KPMG: More than half of firms have canceled M&A deals because of ESG findings

More than half (53%) of investors have canceled M&A deals because of material findings in environmental, social, and governance (ESG) due diligence, KPMG’s 2023 ESG Due Diligence study found. The research surveyed 200 US ESG practitioners, including corporate and financial investors and M&A debt providers.

A previous KPMG report covering ESG due diligence in the EMEA region found ESG vetting was gaining ground, with four out of five dealmakers telling the accountancy that ESG considerations are now firmly on their M&A agenda.

Now, ESG considerations are increasingly scuttling deals as investors respond to stakeholder, investor, and future regulatory demands.

If ESG shortcomings fail to strand a deal, they may still depress the sale price. Four in ten (42%) US respondents said ESG due diligence findings resulted in purchase price reductions.

Stellar ESG performance can, on the other hand, boost prices. Over 60% of investors said they were willing to pay a premium for companies with a high degree of ESG maturity and alignment with their priorities. Of these, over a third said the premium could top 5%.

Most investors (74%) told KPMG they have integrated ESG considerations into their M&A agenda. The top reasons for completing ESG due diligence are identification of risks and opportunities (46%), requirements by investors (19%), and preparation for regulatory requirements (14%).

“As the world continues to evolve, so do the expectations of businesses,” said Clare Lunn, partner, ESG, KPMG US. “Our latest ESG Due Diligence Survey reveals an undeniable truth: Sustainable practices are no longer just a choice but a prerequisite for resilience and growth.”

The key challenges investors said they faced in conducting ESG due diligence were lack of robust data (59%), difficulty in selecting a meaningful scope (56%), and difficulty quantifying findings (45%).