ESG Compatibility: A Hidden Success Factor in M&A Transactions
Sustainalytics’ ESG Spotlight Series explores mainstream business and investment topics from an ESG perspective.
Our latest report, ESG Compatibility: a hidden success factor in M&A transactions, looks at the link between the ESG scores of companies involved in mergers and acquisitions (the targets and the acquirers), and the companies’ financial success. ESG scores can serve as a proxy for firm culture, which is an important financial driver in M&A transactions. In our sample of 231 M&As, ESG compatible deals outperformed ESG incompatible deals by an average of 21 percent on a five-year cumulative return basis. While other factors can influence the returns of acquiring firms, ESG compatibility may positively contribute to the financial success of M&A deals.
Cumulative Total Returns of Acquiring Companies in M&A Deals (Percentage over Years)
Source: Sustainalytics, Bloomberg