Executive Summary

Environmental, Social, and Governance (ESG) factors have shifted from “nice-to-have” to deal-breakers in mergers and acquisitions (M&A). Recent surveys show that buyers are increasingly walking away from targets with weak ESG performance, while valuation multiples now reflect sustainability metrics as much as financial ones. The global deal flow of late 2025 and early 2026 reveals a consistent pattern: ESG risks terminate deals; ESG strengths accelerate integration and unlock capital.

Recent Trends in ESG and M&A

• ESG as a deal filter: A Deloitte survey (cited in a Sept 2025 briefing) found that 72% of corporations opted out of acquisitions due to concerns over a target’s ESG performance. This behaviour has persisted into early 2026, with boards tightening risk thresholds and refusing to acquire companies with poor sustainability track records.
• Valuation reshaped by sustainability metrics: Investment banks report that younger investor cohorts are driving allocations toward sustainable investments. Deal teams now price climate risk, labor practices, and governance rigor directly into valuation multiples and earn-outs.
• Mainstreaming of ESG diligence: Institutional investors increasingly characterize ESG criteria as “important” or “very important,” reinforcing ESG diligence as a standard practice rather than a niche overlay.

 Emerging Global Patterns in ESG-Driven M&A

• Energy transition assets: Renewable energy developers, battery storage innovators, and grid‑tech firms are commanding premium multiples. Buyers are prioritizing companies with credible emissions baselines, certified power purchase agreements (PPAs), and strong community licenses to operate. These assets are seen not only as growth opportunities but also as risk hedges against regulatory tightening and investor scrutiny.
• Supply-chain resilience: Manufacturers with traceable inputs, labor‑rights controls, and verified Scope 3 methodologies are favoured worldwide. Industries such as apparel, electronics, and food are under intense supply‑chain scrutiny, making resilience a valuation driver. Companies that can demonstrate transparent sourcing and compliance with international standards are positioned as safer bets in cross‑border acquisitions.
• Governance-led turnarounds: Targets with independent boards, whistleblower systems, and anti‑corruption controls integrate faster post‑ Governance maturity reduces reputational drag, lowers financing costs, and accelerates value capture. In several recent deals, governance reforms have been the decisive factor in buyer confidence.

 How ESG Changes the Deal Model

Investor Perspectives

Global investors are increasingly vocal about ESG in M&A:

• Private equity funds are embedding ESG clauses into shareholder agreements, tying management incentives to sustainability KPIs.
• Sovereign wealth funds in the Middle East and Asia are prioritizing renewable energy and infrastructure assets, reflecting national transition strategies.
• Institutional investors in Europe and North America are demanding third-party assurance of ESG data before approving acquisitions.

 This shift underscores that ESG diligence is no longer optional — it is a precondition for capital access.

 Practical Moves for Sellers, Buyers, and Boards

• Sellers:
  • Pre-empt diligence with verified emissions baselines, supplier codes, and grievance channels.
  • Publish governance policies and enforcement records. o Demonstrate supply-chain traceability and labor compliance.
• Buyers:
  • Demand third-party verification of ESG claims. o Price climate and social risks explicitly into deal models.
  • Tie earn-outs to sustainability KPIs to ensure accountability post-acquisition.
• Boards:
  • Treat ESG as enterprise risk. o Document thresholds for walk-away decisions.
  • Establish integration safeguards tied to ESG performance.

 Why This Matters Globally

• Capital access: ESG-aligned deals attract cheaper financing and broader investor pools.
• Risk mitigation: Weak ESG performance exposes acquirers to litigation, reputational damage, and regulatory penalties.
• Strategic advantage: Companies with strong ESG credentials integrate faster, retain talent, and sustain stakeholder trust.