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PE leading early adoption of ESG in M&A

Private equity investors (PEI) are leading the early adoption of environmental, social and governance (ESG) efforts in M&A, according to a new Deloitte poll. Based on the data, PEIs are ahead of their corporate M&A counterparts when it comes to the use of ESG clauses in deal contracts and routine ESG due diligence.

While many respondents evaluate ESG during pre-deal due diligence (PEI – 49.6%; corporate – 43.2%), PEI respondents are nearly three times as likely to approach ESG due diligence “consistently and formally” (26.8%) compared to corporate M&A professionals (9.3%). The survey also reveals that ESG evaluations could become more widespread as additional professionals from both groups indicate that they plan to incorporate ESG into due diligence processes in the next 12 months (PEI – 23.2%; corporate – 32.6%).

When it comes to inclusion of ESG clauses in M&A contracts, approximately one quarter (26.5%) of the PEIs surveyed include material adverse change clauses, warranties and interim operating agreements, versus 14.1% of their corporate counterparts. Looking to the year ahead, a considerable group of polled dealmakers say their organisations plan to begin using ESG clauses in deal contracts (PEI – 16.3%; corporate – 22.9%).

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