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ESG in Deals

Your expert for questions

Klaus Bernhard
Transactions Accounting & ESG Partner at PwC Germany
Tel.: +49 89 5790-5240
E-mail

Sustainability: a success factor in transactions

"The heat is on", warns the Chief Risk Officers Forum urgently in its position paper. The Forum estimates that the climate emergency could lead up to USD 550 trillion in losses around the globe. But rising global temperatures are not the only existential financial threat faced by companies. Other ecological and social risks can also jeopardise a company's future. Because of this, when transactions take place the focus is increasingly falling on sustainability – for corporates as well as for private equity firms. ESG criteria – which examine environmental, social and governance risks – are thus crucial to an investment's success.

When companies neglect to consider sustainability, they can run into serious difficulties: for instance, deficiencies in sustainability standards can lead to negotiations breaking down, falling transaction prices or depreciation in the value of an investment after negotiations because national or international standards were not complied with. 

It is even more important to consider ESG criteria throughout the entire deal lifecycle when buying or selling a company. Sustainability can become a key value driver in a transaction. That's because as a value proposition, ESG factors often justify a much higher purchase price, thereby increasing an investment's resilience after acquisition – and thereby also its exit value. At the same time, national and international standards which compel all stakeholders in a deal to take action – such as the UN Principles for Responsible Investment (PRIs) – are growing in significance. Going forward, companies will have to engage with these regulations, as well as with new megatrends and a changing market situation. PwC helps corporates and private equity firms to reduce their ESG risks in transactions and turn them into opportunities.

Your situation

From setting an ESG strategy to achieving the objective: a sustainable enterprise

At every step of the transaction process, every stakeholder faces a variety of questions and challenges:

  • How can a company realise its ESG investment strategy and commitments so that it is able to achieve its objectives and contribute to sustainable growth?
  • Which ESG factors are material to our own business and should be the centre of focus during the transaction process as a core value-adding element?
  • How do we carry out ESG due diligence to clarify liability issues and how do we verify the effectiveness of risk management before submitting the bid? When negotiating a price, what are the selling points as far as sustainability is concerned?
  • How can we integrate the target into our own ESG concept? How can ESG integration and performance be monitored?
  • How are non-financial KPIs defined which are used to measure and steer ESG performance and report to stakeholders?
  • How can the ESG stature be used at exit/disposal in order to bolster our own reputation and attract investors?

Our services

Building trust, cutting costs, realising value

PwC offers you an experienced team of ESG experts who will provide you with end-to-end assistance throughout the entire transaction lifecycle. Stay one step ahead of your competitors. Given the ever-rising expectations of the market and regulators with regard to sustainability, it is crucial to build trust, cut costs and realise value in transactions. PwC can assist corporates as well as private equity firms in this process.

Deals Service advice for Corporates (M&A): PwC assists on transactions on the buyer and the seller side, for instance with assessing a target based on ESG due diligence, with integrating the target into the buyer's sustainability strategy and with defining, measuring and reporting KPIs. PwC's advisory services also cover capital markets transactions relating to spin-offs and carve-outs.

Deals advice for Private Equity firms: PwC offers advice at the level of General Partner (GP), Limited Partner (LP) and the portfolio – starting with positioning for a sustainable future and selecting targets, through to ESG due diligence for a final offer. PwC also assists private equity firms in setting sustainability goals, defining KPIs and measuring, steering and reporting them. PwC can also help them develop an ESG profile for the portfolio companies with a view to value-enhancing exit readiness.

ESG in Deals for corporates and private equity firms throughout the entire deal lifecycle

Corporates: Strategy

Buy-side

ESG positioning: Review client’s ESG strategy/policy, determine ESG materiality and identify target companies accordingly.

Business profiling: Perform background research on select business partners and key individuals as well as high level country risk assessments e.g. focusing on the impact of political risks on target’s business operations and human rights.

Corporates: Execution

Buy-side

ESG due diligence:

  1. initiate ESG self-assessment
  2. conduct interviews with key management
  3. request information and documents in order to review policies and procedures
  4. collect and analyze data (e.g., data analytics and review insights via virtual data room)
  5. carry out on-site visits to confirm implementation, assess impacts, audit performance, review books and records of select target locations on-site

Red flag report: Summarize and visualize results of the ESG due diligence and develop a post-deal roadmap with further steps.

