The importance of ESG in business, through an environmental, commercial and legal lens, is unquestionable. But how strongly does ESG translate into the world of deals and M&A?
CP’s Andy Parker recently sat down with Insider Media to share his thoughts on what he’s been seeing in the market. Andy is our Head of Corporate Finance in CP Deals and a prominent voice on all things sustainability at CP. So, he’s perfectly placed to uncover the intersection between the two.
Scroll down to read the best bits and hear from Nicoleta Voicu, our Head of Sustainability.
How big an issue is ESG when it comes to dealmaking?
“ESG credentials have become a crucial factor in M&A dealmaking,” Andy told us. “As stakeholder expectations around ESG rise, investors increasingly prioritise businesses which offer long-term regulatory and legal compliance, sustainable operational practices, and are aligned to long-term societal trends.
With the widespread influence of social media further amplifying the visibility and impact of a company’s ESG practices, it has become a central issue in the dealmaking process.”
Is this a new trend? And are poor ESG credentials a potential dealbreaker?
“The concept of ESG began gaining traction in the early 2000s,” Andy continued. “Though some investors were considering these factors even earlier.
Over the past 5 to 10 years, ESG has evolved into a fundamental aspect of investment decision-making, driven by pressure from a broad spectrum of stakeholders, including governments, regulatory bodies, customers, and employees.
Companies with strong ESG credentials are often seen as less risky, with a sustainable growth trajectory and alignment with long-term societal trends. ESG considerations also play a crucial role in post-merger integration, particularly in aligning corporate cultures and maintaining employee engagement – areas that are sometimes overlooked but critical for the success of a merger.
In contrast, poor ESG performance can be a significant disincentive, exposing companies to greater regulatory and reputational risks. A strong ESG framework is increasingly seen as essential by investors, and in some cases, it can be a dealbreaker.”
How much preparation is needed to measure and prove a target’s ESG credentials?
“The extent of preparation required to showcase a target’s ESG credentials depends on the nature of the business,” Andy shared. “For companies in sectors like solar energy, their ESG impact is often self-evident through the products or services they offer. In such cases, ESG may not need extensive elaboration. However, for companies where ESG impacts are less intuitive, more effort is required to highlight these credentials to investors.
Developing policies and real tangible strategies and then delivering on them is essential. During due diligence, a target company’s environmental impact, labour practices, and governance structures are scrutinised in detail. This thorough examination helps to expose any attempts at “greenwashing,” ensuring that only genuine ESG efforts are recognised.”
Is ESG important in smaller and mid market deals, or just larger transactions?
“ESG considerations impact transactions across all market sizes, as stakeholders at every level have a vested interest in these issues,” Andy said.
“Whilst larger transactions may attract more scrutiny and involve a higher level of complexity regarding ESG credentials, concerns about ESG are relevant in mid and small markets as well. Investors increasingly apply ESG criteria across the board, regardless of the size of the deal.”
How much of ESG credibility is subjective? How can businesses prove they’re walking the walk?
“The ability of business owners to demonstrate their commitment to ESG can vary based on factors like business sector and size,” Andy told us. “However, there are certifications that provide a more objective measure of ESG credibility, such as the B Corp Certification.
The B Corp Certification is a designation that certifies a business meets the highest standards of verified performance, accountability, and transparency on ESG issues. These rigorous standards are designed to recognise leading companies committed to making a positive impact. At Cooper Parry, we are proud to hold this certification, underscoring our dedication to long-lasting, wide-reaching positive change.
Cooper Parry is a certified B Corp and, as part of that journey, we recruited a Sustainability team, led by Nicoleta Voicu, to ensure we had the systems in place to measure and improve our impact. Now, the team offers services to clients wanting to replicate the process too.”
LET’S HEAR FROM THEM
“The commercial benefits of a well-defined, evidenced ESG strategy are becoming more and more apparent,” Nicoleta said, “Be that in dealmaking and securing investment, winning new customers, or employing the best people.
As climate initiatives become increasingly pressing, this trend is only going to continue, and you don’t want to be playing catch-up because a truly holistic ESG approach isn’t something you can plan and implement overnight.
We learnt so much on our journey to becoming a B Corp and beyond, and it’s laid the foundations for our Net Zero goal and other sustainability initiatives in the future. I’d recommend the process to any business, and if you don’t feel you have the time or resource to go through with it, get in touch and our Sustainability team can lend a hand.”
To find out more about our Sustainability Advisory offerings at CP, including our Carbon Footprint Finder, ESG Diagnostic Tool, ESG Reporting Support, Sustainability Assurance and B Corp Support, head here.
