ESG considerations are rapidly gaining prominence in the mergers and acquisitions (M&A) landscape, with a majority of dealmakers willing to pay a premium for companies with strong ESG performance, according to a new KPMG survey.
The Global ESG Due Diligence+ Study 2024, which polled over 600 M&A professionals across the globe, revealed a significant uptick in the importance of ESG factors in dealmaking over the past year. Surprisingly, this trend has persisted despite a slowdown in M&A activity and a growing political backlash against ESG in some regions.
A key finding of the survey is that companies with high ESG maturity are commanding premium valuations. Over half of dealmakers reported encountering ESG-related deal-stoppers, while nearly 60% expressed a willingness to pay a higher price for targets with strong ESG performance.
Financial investors are leading the charge in integrating ESG into their M&A strategies. They are more likely to have a mature ESG due diligence process and are actively seeking targets with ESG transformation potential or superior ESG performance.
Climate-related factors emerged as the top ESG concerns for dealmakers, with a focus on carbon footprint, decarbonization targets, and exposure to climate-related risks.
“Understanding the commercial implications of ESG is crucial for significant deal value impact,” said Florian Bornhauser, Director at KPMG Switzerland, while emphasizing the commercial implications of ESG in dealmaking.
“Considering ESG in investment decisions has become non-negotiable for many investors. The extent and depth of ESG-related risks and opportunities being considered has increased significantly,” added Julie Vasadi, Partner at KPMG Australia.
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