ESG Considerations In M&A Transactions

In the past few years, environmental, social, and governance ("ESG") issues have increasingly influenced dealmaking, and, specifically, M&A transactions. Generally, ESG can be used to measure a target's performance in ways that cannot be determined from financial statements, which include a target's sustainability measures, social impact (such as human rights and labor relations considerations), and organizational and management structure, among other factors.

I. Value Creation and Risk Mitigation

ESG considerations have become key drivers in M&A activities because a target's ESG performance can increase the long-term valuation of the acquisition and send positive signals to shareholders, or, in the case of a private equity fund, it can increase the value of the target before a sale. A target's ESG performance can also create reputational and financial risks for the acquirer. Because of this, it is crucial for companies to assess ESG factors and the target's