DealLawyers.com Blog

This survey by BCG and Gibson Dunn concludes that ESG due diligence has become “indispensable” for M&A. Two-thirds of survey respondents have engaged on ESG topics during transactions, and 75% reported that they identified a material ESG issue in a deal in the last three years because they conducted due diligence. Respondents generally felt that “the insights gained from these assessments are crucial not only for mitigating risks but also for preserving and enhancing deal value.”

When assessments uncover material ESG issues, dealmakers say that they usually negotiate financially and legally viable solutions that allow the transaction to proceed. These mechanisms include reducing the purchase price, refining the deal structure, and agreeing on specific indemnities, to name a few. Dealmakers also pointed to the tangible rewards of conducting ESG due diligence—such as protecting up to 10% of a deal’s value—that often surpass the associated costs.

There was significant variation in the data by deal size and region:

Europe is at the forefront, with ESG due diligence performed in half of the deals, compared with one-third of the deals in North and South America and Asia.

Buyers are more likely to include ESG considerations for large acquisitions, with due diligence occurring in approximately 60% of such deals. Buyers conduct ESG due diligence in approximately 40% of mid-cap acquisitions. For smaller acquisitions, the frequency of ESG due diligence falls to about 30%.

The survey revealed a similar pattern when respondents were asked how often they conduct ESG due diligence to prepare for selling a company.

But there was consistency in the use of outside advisors. 90% of the time ESG due diligence was conducted, outside advisors were engaged to assist.

– Meredith Ervine