KPMG Study: Most U.S. investors want a dedicated ESG due diligence product that can analyze risks and opportunities

• Lack of robust data, inadequate understanding of what ESG due diligence means, and difficulty in selecting a meaningful scope cited as top challenges in conducting due diligence
• Majority say deal cancellation was the most common consequence of a material finding during ESG due diligence

New York, July 27, 2023 — With a heightened focus on sustainability reporting from investors and regulators alike, a majority of corporate investors want a dedicated ESG due diligence product that can analyze risks and opportunities, according to KPMG’s recent ESG Due Diligence Survey.

“The data speaks loud and clear: Companies and investors are increasingly integrating ESG considerations into their M&A strategies, not only because it’s the right and responsible thing to do but also because of the value implications of ESG,” said KPMG U.S. ESG and Climate Services Leader Mark Golovcsenko. “At KPMG, we stand committed to empowering organizations to navigate this paradigm shift, as sustainability is not just an aspiration but inextricably linked to value creation.”

The survey features insights from over 200 M&A practitioners — corporate investors, financial investors and M&A debt providers — in the U.S. and Europe, Middle East and Africa (EMA) on how ESG due diligence affects their M&A transactions.

Key findings:

• 74% have ESG considerations as part of their M&A agenda, but only 51% possess a proper understanding of ESG in their area of investment.
• Most investors (74% of U.S. and 82% of EMA) are now including ESG in their M&A agenda including 72% of financial investors and 76% of corporate investors in the U.S. compared to 94% and 77% of EMA investors respectively.  
• Investors will be conducting ESG diligence more frequently in the future, with 48% of EMA and 27% of U.S. investors now saying they will do it frequently (on more than 80% of deals), up from 25% for EMA and 16% for the U.S. for the previous two years.
• 68% of EMA investors and 62% in the U.S. said they would pay a premium for a target that demonstrates a high level of ESG maturity that is in line with their ESG priorities.  

Impacting Deals

• 53% of U.S. and 66% of EMA investors said deal cancellation was the top consequence of a material finding.
• Conversely, 76% of debt providers to M&A said they went ahead with financing or underwriting, but with more conservative conditions, as a consequence of material findings.
• 54% of EMA and 56% of U.S. investors reported that selecting a meaningful yet manageable scope was one of the main challenges for ESG due diligence.
• In addition, 49% of EMA and 59% of U.S. investors named the “lack of robust data or written policies of allegedly followed practices at the target” as a challenge.

“As the world continues to evolve, so do the expectations of businesses,” said KPMG U.S. Partner, ESG Clare Lunn. “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.”