In our report last year, we touched upon sustainability as a key pillar of business growth. Increasing consumer demand for sustainable products and business solutions, and corporates’ intent to comply with UN Sustainable Development Goals, have driven this trend. We see this continuing trend reflected in KPMG’s latest analysis (PDF 11.2 MB), where 76 percent of the world's 250 largest companies1 surveyed are now including sustainability data in their annual reports.

Consumer players continue to ambitiously innovate and ramp up every layer of their operations to achieve sustainability goals. This ranges from the straight-forward, digitalising paper invoices, to the industry-specific innovations such as alternative plant-based foods and the shift to resource-friendly ‘circular-economy’ initiatives that minimize waste. Unorthodox partnerships are also driving progress – witness footwear-giant Timberland partnering with tire manufacturer Omni United to produce footwear using recycled tires.

Such actions are resonating with consumers: Dollar sales of plant-based meat, for example, grew 38 percent from 2017 to 2019, according to the Good Food Institute (GFI). And the eco-trend appears strong enough to be long lasting: in the US alone, sustainability-marketed products represented 54.7 percent of total 2015-192 CPG market growth, even though they make up only 16.1 percent of CPGs.

Large companies such as Nestlé, Mars, Danone, Coca-Cola and PepsiCo have set ambitious targets to use recycled plastic in product packaging. These changes directly address concerns among consumers and lawmakers regarding the harmful environmental impact of single-use plastic.

No time to wait

The pandemic has placed new pressures on businesses to hasten the pace of change. The latest KPMG Global CEO Outlook survey reveals that CEOs in the C&R sector believe the pandemic has greatly accelerated the race toward digitalization and next-generation operating models. Over half believe the timetable for change has advanced by months, while more than one third feel it has advanced by years.

It has become clear any time lost to the pandemic needs to be quickly recouped and compensated for. While internal process improvements can help companies meet sustainability goals, strategic M&A may help bring about a crucial step change. M&A offers a suitable and agile bridge to achieving sustainability targets, enabling companies to bring new capabilities and products quickly to market.

But how easy is it to include or assess the sustainability of an asset being acquired or sold? Most companies struggle to measure sustainability in the deal-making process and risk drifting away from their long-term goals. However, appropriate due diligence for ESG-related insights in the pre-deal, in-deal and post-deal phases can position buyers and sellers for a successful M&A journey.

COVID-19’s impact on sustainability

The pandemic has given consumers new insights into just how closely the environment and human health are interconnected. Prior to COVID, ‘sustainability’ typically focused on environmental issues such as plastic waste and carbon emissions. But the pandemic has broadened the public’s perspective to include people, workforces, suppliers and supply chains. As more people replace daily commuting with work-from-home arrangements, and as business travel gives way to conference calls, the reduction in workforce mobility could be a silver lining for a greener future and more-sustainable economies.

The pandemic has certainly propelled an eco-friendly shift in consumer buying behaviors and preferences. Direct-to-consumer (DTC) channels have proliferated, enabling companies to stay closely connected to consumers, identify and respond to their needs, and strengthen customer relationships and brand loyalty. Several companies, including Kraft Heinz (Heinz to Home) and PepsiCo ( and have pivoted into DTC channels via organic and inorganic means.

While transforming distribution channels unlocks revolutionary new advantages for services and customer-centricity, it can also help meet key corporate sustainability goals. DTC channels may also improve last-mile distribution efficiency, as transportation is no longer needed from distribution channels to stores and from stores to consumers. Increased DTC reliance – online grocery sales are expected to form 21.5 percent of total sales3 – will eventually help to achieve economies of scale and solve the major challenge many of today’s sustainable products face: that they are typically expensive to buy and produce.

According to a Euromonitor survey4, 30.8 percent of management leadership believed, prior to COVID, that the high cost of sustainability was the biggest barrier – and that number has increased to 35.3 percent since the pandemic hit.

The pandemic has dented some sustainability efforts in the short term, unfortunately, as players take steps to expand margins and control costs amid expectations that consumer spending will weaken as recession fears grow. Meanwhile, reliance on single-use plastic is expected to increase for the time being amid public-hygiene concerns and high demand for items such as disposable masks, gloves and protective goggles.

For the long term, however, companies are expected to continue investing in sustainability across procurement, production, processing and packaging. Consumer players will build on their commitment to sustainability in the following ways:

  • Announcing ambitious plans and investments. For example, L’Oreal announced that by 2030, 100 percent of plastics used in packaging will be from recycled or bio-based sources5;
  • Enhancing supply-chain transparency. Mars, for example, is to slash palm oil suppliers by 94 percent to help root out deforestation; 
  • Pursuing M&A deals, such as P&G’s acquisition of environment-friendly feminine brand This Is L6.

Keeping sustainability in focus

As consumers consider sustainability a key purchasing driver, companies and investors are expected to increasingly tie their ESG goals to growth – both organic and inorganic. Players are expected to keep pursuing ESG insights and impact analysis as an essential part of M&A due diligence.

While some companies are measuring asset sustainability when buying and selling, others struggle to recognize sustainability for its potential to enhance competitive advantage and financial performance. Such buyers/sellers can primarily be divided into three categories:

  1. Fence-sitters – those who remain neutral or uncommitted to sustainability in general and forgo sustainability measurements during deal making;
  2. Dabblers – those who are “ticking a box” on ESG-related diligence by just focusing on process compliance and governance;
  3. Advocates – the growing category of businesses seeking recognizable sustainability patterns in their transactions and treating sustainability as a significant factor in their decision-making – in some cases above and beyond financials.

