How is ESG affecting the deal market

30 January 2025

2024 was a busy year in the world of sustainability and Environmental, Social, and Governance (ESG), we explore the themes in more detail in our recent article 'Year in Review 2024 – Sustainability and ESG'. When a company is preparing for a sale, integrating ESG considerations is critical. ESG factors not only enhance the company’s attractiveness to potential buyers but also ensure long-term sustainability and compliance with evolving regulatory standards.

We continue to see significant developments in sustainability, which can make it difficult for companies to navigate the ever-changing regulatory landscape as well as understand what their stakeholders are prioritising.

Key ESG areas all businesses should be aware of when preparing for a sale

Significant, immediate, and growing sustainability regulation

One-third of deals are cross-border, so businesses must consider both UK and EU sustainability regulations. The EU’s Corporate Sustainability Reporting Directive (CSRD) now requires 50,000 companies to report on their environmental and societal impacts, performing a “double materiality assessment” (DMA) to evaluate sustainability impacts and risks. Even if not directly affected by the CSRD or other EU regulation such as the Corporate Sustainability Due Diligence Directive (CS3D), businesses in the supply chain of larger corporations may need to comply. The CSRD, while adding reporting requirements, helps businesses understand key sustainability topics and their value.

In the UK, updates on adopting the International Sustainability Standards Board (ISSB) S1 and S2 standards as UK Sustainability Disclosure Standards (SDS) are expected in Q1 2025. These will likely impact premium-listed businesses and those with over £500m turnover, raising market expectations for sustainability reporting.

Increasing sustainability requirements also affect investors, focusing on financed emissions and impacting the businesses they invest in. Staying updated on key areas can attract more potential buyers.

The focus on climate and the environment

Climate and the environment are integral to any business’s ESG strategy. Reporting and understanding Scope 1 and 2 carbon emissions is now standard for businesses preparing for a sale.

There is a growing expectation for businesses to have a clear, ambitious net zero plan to reduce carbon emissions and understanding climate risks and opportunities enhances business resilience. Depending on the business, focus may also be needed on waste, water, and nature-dependent materials. The key is to identify what is material for your business.

Understanding what’s important for your business

Materiality is crucial in ESG and sustainability, which cover broad topics like community engagement, diversity, and environmental issues. Businesses can’t address all topics at once, so identifying key areas and creating a realistic roadmap is essential.

Stakeholders, including suppliers, customers, employees, finance providers, and investors, drive ESG actions. Understanding their priorities helps businesses focus on what’s important.

It’s not just about past ESG achievements; stakeholders also value a well-supported sustainability action plan for ongoing improvements.

Focus on quality and reliability of sustainable data

With new regulations and the 2024 failure to prevent fraud act, businesses increasingly value assured sustainability data to prevent greenwashing and ensure accuracy for stakeholders. Assurance processes reveal control or data weaknesses. We support clients with assurance readiness reviews or limited assurance to ISAE 3000/3410 standards, the most robust form of sustainability assurance. Investors and corporate buyers demand reliable sustainability data, often conducting internal audits. Key customers, especially blue-chip corporations, frequently request assurance of sustainability data or completion of ESG credentials like CDP or EcoVadis.

How our sustainability experts can help your business

Our sustainability experts at RSM help you identify key business priorities to drive value creation. Even if you’re not directly affected by regulations, understanding sustainability topics is crucial during a sale process. We assist in identifying material ESG topics, understanding stakeholder expectations, and meeting ESG reporting requirements. Additionally, we offer data-focused assurance reviews to confidently market your sustainable achievements to potential buyers.

For more information, get in touch with Kathy Hobbs. 

Deal services review 2024

We reflect on the deal services market and share some of trends and highlights, while looking ahead to 2025.