Final & binding offer: Prepare arguments and information for decision-making and price negotiations from an ESG perspective.

Corporates: Integration

Buy-side

GAP analysis: Conduct further deep-dive analyses into portfolio’s maturity on ESG issues, compare current ESG state with future state as basis for the derivation of improvement measures, derive concrete recommendations and determine priority management actions/ roadmap and KPIs based on material ESG aspects.

ESG remediation: Support client in implementing recommended measures and transforming acquired company within ESG grid. 

Change management: Develop communication and incentive channels, training and awareness raising to achieve ESG objectives and positioning.

ESG monitoring and reporting: Support defining and monitoring the right non-financial KPIs as well as preparation of ESG reports during ownership period. 

Corporates: Divestiture

Sell-side

Divestiture planning: Support ESG divestiture planning, evaluate and prepare requirements for ESG disclosure depending on the nature of the proposed exit and conduct ESG vendor due diligence. 

Spin-off / Carve-out

ESG positioning: Support ESG positioning as core element of the equity story and investment case (analogous to IPO).

Private-Equity-Firmen: Strategy

General partner

ESG positioning: Shaping the ESG strategy and investment procedure of the PE and proposition of target companies as long-term direction.

Portfolio

Business profiling: Perform background research on select business partners and key individuals as well as high level country risk assessments e.g. focusing on the impact of political risks on target’s business operations and human rights.

Private-Equity-Firmen: Execution

Portfolio

ESG due diligence:

  1. initiate ESG self-assessment
  2. conduct interviews with key management
  3. request information and documents in order to review policies and procedures
  4. collect and analyze data (e.g., data analytics and review insights via virtual data room)
  5. carry out on-site visits to confirm implementation, assess impacts, audit performance, review books and records of select target locations on-site

Red flag report: Summarize and visualize results of the ESG due diligence and develop a post-deal roadmap with further steps.

Final & binding offer: Prepare arguments and information for decision-making and price negotiations from an ESG perspective.

Private-Equity-Firmen: Integration

Limited partner

ESG monitoring and reporting: Measure and monitor ESG performance of portfolio companies and support reporting to LPs at fund level.

Portfolio

Portfolio GAP analysis: Conduct further deep-dive analyses into portfolio’s maturity on ESG issues, compare current ESG state with future state as basis for the derivation of improvement measures, derive concrete recommendations and determine priority management actions/ roadmap and KPIs based on material ESG aspects.

ESG value creating and value optimizing activities: (Further) develop the ESG profile of the companies of the client’s portfolio with respect to value-creating exit readiness (whether IPO, trade sale or sale to strategists), i.e. ESG as element of the value bridge.

Private-Equity-Firmen: Exit

Limited partner

ESG vendor due diligence: Support fundraising and communication with LPs.

Portfolio

(IPO) ESG exit readiness review: Support disclosure in the investment memorandum of the level of integration of ESG throughout the investment process and positioning of the portfolio company as a value-creating core element; improve ESG track record for fundraising.

Our promise

Reduce risks, leverage opportunities

We are on your side when it comes to identifying the main ESG risks and transforming them into opportunities. In an environment of rising expectations on the part of the public and strict requirements, we place great store in building trust, and bolstering your reputation in matters of sustainability. By taking into account ESG standards, we can work together with you to cut costs and realise value – at every step of the transaction process. We offer bespoke services and apply best practices and intelligent technology in our solutions.

"Social transformation, the climate emergency, the loss of biodiversity and shortages of resources are megatrends which can develop into existential threats for companies that fail to ready themselves to tackle them. The right ESG strategy enables firms to increase their value and build trust."

Arndt Engelmann,Partner, Risk & Regulatory at PwC Germany

Contact us

Klaus Bernhard

Klaus Bernhard

Transactions Accounting & ESG Partner, PwC Germany

Tel: +49 89 5790-5240

Arndt Engelmann

Arndt Engelmann

Partner, Contract Management & Compliance, PwC Germany

Tel: +49 89 5790-5850

Marc Göbbels

Marc Göbbels

Director, PwC Germany

Tel: +49 211 981-2129

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