Using environmental, social and governance factors to improve your deal

With a growing influence on both securing a company sale and on the valuation itself, effective management of ESG factors can lead to positive risk adjusted returns for private equity investors.

In this research amongst trade buyers, we’ve focused on the mergers and acquisitions (M&A) process because it demonstrates how companies integrate ESG issues into their own investment processes. It gives some insight into how ESG factors may impact returns from private equity investments. Trade buyers are an important exit route for private equity investors, so studying their buying behaviour is key to understanding the materiality of ESG factors.

Key findings:

  • ESG factors in merger and acquisition transactions are growing in importance
  • Poor performance on ESG factors can:
    • drive-down the valuation
    • be a deal breaker
  • Good performance on ESG issue management can improve the valuation

About the survey:
PwC supported the UN-backed Principles for Responsible Investment to conduct a survey of trade buyers of private equity investments, on the importance of environmental, social and governance (ESG) issues in transactions.