PwC Poll Shows Increasing Focus on Sustainability Factors in Dealmaking

Nearly 70% of respondents plan to evaluate environmental, social & governance factors in their future transactions

Nov 13, 2013, 08:00 ET from PwC US

NEW YORK, Nov. 13, 2013 /PRNewswire/ -- Environmental, social and governance (ESG) matters are becoming increasingly important in the deal market, according to a recent poll of over 300 professionals conducted by PwC US.  The poll, conducted during PwC's recent webcast, Integrating environmental, social and governance (ESG) issues in deals and valuing their impact, found that 68 percent of participants who are planning a divestiture, acquisition, merger or IPO in the next 12 months plan to evaluate ESG considerations when planning their transactions.

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Investors are increasingly taking environmental, social and governance factors into consideration when assessing the value of a company. According to the survey, 38 percent noted that investors are the stakeholder group most focused on ESG issues, closely followed by senior management at 36 percent. Other stakeholders expected to be focused on ESG issues include boards (19 percent) and bankers (seven percent).

"Several key issues are making ESG initiatives more pertinent to companies including the rising price of natural resources, urbanization, global climate events, as well as expansion into emerging markets, said Scott Gehsmann, a partner in PwC's U.S. Deals practice. "Environmental obligations, regulatory & compliance requirements and how ESG strategies impact customers have accounting and reporting implications and can impact deal value."

The goals behind an ESG program vary according to an organization's priorities and desired outcomes.  When asked to identify the leading areas of ESG focus in their own organizations, poll participants cited several factors. 27 percent said that regulatory compliance & risk management is their primary focus.

Fifty percent said they are focused on three areas: regulatory compliance and risk management; operational efficiency and effectiveness; and revenue enhancement and other market-facing initiatives. This is evidence that a growing number of business executives are expecting more from their ESG initiatives.

"We find that most companies begin their initial ESG programs to focus only on risk and liability assessments. However, savvier companies understand ESG expands beyond risk and they are using ESG to capture key strategic, operational, reputational and financial benefits, " said Lauren Kelley Koopman, a director in PwC's U.S. Sustainable Business Solutions practice. "We're working with companies across the full spectrum of ESG - identifying the risks, cost savings opportunities, tax incentives, and generating new revenue."

PwC's poll also asked executives to identify barriers to placing a dollar value on their ESG initiatives. Nearly half (46 percent) responded that they are facing three barriers, cited as a lack of in-house expertise, lack of methodology, and lack of senior level support.

"A company's ESG strategy, or lack thereof, can have direct and indirect impacts on value, positive or negative.  In the deal context, it can be important to identify and measure those ESG factors, whether risks or benefits, that have the most potential impact on value and ROI so that they can then be built into pricing decisions.  Identifying risks or benefits that others miss can make the difference in winning an auction or earning the planned ROI for a deal," said Donna Coallier, a partner in PwC's Valuation practice.

To view the recording of the webcast, visit:  

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