Macro trends like climate change, biodiversity loss, digitisation, rising social inequality, poor labour practices and cyber security are fundamentally changing the way we live our lives and driving a new business-as-usual.
However, we are now in an era where businesses recognise the key responsibility they have to drive progress toward a more sustainable future – with investors, consumers, regulators and their very own employees reinforcing the importance of this message.
At the same time, both Corporate entities and Private Equity are increasingly seeing opportunities to maximise value through the consideration of ESG trends and issues, which either have the potential to constrain growth, result in liabilities, or importantly present as new sources of investment.
These factors are not just crucial to both buyers and sellers, but are also prompting renewed M&A activity in their own right. The transition to a global low carbon economy is underway, spurring innovation and growth in an array of technologies, products and services. At the same time, consumers have become more socially and environmentally aware, choosing to spend their money on goods and services that reflect their own beliefs. The same is true of investors and, increasingly, capital is being allocated based on ESG performance and potential. Regulators are also requiring greater disclosure on what constitutes a ‘sustainable’ investment.
The result is a world where a company’s value can be significantly impacted by its own ESG practices and performance, as well as that of its portfolio companies in the case of Private Equity.
Australian companies are finding themselves under increasing pressure to ensure their strategic priorities, core capabilities and business structures align with these global shifts. While this has been the case for organisations with exposure to carbon-intensive operations and value chains for some time now, no sector is immune from this.
“More than ever, there is a greater level of scrutiny being placed on how a company’s M&A activity and broader investment decisions align with their publicly stated ESG commitments and targets,” says Rochel Hoffman, Head of ESG M&A Australia. “At the same time, there is increasing recognition that M&A activity, when done in a responsible manner, will be an important lever for companies to use to thrive in an ESG-conscious world and to drive value.”
At the moment in the Australian market, we are seeing a number of companies employ defensive M&A strategies in response to ESG trends. We expect to see an increase in offensive strategies as the opportunities associated with climate change, and ESG more broadly, continue to take off” says Rob McConnel, M&A Partner.
At Deloitte, we’re helping businesses to embed ESG considerations into their M&A strategies and across the transaction lifecycle. With clients in ESG sensitive sectors such as energy and resources, consumer business, financial services and healthcare, our teams are supporting M&A due diligence through identifying value and pitfalls, and assessing what needs to be done post-deal to ensure continued effectiveness.
Following on from this, Rochel Hoffman, shares her perspective on the four key points for businesses to consider when looking to embed ESG into their M&A strategies and deal lifecycle.
The authors would like to thank Jason Caulfield, James Hilburn and Sarah Robson for their contributions to this piece.