National law firm Dykema recently published its 17th annual Mergers & Acquisitions Outlook survey, which polls senior executives and professional advisors across the country on their attitudes toward the current state of mergers and acquisitions.
The section on responsible investing begins with the statement that,
“Attention to environmental, social and governance (ESG) factors when making investment decisions has skyrocketed over the past few years and was accelerated by COVID-19.”
Survey results back it up: more than half (55%) of respondents reported working on a deal involving a target company or buyer screened for ESG risk within the last 12 months. Thirty-eight percent had not, while eight percent were “unsure.” Three-quarters (75%) of respondents said it was “somewhat” (33%) or “very” (42%) likely they will directly or indirectly work on a deal that includes screening for ESG risk over the next 12 months. Only 18% of respondents said such work was “somewhat” (10%) or “very” (8%) unlikely in the next year, while the remaining 7% was “unsure.”
Authors wrote that public markets are leading the way in ESG reporting and investing, with private companies increasingly looking to follow suit. They recommend dealmakers familiarize themselves with ESG given its growing popularity and centrality in the mergers and acquisitions process.
A separate survey by research firm Verdantix published last month similarly found that more than half of senior executives say their firms will have double-digit increases in ESG spending in 2022. Europe currently leads the world in ESG investing, according to a report by capital market company RBC GAM also published last month.
One factor motivating increased interest in ESG investing is climate change: 95% of insurance company executives believe climate change translates to investment risk, according to a study by investment management company Black Rock.
ESG investing is a type of responsible investing that looks to invest only in companies that have been assessed to score highly on environmental and social responsibility scales, as determined by third-parties. Criteria include:
- Carbon footprint.
- Supply chain sustainability.
- Racial diversity.
- LGBTQ+ equality.
- Executive pay.
- Leadership responsiveness to shareholders.
Other forms of responsible investing include:
- Socially responsible investing, which screens out undesired companies based on criteria set by each investor.
- Impact investing, which aims to produce a positive social or environmental impact via investing.
- Engagement, which seeks to influence corporate behavior through direct engagement, shareholder proposals, and proxy voting.
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