Compliance

ESG is shaping global deals

80% of private equity leaders have turned down deals due to ESG concerns.
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Amelia Kinsinger

· less than 3 min read

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With ESG regulation becoming more prevalent worldwide, a company’s ESG profile can make or break a deal. Eight in 10 private equity leaders say their organizations have put the brakes on deals due to concerns about targets’ ESG standing. That’s according to a Deloitte survey of 500 private equity and M&A leaders in three world regions: North America, the EU and Middle East, and the Asia-Pacific region.

ESG is a key topic of consideration during dealmaking, the survey found. 72% of respondents said that at least 50% of their recent deals involved ESG discussions. And 24% said that ESG was on the table during more than 80% of their recent deals.

How ESG shapes deals: With ESG top of mind for dealmakers, it’s perhaps not surprising that ESG concerns are so prominent. Nearly three quarters (74%) of respondents said they’ve made or have plans to make an acquisition to improve their companies’ ESG profiles. And 68% said they’ve made or are planning to make a divestiture for the same reasons.

The majority (83%) of respondents said they’d pay a premium of 3% or more for an acquisition that would improve their ESG standing. And 14% said they’d pay upward of 6% extra for a company that would boost their ESG profile.

Nearly everyone’s seeing the effects of climate change: A whopping 96% of private equity leaders said climate change has had a significant or moderate impact on operations in their organizations, or for companies in their portfolios. Between 92% and 96% of M&A leaders said the same (percentages varied by industry).

North America still lags on ESG: Dealmakers from the EU, Middle East, and Asia-Pacific regions still place greater emphasis on ESG than North American leaders do, according to the Deloitte survey. All of the private equity leaders from the EU and Middle East, and 94% of those from the Asia-Pacific region, said they required at least some of their portfolio companies to measure and report ESG data. But less than a third (30%) of the North American private equity leaders did.

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.