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We explore the ways in which sustainability has become a vital part of the M&A process and look at why businesses with robust sustainability policies have become sought-after targets for investment. 

Showcasing sustainability during mergers and acquisitions (M&As) brings myriad long-term benefits, including greater alignment between parties, greater understanding of long-term goals, improved decision-making, and so on. It also brings practical compliance benefits, with reduced emissions becoming a ‘relevant customer benefit’ in the Competition and Markets Authority (CMA) assessment.

Businesses should showcase sustainability from the start. Mary Wilks, anti-trust counsel at , echoed that sentiment in a recent article: ‘For businesses considering “green” transactions that carry traditional merger control risks, building up evidence of sustainability-related efficiencies, including how these will be passed on to consumers, should form part of early transaction planning.’

In this article, we explore how sustainability has become a pivotal part of the M&A process and look at how it has also become increasingly important in attracting investment. We also discuss why businesses need to retain momentum around sustainability, even during times of economic hardship.

Sustainability as a customer benefit in M&As

In 2021, the debate around anti-trust and the quest for net zero escalated significantly. In the build-up to , the CMA announced that it would include reduced carbon emissions as a ‘relevant customer benefit’ in merger assessments as a part of its .

That means that parties can cite reduced emissions as one of their ‘merger efficiencies’ to act as a countervailing factor to mitigate significant lessening of competition (SLC).

The CMA  that shows how companies can collaborate to achieve sustainability goals, suggesting that such collaboration is unlikely to raise any competition law issues. And, in cases where issues arise, the CMA says that sustainability agreements may outweigh the consequences of restricting competition. Parties in M&As suddenly have plenty of incentive to become green.

Including sustainability evidence in M&As does not simply improve the ease of long-term collaboration, but it also improves the chances of the CMA approving the transaction. It’s thus essential that businesses act with transparency on sustainability policies from the very beginning.

The investment benefits of sustainability

Sustainability policies are also proving beneficial in terms of broad investment. The ��˾����ҹ���� Global Legal Product Index demonstrated that environmental, social, and governance (ESG) policies could potentially impact a company’s valuation. Investors are increasingly scrutinising ESG disclosures, particularly around initial public offerings (IPOs). IPO issuers need to get ESG narratives right, ensuring they provide assurance to potential investors and avoid any issues around disclosure and compliance.

Robust and meaningful ESG policies are essential for businesses trying to attract investment. But they are not simply essential. They are often mandatory. Listed companies have started to make mandatory climate disclosures, aligning with the Task Force on Climate Related Financial Disclosures (TCFD).

The TCFD requirements will soon extend to standard listings. And similar requirements will soon apply to alternative investment market (AIM) companies, large private companies, and limited liability partnerships (LLPs). The requirement may be enhanced, too, as part of the .

That is quite a lot for businesses to consider. But it clearly demonstrates the case for meaningful ESG policies. Companies that enact ESG policies with clarity and transparency will find compliance – including cross-border compliance – far more amenable, they will attract greater investment, and they will play a greater role in tackling perhaps the most pressing matter of our time: climate change. 

Sustainability in times of difficulty

The is clear, even devoid of investment potential. Robust sustainability policies, among other things, boost employee and morale, improves company and brand reputation, attracts new and keeps existing customers, and provides relief from . But still, despite the many benefits, during times of hardship, sustainability .

Consider a recent The 128 CFOs and CEOs that participated in the survey said that M&As and sustainability are the first areas to face cuts if margins are squeezed. Cuts to M&As are an obvious choice during economic hardship, but cutting sustainability policies is more surprising, especially considering for the first time in 2022.

It shows that, despite the increasing business case for sustainability, sustainability is still sometimes viewed as an accessory rather than an essential part of the business. That is a problem that companies need to overcome. The case for sustainability is clear and the benefits are many. Failure to grasp the advantages of robust sustainability policies will lead to competitive disadvantage in the long-term.