EDITORIAL: ESG STILL SEEN AS IMPORTANT BY INVESTORS

Despite mutterings to the contrary in the press, a recent report from KPMG shows that investors in the UK are increasingly focusing on sustainability and ESG considerations in their investment process. As a result, ESG due diligence has jumped higher up the M&A agenda. The KPMG 2024 Global ESG Due Diligence Report found that 71 per cent of respondents reported an increase in the importance of ESG in transactions over the last 12 to 18 months.

According to KPMG, several drivers are underpinning this shift. ESG has become an important lever to create value in transactions and dealmakers are seeing higher returns for their investments when there are stronger ESG practices and positioning in place. Investors are also focused on protecting value. With increased regulations, such as the EU Corporate Sustainability Reporting Directive (CSRD), and concern for ethical considerations there are potential reputational risks that could come with non-compliance.

There has also been a significant increase in impact investing. Investors focused on impact seek companies that balance profit with purpose, and are focused on addressing global sustainability challenges, such as the energy transition.

In the case of investors, failure to embrace ESG can leave tangible value on the table. It can also minimise the pool of capital and potentially prevent a deal from closing. UK investors are turning away from some sectors, such as tobacco, gambling and fossil fuels due to ethical considerations and long-term sustainability concerns. According to the survey, more than 50 per cent of surveyed investors indicated that ESG was a ‘deal stopper’.

Investors are also asking more of target companies. With ESG due diligence becoming a strategic, cross-function and commercially focused exercise, investors are looking for greater transparency on their climate-related practices, diversity, equity and inclusion programmes, supply chains and more. The full study can be read here.

You might also be interested in attending the FT Board Director Programme one-day workshop on the subject which is being held in association with North Peak Advisory on Thursday 24th October at the FT. Join us for a very pragmatic and practical look at what board directors need to know about sustainability. Book your place here.