Sustainable dealmaking key to climate change action

This month the world is more focused than ever before on how to tackle carbon emissions and the impacts of global warming. Thousands have descended on COP26 in Glasgow in an attempt to finally ratify the progress that governments have been working towards for some years. This has by no means gone unnoticed by the finance sector, with investors long seeing the potential in companies such as Tesla to make a difference in the fight against climate change.

However, this is now extending far beyond stocks and shares, to every level of investing, with a study by Global Investor Insights finding that “82% of institutional investors believed a company’s value increased 20% or more when it had a positive ESG rating”. While many key figures have identified ESG a key value driver in dealmaking, other issues are becoming increasingly important to those in charge of understanding the company they are looking to acquire.

Due diligence around the impact that rising temperatures could have on an acquisition target, whether it be 1 or 2 degrees, has become a key topic alongside the ESG considerations of vital supply chains. With this in mind, many advisors are becoming more focused on what it means to conduct an ESG minded deal or M&A.

Reece Tomlinson, founding Partner of RWT Growth:

“It may sound counter intuitive that big finance could be a key driver towards sustainability, but the heightened level of regulation and scrutiny in the sector will likely be a boost to ESG investing and dealmaking. Due diligence as part of the process of purchasing, or merging with, a company has always been extensive, but recently it has taken on a decidedly green focus. This comes down to a number of considerations, notably the impact of climate change on the business model or infrastructure and the climate impact of the supply chain – which has been heightened by the pandemic.

“It is clear the push towards net-zero and a more sustainable economy will create investment opportunities, each of which will need to be closely scrutinised to not only confirm their green credentials but also to ensure that other aspects of ESG are being followed. It is important to ensure that a company with a spotless sustainability record is not subject to possible corruption or practicing poor employment practices. The push for sustainability cannot become greenwashing.”