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US ESG Due Diligence Study

The sustainable advantage: Leveraging ESG Due Diligence to Unlock Value

How we expect M&A to change

The impacts of ESG-related factors continue to grow, and companies vary significantly in their level of preparedness to address them. Consequentially, it is more critical than ever for investors to scrutinize the data in mergers and acquisitions (M&A) targets. More and more investors are realizing this and increasing their adoption of ESG due diligences. ​

A survey by KPMG has found that ESG due diligence is on the rise and is becoming fundamental in investment decision-making, enabling visibility into adverse effects of ESG factors and ensuring better preparedness for resilient and sustainable growth. Investors are increasingly convinced that ESG due diligence can successfully identify valuable opportunities and critical risks.​

Download the Paper

The Sustainable Advantage: Leveraging ESG Due Diligence to Unlock Value

In the companion paper to this study, we discuss the role of ESG M&A due diligence and provide practical steps for an effective approach to create long-term value.

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Key Insights

43%

of US investors plan to conduct ESG due diligences in the majority of their future deals, up from 33% in the past two years. ​

63%

of investors are willing to pay a premium for companies that align with their ESG priorities​.

53%

of investors have had deals canceled and 42% of investors have opted for a purchase price reduction due to material findings on an ESG due diligence​.

23%

of US investors are conducting ESG due diligences without an adequate understanding of ESG in their area of investment.​

82%

of Europe, Middle East, and Africa (EMA) investors integrate ESG in their M&A agenda, compared to only 74% of US investors.​

90%

of US investors with a top-notch ESG due diligence approach leverage their ESG due diligence findings to drive a clear post-close action plan.

Top reasons investors are conducting ESG M&A due diligence include risk identification, increased investor focus, and regulatory requirements.

Top challenges in ESG M&A due diligence lack of robust data, inadequate understanding of ESG, and difficulty in scope selection.

"The data speaks loud and clear: Companies and investors are increasingly integrating ESG considerations into their M&A strategies, not only because it's the right and responsible thing to do but also because of the value implications of ESG."

Mark Golovcsenko

KPMG Principal, Advisory ESG

Future Momentum

43% of investors will perform ESG due diligences on the majority of their deals in the future ​

Future Momentum

43% of investors will perform ESG due diligences on the majority of their deals in the future ​

How frequently did you/do you expect to conduct ESG due diligences on your deals?

Value creation

Companies that integrate strong ESG performance into their overall business strategy are often better positioned to manage various regulatory, environmental, and reputational risks while responding to and managing emerging industry trends and challenges. 62% of investors are willing to pay a premium for ESG-mature targets. ESG-aligned companies are often better at managing risks and attracting customers, investors, and employees.

Value creation

Companies that integrate strong ESG performance into their overall business strategy are often better positioned to manage various regulatory, environmental, and reputational risks while responding to and managing emerging industry trends and challenges. 62% of investors are willing to pay a premium for ESG-mature targets. ESG-aligned companies are often better at managing risks and attracting customers, investors, and employees.

As a buyer, how much more would you be willing to pay for a target that demonstrates a high level of ESG maturity and is in line with your ESG priorites?

Material findings kill deals

ESG M&A due diligence findings can lead to deal cancellation, purchase price reduction, and highlight potential risks impacting a company’s reputation, compliance, performance, and returns. Material ESG findings can uncover operational risks that could lead to legal and reputational consequences.

Material findings kill deals

ESG M&A due diligence findings can lead to deal cancellation, purchase price reduction, and highlight potential risks impacting a company’s reputation, compliance, performance, and returns. Material ESG findings can uncover operational risks that could lead to legal and reputational consequences.

What were the consequences of material findings from ESG due diligence performance on the deal?

Top challenges

Common ESG M&A due diligence challenges include lack of robust data, inadequate understanding of what “ESG means” across stakeholders, and scope selection. Adopting ESG frameworks and effective data management can enhance the consistency and quality of due diligence processes.

Top challenges

Common ESG M&A due diligence challenges include lack of robust data, inadequate understanding of what “ESG means” across stakeholders, and scope selection. Adopting ESG frameworks and effective data management can enhance the consistency and quality of due diligence processes.

What are the key challenges you have encountered in conducting ESG due diligences?

Other regions are ahead of the U.S.

At this time, ESG stakeholder and regulatory pressures are greater in other regions compared to the U.S.—accelerating ESG M&A due diligence maturity in other parts of the world. U.S. investors will likely have to mirror global standards. Learn more from around the world: Europe, Middle East, & Africa (EMA) ESG Due Diligence Study

Other regions are ahead of the U.S.

At this time, ESG stakeholder and regulatory pressures are greater in other regions compared to the U.S.—accelerating ESG M&A due diligence maturity in other parts of the world. U.S. investors will likely have to mirror global standards. Learn more from around the world: Europe, Middle East, & Africa (EMA) ESG Due Diligence Study

"As the world continues to evolve, so do the expectations of businesses. Our latest ESG Due Diligence Survey reveals an undeniable truth: Sustainable practices are no longer just a choice but a prerequisite for resilience and growth."

Clare Lunn

KPMG Principal, Advisory ESG

Steps you can take to establish a standout ESG M&A due diligence program:

1. Identify your motivation for the program

2. Develop a clear ESG strategy

3. Secure appropriate resources and assign responsibilities

4. Collaborate with external experts

5. Link ESG M&A due diligence to ESG strategy

6. Develop your ESG M&A due diligence framework

7. Perform ESG M&A due diligence procedures

8. Link ESG M&A due diligence findings to post-closing actions

9. Monitor and report findings to stakeholders

10. Continuously improve the due diligence process

Steps you can take to establish a standout ESG M&A due diligence program:

1

Identify your motivation for the program

2

Develop a clear ESG strategy

3

Secure appropriate resources and assign responsibilities

4

Collaborate with external experts

5

Link ESG M&A due diligence to ESG strategy

6

Develop your ESG M&A due diligence framework

7

Perform ESG M&A due diligence procedures

8

Link ESG M&A due diligence findings to post-closing actions

9

Monitor and report findings to stakeholders

10

Continuously improve the due diligence process

KPMG ESG solutions

KPMG offers a proven standardized approach to ESG M&A due diligence that is tailored to individual clients. Our process can help you assess the risks, liabilities, and opportunities in your M&A investments. Let us help you find the right ESG solutions.

In the news

KPMG’s 2023 US ESG Due Diligence Study findings have been picked up across major industry and ESG news outlets. Learn more about what others think of the insights in the articles linked below:

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