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More Dealmakers Ponder ESG Factors

Last updated: Watercooler

More than 300 deal professionals cite environmental, social and governance (ESG) factors as a growing focus in M&A

Natural resources is one sector that acquirers continue to focus on due to the growing middle class in many markets fueling demand. And the trend isn't confined within U.S. borders.

Latin America, for example, is one market that financial sponsors and strategic buyers alike find themselves invested in, especially since it has become a safer and more predictable place to do business. As Mergers & Acquisitions continues to report, the emerging market is considered a source of previously unexploited natural resources, and state-owned oil companies need the private sector to come in and invest.

Couple that with an increasing focus on emerging markets, and you have two of the most crucial issues affecting whether a deal closes, according to a recent poll.

More than 300 deal professionals cite environmental, social and governance (ESG) factors as a growing focus in M&A, a recent PwC survey shows. Now more than ever, the rising price of natural resources, urbanization, global climate events, as well as expansion into emerging markets rank highest among the issues concerning dealmakers.

Sixty-eight percent of participants who are planning a divestiture, acquisition, merger or initial public offering in the next 12 months say they plan to evaluate ESG considerations when planning future deals.

Investors (38 percent) and senior management (36 percent) are the stakeholder groups most focused on ESG issues.

Fifty percent of participants are focused in three areas: regulatory compliance and risk management; operational efficiency and effectiveness; and revenue enhancement and other market-facing initiatives.

"Most companies begin their initial ESG programs to focus only on risk and liability assessments," says Lauren Kelley Koopman (pictured), a director in PwC's U.S. sustainable business solutions practice. "However, savvier companies understand ESG expands beyond risk and they are using ESG to capture key strategic, operational, reputational and financial benefits."

Executives were also asked to identify barriers to placing a dollar value on their ESG initiatives. Nearly 46 percent cited a lack of in-house expertise, lack of methodology and lack of senior level support.