMG survey findings highlight the need for companies to prioritize ESG due diligence in their M&A processes. It is no longer sufficient to focus solely on financial and operational aspects; ESG factors must be given equal weight. This requires robust data collection, analysis, and reporting mechanisms to assess the potential impact of ESG risks on deal outcomes.
Furthermore, companies should proactively address any identified ESG issues and develop strategies to improve their sustainability performance. This not only enhances their attractiveness as potential M&A targets but also contributes to long-term business resilience and competitiveness.
In conclusion, the KPMG M&A survey reveals that ESG due diligence is playing an increasingly critical role in deal-making. Over half of the surveyed executives reported cancelling M&A operations due to adverse ESG findings. This highlights the growing importance of ESG factors in business decision-making and the need for companies to prioritize sustainability practices. By integrating ESG considerations into their strategies and operations, companies can mitigate risks, enhance their reputation, and create long-term value.
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- Source: Plato Data Intelligence.