Compliance

ESG can add “major financial value” to M&As

But uncertainty around the SEC climate rule is causing headaches.
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Eugene Mymrin/Getty Images

3 min read

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Companies’ ESG efforts can prove profitable when it comes to M&As, according to a recent KPMG US ESG survey, which showed that 41% of business leaders see ESG as a major source of financial value during M&As.

The survey polled 201 business leaders with ESG responsibilities at companies with more than $1 billion in revenue. Respondents were asked to rate how much value ESG brought them in different areas on a seven-point scale. KPMG interpreted scores of six or seven as indicative of major financial value.

The findings are in line with KPMG’s recent ESG Due Diligence Survey, which found that ESG weaknesses can spell trouble during M&As. In that survey, 53% of corporate investors said they had canceled business deals because of ESG weaknesses uncovered during due diligence. A recent BDO survey likewise found that more than 80% of private equity fund managers have walked away from a deal due to ESG concerns.

Though M&A efficacy was the area of business where the largest percentage of respondents said ESG added major value, they reported seeing significant value gains in other areas as well. 35% of respondents said ESG brought them major value in terms of finding new sources of capital, and the same percentage said it offered major value through tax benefits.

SEC climate rule slowing ESG reporting efforts. Nearly half of the survey’s public company respondents said that uncertainty around the SEC climate rule had either slowed down their ESG reporting efforts (20%) or halted them altogether (24%). Another 43% of the respondents said they were unaffected by the SEC rule due to early reporting.

US business leaders showed lukewarm confidence in their ability to meet the new regulations. Just over halfsaid they were either “somewhat” (24%) or “very” (29%) confident that they’d be able to comply with future US reporting requirements.

The requirement to report Scope 3 emissions—those produced by partners in a company’s supply chain—has been perhaps the most contentious part of the SEC climate rule, and has faced challenges from Republican lawmakers. However, Scope 3 emissions didn’t pose much more of a challenge than Scope 1 or 2 emissions for KPMG survey respondents: Around two-fifths cited them as a “major” or “very significant” challenge (41% Scope 1, 43% Scope 2, and 44% Scope 3).

Public companies’ biggest compliance challenge? Getting the environmental reporting data in time to put it on their 10-Ks (50%).

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.

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