Going For M&A? Here Are 3 Steps to Maximize ESG Adoption

ESG and sustainability goals are fast becoming part of all facets of a business as companies and investors realize the multiple benefits of a socially conscious organization.

Along with traditional profits, now ESG criteria are also being considered in valuing companies.

Global asset manager BlackRock, for instance, has made factoring in climate risk into the value of securities a standard practice.

In a recent survey by banking and wealth management company Investec, 62% of respondents said ethical factors had been significant contributors for them to not invest in one or more companies.

Unsurprisingly, many large companies in G20 feel “extreme” pressure to improve their ESG endeavors and conduct M&As with the sole purpose of boosting their ESG creds and capabilities.

The ESG Equation During Mergers and Acquisitions

M&A restructuring allows businesses to optimize and boost their ESG and sustainability endeavors in ways more than one. Here are three broad steps on how to maximize this opportunity:

Step 1: Identifying Strategies and Opportunities

The first step is to identify opportunities and build strategies around them for creating ESG wins. Here are some pointers to keep in mind:

i. Finding and acquiring the right resources:

The topmost M&A objective includes identifying the gap in network efficiencies and thereby investing in tools, technology, R&D and create synergies.

ii. Creating teams for decision-making:

For the establishment of strong governance creating a supply chain integration team with ESG and sustainability experts is imperative. This ensures that sustainability and climate consciousness are always instilled in a company’s short and long-term plans.

iii. Optimizing organizational footprints for minimal carbon emission:

Restructuring lays multiple opportunities to optimize the locations of manufacturing plants, distribution centers, R&D centers, administrative spaces, support offices and other facilities to minimize carbon emissions.

Step 2: Optimizing Costs and Value-Delivery for Short and Long Term

Now, it’s time to optimize the ongoing operations in terms of cost and efficiency. Note that cost optimization efforts need not contradict ESG goals. These can even be complementary pursuits. Focus on plans that help deliver immediate results and lay the foundation for future programs.

These optimization endeavors can be classified into:

i. Quick wins:

Endeavors that promise to deliver rewards within a year. Examples can be strategic sourcing, optimizing logistics, and more.

ii. Future enablers:

Endeavors that set up an organization for sustained value delivery without increasing cost. Examples can be technology, system integration and more.

Step 3: Change Management

To sustain and manage the newly introduced changes to meet the ESG goals, the following points are important:

i. Tracking the right metrics:

Measuring the right KPIs will serve as a standardized way of benchmarking and comparing suppliers and help identify previously unobserved emissions reduction/improvement opportunities. These KPIs must be a part of a comprehensive procurement policy. Some examples would be Science-Based Targets Initiative (SBTi) and Climate Disclosure Project (CDP).

ii. ESG best practices training:

It isn’t necessary that pre-merger teams bring with them the same attitude towards ESG as you desire – there might be a difference in the skills and knowledge related to ESG. Therefore, target training programs on DEI, ESG and sustainability should be conducted to empower the staff.

To learn more on how M&A restructuring can help meet ESG and sustainability goals and access case studies on how industry leaders are doing so, consider giving this GEP’s whitepaper a read: M&A Restructuring - The Perfect Opportunity To Accelerate Your ESG Journey.