ESG metrics are becoming a much bigger part of merger and acquisition deals

Corporate and private equity executives may be dialing back their public embrace of environmental, social and governance principles, but when it comes to behind-the-scenes merger and acquisition deals ESG has become a much more integral part of the process, a new Deloitte survey shows.

Nearly 60% of the organizations represented in the survey of 500 global M&A leaders are now measuring ESG with clearly defined metrics, an increase from just under 40% when Deloitte first asked about ESG in 2022.

Almost three-quarters (74%) of companies say they have evaluated their portfolios or investments from an ESG perspective when acquiring or searching for acquisition targets, and almost as many (67%) say the same about their divestiture strategies. These percentages are a notable increase over the results reported by respondents in 2022, Deloitte noted.

“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 said in an article on its website reporting the survey results. “Overall, ESG has grown from the occasional area of focus to a more influential and consistent M&A consideration over the past two years.”

Deloitte said one reason for the trend is that ESG data is now better defined, captured and measured, allowing metrics to be more precise and better understood than they were only a few years ago. Understanding ESG data starts with determining material ESG issues, which is another aspect of organizations’ enhanced maturity and sophistication over recent years.

The trend is more pronounced among private-equity firms, who represented 44% of the respondents in the survey. Just over 70% of the private-equity respondents said more than half their M&A deals include ESG considerations and 24% said all or nearly all of their deals did. More than half of private-equity limited partners now require reporting of ESG metrics.

In 2022, Deloitte launched its inaugural survey, “ESG’s evolving role in corporate M&A decisions“, analyzing ESG’s influence on the M&A process across corporate organizations in the United States. The 2024 survey was expanded to include respondents from Europe and the Middle East as well as the Asia Pacific regions as well as various industries and a specific focus on impacts to private equity.

“Because ESG is tied into so many other business facets and societal processes apart from M&A, it is easy to envision further progress along the trend lines we have highlighted,” Deloitte said in its article. “In the future, the ultimate measure of ESG’s growth and impact on the M&A consciousness may be that no one considers its inclusion to be remarkable at all.”

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