KPMG Study: 53% of Investors Cancel M&A Deals Due to ESG Due Dilligence

In a world where business landscapes are constantly shifting, ESG is becoming increasingly important. The importance is no longer limited to ethical intentions but is also influencing the success and failures of merger and acquisition (M&A) deals.  

KPMG’s recent 2023 ESG Due Diligence study highlights the interplay between ESG and M&A, offering insights into the decisions of investors. 

Key Findings from KPMG’s Study: 

  • 53% of investors have walked away from potential M&A deals due to significant findings during ESG due diligence. 
  • ESG considerations are now on the M&A agenda, with 74% of investors integrating them into their decision-making processes. 
  •  42% reported price reductions from ESG issues during the due diligence process 
  • Over 60% of investors are willing to pay a premium for companies showcasing advanced ESG maturity and alignment. 
  • One-third of investors are willing to pay a premium above 5% for strong ESG performance. 
  • Challenges faced by investors in ESG due diligence include lack of robust data (59%), difficulty defining scope (56%), and quantification challenges (45%). 

Clare Lunn, Partner, ESG at KPMG US, captures the meaning of all this: “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.” 

These changes highlight a fundamental shift in how businesses view sustainability, as ESG concerns are increasingly shaping more decision-making processes. The study, which surveyed 200 US ESG practitioners (including corporate investors, financial investors, and M&A debt providers) found that ESG vetting is no longer just a mere consideration; it has firmly established its place on the M&A agenda.  

ESG is now a strategic imperative driven by stakeholder expectations, investor preferences, and imminent regulatory demands. Moreover, the study uncovers a dual impact: not only can ESG-related shortcomings jeopardize a deal, but they can also lead to reduced purchase prices. For 42% of US respondents, ESG due diligence findings directly contributed to price reductions. 

Soaring Gains for Companies with Robust ESG Performances: 

However, it’s not all cautionary tales: According to the study, companies with robust ESG performance stand to gain from this shift. More than 60% of investors are willing to pay a premium for companies demonstrating advanced ESG maturity and alignment with their priorities. Over a third of these investors indicated that the premium could be above 5%. 74% of investors have already successfully integrated ESG considerations into their M&A agendas. This integration stems from several key motivations, including risk and opportunity identification (46%), investor requirements (19%), and regulatory preparation (14%). 

Challenges in the ESG due diligence process are not overlooked: Investors cited hurdles such as insufficient data (59%), defining a meaningful scope (56%), and quantifying findings (45%) as key obstacles. Amidst these challenges and recognizing the significance of robust ESG data; Denominator is closing the gap within ESG information by providing DEI scores, ratings as well as bringing transparency to DEI globally.  

With ESG playing a central role within M&A Due Diligence process, simply checking a target’s carbon footprint or water consumption no longer addresses all the relevant ESG risks and opportunities.  

This development naturally encompasses Diversity, Equity, and Inclusion (DEI) considerations within the social dimension of ESG. The growing demand to assess DEI exposures during Due Diligence reflects this change. At Denominator, we provide comprehensive data on the social aspect of ESG, aligning with the study’s insights. 

Denominator is attuned to these emerging DEI Due Diligence challenges and provides out-of-the-box solutions, such as: 

  • Easy and fast delivery of insights  
  • Deep and global DEI data coverage  
  • Granular and detailed across DEI dimensions 
  • Uniquely holistic approach, ensuring full DEI coverage 

These solutions have been helping Private Equity firms to benchmark and assess the DEI performances of their portfolio. With the goal to attract better talent, achieve better results as well as secure higher valuations during future exists.  

Solutions that ensure organizations and ESG DEI decision-makers never have to compromise on obtaining actionable DEI insights. 

To learn more about Denominator’s holistic DEI data solutions, reach out at 

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