Amid global economic uncertainty and fluctuating deal volumes, the significance of environmental, social, and governance (ESG) factors in mergers and acquisitions (M&A) is gaining prominence, particularly across Europe, the Middle East, and Africa (EMA). A 2024 ESG Due Diligence Study by KPMG highlights how financial investors are increasingly prioritizing ESG assessments, recognizing their potential to identify sustainability-related risks and opportunities early in the deal process.
The study reveals that 61% of respondents in the EMA region see monetary value from ESG due diligence as their primary motivator, a shift that reflects ESG’s growing importance in the M&A landscape. Despite softer M&A activity and economic challenges, dealmakers have increasingly acknowledged ESG due diligence over the past 12 to 18 months. In fact, 58% of investors recognize its value beyond compliance, seeing it as a way to boost financial outcomes by identifying risks and opportunities linked to sustainability.
Moreover, regulatory demands are also driving this shift. About 44% of respondents reported the need to adapt their strategies due to evolving regulations. This underscores the growing influence of frameworks like the EU Taxonomy and Corporate Sustainability Reporting Directive (CSRD), which are helping to formalize sustainability measures and integrate them into corporate strategies across sectors.
However, while ESG’s importance is clear, dealmakers continue to face challenges in applying ESG due diligence effectively. A lack of robust methodologies and reliable data remains a significant hurdle. Craig Mennie, Global Head of Transaction Services at KPMG Australia, pointed out that while ESG in deals is maturing rapidly, the broad scope of the topic makes it difficult for investors to focus on specific areas. Mennie emphasized the need for a targeted approach to ESG, one that focuses on creating value rather than being solely driven by values.
The impact of ESG findings on deal outcomes is also notable. According to the study, 45% of investors encountered significant deal implications due to ESG assessments, further illustrating its critical role in shaping M&A decisions. The evolving regulatory landscape and the rising recognition of ESG’s financial and strategic benefits are pushing companies to integrate these considerations more deeply into their corporate strategies.
As sustainability becomes a key component of both compliance and value creation, ESG due diligence is set to play an even more significant role in the future of mergers and acquisitions across the EMA region and beyond.