Whether they are pursuing portfolio enhancements through ESG-driven acquisitions, or value creation through ESG integration during the divestment process, Advocates wisely consider sustainability an integral part of corporate growth strategies throughout the M&A lifecycle phases – pre-deal, in-deal and post-deal.

How Advocates are integrating sustainability throughout the M&A lifecycle

Pre-deal phase

Advocates re-focus portfolios toward sustainability via more-robust and strategic M&A decisions, while Fence-sitters and Dabblers struggle, unable to assess or capitalize on the value of ESG along with selected KPIs of potential targets for screening purposes, or owned assets for portfolio evaluation.

In-deal phase

Advocates tend to adapt their M&A strategy based on their holistic understanding of an asset, conducting ESG due diligence to gain insights, mitigate potential sustainability-related risks and capture hidden opportunities.

Post-deal phases

Advocates translate ESG learnings into actions for the newly acquired asset and current portfolio by: implementing measures developed during ESG due diligence; leveraging best practices across the portfolio; and preparing assets that are to be divested.

Analytics firm SustainAnalytics analyzed 231 M&As completed between 2011 and 2016 to measure financial success of M&A deals. They looked at the link between the ESG scores of companies involved in mergers and acquisitions (the targets and the acquirers), and the companies’ financial success. ESG scores served as a proxy for firm culture. When the merging firms’ ESG scores are highly compatible, the integrated firm was more likely to experience financial success post-deal deal versus deals where the ESG scores showed less compatibility7.

Cumulative total returns of acquiring companies in M&A Deals

Buyer’s guide for sustainability

ESG appears to have a direct impact on EBITDA. We analyzed several M&A transactions8 in consumer sub-sectors to understand ESG deals’ financial metrics and value drivers and observed 14.4 percent higher average EBIT multiple of 23.3x for sustainability-driven acquisitions between 2017 and 2019 compared to others.

Total number of transactions and share of sustainability driven deals

With increasing socio-economic pressures due to COVID-19, companies need to demonstrate that they value their workforce, customers and the environment equally in order to foster long-term success. Businesses can get ahead of the game by redeploying capital and actively looking for sustainable brand acquisitions, while reorganizing portfolios and disposing of assets not deemed sustainable. This can be transformational and may not involve mega deals alone but also deals for small innovative brands featuring transformative business models. 

For instance, Danone VC invested in 12 firms that are focused on shaping a sustainable future. Such acquisitions not only help to achieve sustainability goals among products and processes, they are also seen as a key to entering new markets. In 2017, Nestlé entered the plant-based segment by acquiring Sweet Earth and has since multiplied its presence with several more brands9.

It is worth noting that the MSCI Social Responsibility Index and the MSCI World Climate Change Index have outperformed the broader MSCI World Market Index by 4 percent, indicating higher value creation in shareholder returns through sustainable assets:

Relative performance of MSCI index

Players are treading carefully while screening investment targets, making sure that each target fits well with their ESG metrics and will create value in the long term.

Time for Fence-sitters and Dabblers to catch up

A 2017 survey report from Capital Dynamics showed that at least 76 percent of private-equity managers perceived ESG as a value driver10, and private funds are now willing to pay a premium for ESG or claim deal-price reductions. It is considered as value driver with direct impact on EBITDA. The report also suggests:

  • 76 percent general partners (PE) will increasingly use ESG factors for value creation; 
  • 54 percent will often or occasionally reduce bid price based on ESG analysis;
  • Sustainability impacts perceived value on several levels: brand, product and company.

Take note, however, that some challenges remain – even for Advocates. This is far from hard science with guaranteed outcomes. ESG addresses many intangibles, non-quantifiable risk, and defies historical forms of analysis. The scope and scale of environmental disruption have a broad set of possible outcomes. However, the direction is becoming clearer.

Most industry players remain Fence-sitters and Dabblers – sustainability is not a core driver for most M&A transactions currently. Going forward however, the industry is expected to follow the Advocates, with an eye on the long-term to include sustainability as core for M&A in order to enhance value in the portfolio and an attractive return when the owner decides to exit.

According to Nielsen, the US sustainability market alone is projected to reach US$150 billion in sales by 2021. We expect deal makers to keep investing in assets that are sustainable and that comply with their long-term strategy.

How KPMG can help?

How you grow matters. KPMG is with you, shoulder-to-shoulder, all the way to strong performance, lasting value and responsible growth. We think like an investor, looking at how opportunities to buy, sell, partner, fund or fix a company can add and preserve value. Our teams of specialists combine a global mindset and local experience with deep sector knowledge and superior analytic tools to help you navigate a complex, fragmented process. Together, we can help make your business fit for tomorrow — a future that is sustainable and secure.

Anticipate tomorrow. Deliver today.


1. By revenue, based on the Fortune 500 ranking of 2016.
2. IRI and the NYU Stern Center for Sustainable Business
3. Source:; NYU Stern School of Business, Sustainable Market Share Index™,
5. Source: Understanding what today’s eco-conscious food consumers want
6. Sources:,,  
7. Source: SustainAnalytics, ESG Compatibility: a hidden success factor in M&A transactions,
8. Subsectors analysed: agri-processing/ cereals, baby food, dairy products, soft beverages, sugar and confectionery; classification of deals as “sustainability-driven” based on keywords, e.g. environmental-friendly, sustainable, healthy, plant-based, organic, fair trade, recyclable, social etc.;
9. Sources:,
10. Source: Capital Dynamics study based on survey of general partners 2017, Principles for Responsible Investments (PRI)

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Nicola Longfield
Global Consumer & Retail Deal Advisory Lead
T: +44 20 7311 4383

Javier Rodriguez Gonzalez
Partner, KPMG in Germany
T: +49 89 9282-6938

Mayanka Sharma
Sector Manager, Consumer & Retail KPMG Global Services