ESG Factors Gaining Prominence in M&A Strategy & Execution, Deloitte Survey Finds

Environmental, social, and governance (ESG) considerations are becoming more deeply ingrained across all stages of the mergers and acquisitions (M&A) lifecycle, according to the results of Deloitte's 2024 ESG in M&A trends survey.

The survey of 500 global M&A leaders found a "bold embrace" of incorporating ESG factors into M&A strategies as a means to create additional value and seize opportunities. It marks an evolution from just two years prior when ESG was an occasional area of focus in dealmaking.

"Organizations are on an ESG journey, learning how to understand, measure, and act on a set of variables that have emerged as increasingly significant to stakeholders in recent years," Deloitte stated in its survey report. "This affects M&A strategy and execution as much as it does any other area of strategy or operations."

Three key trends highlighting ESG's growing influence on M&A emerged:

1. Better Data and Measurement Driving Action: While corporate leaders recognize the link between ESG performance and M&A, a lack of consistent data and measurement tools previously hindered the ability to quantify that connection. However, 57% of organizations surveyed now say they are measuring ESG with clearly defined metrics, up from 39% in 2022.

This improved measurement capability corresponds with 78% of those organizations expressing high confidence in evaluating a target's ESG profile during acquisitions.

2. ESG Integration in Post-Merger Phase Still Developing: Despite ESG's rising general prominence, many firms still lack a defined approach for managing ESG considerations throughout the post-merger integration process. Only 12% said they have a dedicated ESG workstream for integration, though others are working to build those capabilities.
3. M&A Influencing Corporate ESG Goals: The survey results also revealed the reverse relationship, with M&A plans and strategies being influenced by a company's own desire to enhance its ESG profile and positioning. 74% of companies stated evaluating targets from an ESG perspective for acquisitions, while 67% do so for divestitures - significant increases from 2022.

"ESG appears to be more deeply embedded in the M&A process than ever before, with a greater recognition among leaders that it is a lever for measuring, protecting, and creating value," Deloitte's report stated.

Private equity firms are also increasingly focused on ESG, with 72% of PE respondents saying ESG is considered in at least half of their deals. This is driven in part by growing pressures from limited partners requiring ESG metric reporting.

While acknowledging ESG's rapid integration into M&A strategy and due diligence, the report suggests this is still "only the beginning" as stakeholders and society place more emphasis on sustainability factors impacting corporate performance.

As ESG data, disclosures, and measurement tools continue advancing, along with regulatory and investor oversight, ESG's role as a crucial value consideration throughout the M&A lifecycle is poised for further growth.

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