71% of surveyed dealmakers say these considerations have gained significance in transactions within the past 12 to 18 months.
A global survey of more than 600 active M&A dealmakers across 35 regions found that 82 percent of respondents now consider ESG in their M&A agenda, up from 74 percent a year earlier.
ESG’s Impact on Pricing
Dealmakers with more mature ESG due diligence practices are willing to pay a premium for high-performing targets. Twenty-four percent of “high maturity” respondents said they would accept a premium above six percent, compared with ten percent of their less experienced peers.
A global study by Boston Consulting Group (BCG) and Gibson Dunn revealed that three-quarters of dealmakers had encountered a material ESG finding in a transaction over the past three years. The report estimated that catching such issues early can protect up to ten percent of deal value.
Shift in ESG’s Role
According to Priscilla Wang, director of corporate and finance at Singapore Big Four law firm Drew & Napier, ESG is no longer just a defensive exercise. It also offers an opportunity to create value after an acquisition through decarbonisation, operational efficiencies, and entry into sustainable markets.
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Wang notes that a target’s ESG maturity could directly affect its valuation. Companies with robust ESG frameworks may command a “green premium,” while lagging targets risk a “carbon penalty” or valuation discounts because of perceived transition risks.
She distinguishes between issues that can be remedied after closing and those that materially affect value. A record-keeping gap, for example, might be corrected post-closing, but known risks that have not yet materialised could lower the transaction’s value and cannot be easily hedged.
ESG’s Effect on Deal Lifecycle
The impact of ESG stretches across the entire deal lifecycle. Due diligence now moves beyond basic environmental compliance to more vigorous data verification. Buyers often require remediation before closing as a condition precedent, or they structure deferred consideration and earn-outs tied to post-closing sustainability milestones.
Contracts are reflecting these concerns as well. More warranties now go beyond simple ESG compliance, covering supply-chain soundness and the accuracy of public ESG disclosures. Specific indemnities for potential environmental liabilities are also becoming common.
Assessing ESG Risks
ESG should be assessed in the same way as other commercial considerations, according to Wang, who advises striking a balance between treating ESG as a variable similar to other commercial factors and viewing it as part of the overall deal negotiation.
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Tighter disclosure regimes and greater scrutiny from institutional limited partners and sovereign wealth funds are expected to reinforce these trends. Such investors now treat ESG metrics as a proxy for governance quality and long-term value.
As ESG due diligence matures into a standalone workstream alongside legal, financial, and tax review, Wang expects it to turn ESG from a voluntary differentiator into a deal risk factor. This shift replaces the era of high-level qualitative sustainability policies with a more quantitative and institutionalised approach.
For businesses and advisers, sustainability data should be treated as more than a compliance requirement. She advises that the firms that thrive in the coming years will be those that treat sustainability data as a fundamental strategic asset rather than a regulatory burden.
By taking concrete steps to institutionalise ESG practices today, corporate leaders can protect their deal valuations, accelerate closing timelines, and insulate their broader corporate portfolios from long-term transition risks, Wang concludes.
