The rising impact of ESG in business deals

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In the ever-evolving landscape of modern business, particularly in the private equity sector, the past decade has marked a notable shift towards integrating Environmental, Social, and Governance (ESG) considerations into core business strategies. This shift, initially predominant in larger corporations and private equity funds, is now increasingly evident in the small and medium-sized business (SMB) sector.

The Growing Relevance of ESG in M&A

Based on insights from the latest M&A Trend Survey conducted by M&A and Ansarada, which involved the participation of 247 M&A professionals and 28 in-depth interviews, a significant 92% of respondents believe ESG factors will become increasingly crucial in Mergers and Acquisitions (M&A) decisions and company valuations in the coming year. This data underscores the rising importance of ESG in the corporate world.

Experts contributing to this survey have pointed out that while ESG frameworks are well-established within large funds and multinational companies, their influence is now extending to mid-market and smaller enterprises. Bas Mees from Rutgers & Posch emphasises the dual benefits of ESG compliance: it makes a company more attractive to investors and aligns with market and customer expectations.

The Impact of ESG on Deal Dynamics

Institutional investors, especially those in private equity, are playing a pivotal role in pushing for ESG-focused actions, as noted by Lesley van Zutphen of Bencis Capital Partners. The upcoming CSRD (Corporate Sustainability Reporting Directive) in 2024, aiming to enforce detailed sustainability reporting, will further enforce ESG transparency among companies, intensifying the focus on sustainable business practices.

It’s interesting to note that 72% of dealmakers acknowledge that ESG considerations have sometimes led to deal cancellations. This trend is particularly noticeable in industries where environmental concerns are significant, such as construction and consumer products. Conversely, in sectors like business services, ESG factors play a less prominent role, although social aspects are still relevant.

The Future of ESG in Business

The ESG dimension is also increasingly impacting company valuations. Sergio Herrera from Rabobank points out that companies scoring high on ESG are likely to attract a premium, whereas those with lower scores might face valuation discounts. This reflects a growing preference among investors for companies that proactively engage in ESG practices.

The business sector is recognizing the importance of aligning operations and strategies with ESG principles, not just for regulatory compliance but also for enhancing market appeal and long-term sustainability. The integration of ESG considerations into business strategies is redefining the corporate world, aligning it more closely with societal welfare and environmental sustainability goals.

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For a deeper insight into this topic, our thanks go to Jeppe Kleijngeld from for the original article, which can be found here:

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