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Global value creation stories
Listen to
the Podcast
Investors who have walked due to negative ESG assessment
Investors who conduct ESG DD on a potential target
Corporate website
©2023 Eight International
eight insights
Crystal clear?
Looking at business
through an ESG lens
With environment, social, and governance (ESG) issues now firmly on the regulatory agenda, businesses across all sectors now have no choice but to assess their value chains and implement initiatives. Otherwise, their operations simply won’t fit into the ESG-informed landscape of the future. As Lao Tzu said, “If you don’t change direction, you might end up where you’re heading.”
That’s the stick – but there are also plenty of carrots. One benefit of ESG is that it helps mitigate risk. Scenario building is now a critical exercise: think of risks related to proposed EU legislation to ensure that agricultural commodities aren’t linked to land degradation or deforestation, or to the effect of climate change on the supply of critical metals. Scenario planning also helps companies meet increasingly stringent ESG reporting requirements, some of which demand quantification of the financial impact of climate risks under multiple scenarios.
ESG also opens up opportunities for value creation. It can help businesses achieve resource efficiencies, thereby saving costs and improving margins (for the wider value chain, too). It can also create merger and acquisition (M&A) opportunities for corporates, especially if they’re looking at acquisitions that will help them meet their sustainability targets.
To take one example: a company selling forest-friendly toilet paper – Who Gives a Crap – raised AUD$41.5 million in a fundraising round. Because of the significant demand for ESG assets, the company had the luxury of being able to pick a partner from a range of interested parties. Clearly, it pays to be proactive in strengthening your ESG strategy.
ESG, risk, and value creation
This illustrates the importance of ESG in M&A transactions. But ESG also has an impact on valuation: consider how Boohoo, the online fashion retailer, lost 50% of its market value following negative press around bad labor practices in its supply chain. The lesson? Beware of underestimating the significance of ESG issues …
As further proof, 60% of respondents to a 2021 Baker Tilly survey report walking away from an investment due to a negative ESG assessment of a potential target. Meanwhile, 83% of dealmakers say they conduct ESG due diligence on investments and targets.
When companies develop business plans and financial forecasts, a three-to-five-year horizon is standard. But an ESG perspective changes everything. Organizations need to revisit their decision-making principles and planning horizons, focusing more on the medium to long term – because the traditional short-term focus on quarterly results simply won’t cut it anymore. ESG requires a wider lens, one that focuses on people and the planet, not just profit.
A cautionary tale: Valuation and ESG
Download
ESG and transactions
Download
ESG and business operations
There’s much more to the ESG story. Read our extensive analysis in two of our white papers:
ESG and business operations: A corporate perspective and ESG and transactions: An investor perspective on the impact of ESG issues on M&A transactions.
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What’s trending in M&A
There’s much more to the ESG story. Read our extensive analysis in two of our white papers: ESG and business operations: A corporate perspective and ESG and transactions: An investor perspective on the impact of ESG issues on M&A transactions.
Listen to
the Podcast
This illustrates the importance of ESG in M&A transactions. But ESG also has an impact on valuation: consider how Boohoo, the online fashion retailer, lost 50% of its market value following negative press around bad labor practices in its supply chain. The lesson? Beware of underestimating the significance of ESG issues …
As further proof, 60% of respondents to a 2021 Baker Tilly survey report walking away from an investment due to a negative ESG assessment of a potential target. Meanwhile, 83% of dealmakers say they conduct ESG due diligence on investments and targets.
When companies develop business plans and financial forecasts, a three-to-five-year horizon is standard. But an ESG perspective changes everything. Organizations need to revisit their decision-making principles and planning horizons, focusing more on the medium to long term – because the traditional short-term focus on quarterly results simply won’t cut it anymore. ESG requires a wider lens, one that focuses on people and the planet, not just profit.
A cautionary tale: Valuation and ESG
Download
ESG and transactions
Download
ESG and business operations
Investors who have walked due to negative ESG assessment
Investors who conduct ESG DD on a potential target
That’s the stick – but there are also plenty of carrots. One benefit of ESG is that it helps mitigate risk. Scenario building is now a critical exercise: think of risks related to proposed EU legislation to ensure that agricultural commodities aren’t linked to land degradation or deforestation, or to the effect of climate change on the supply of critical metals. Scenario planning also helps companies meet increasingly stringent ESG reporting requirements, some of which demand quantification of the financial impact of climate risks under multiple scenarios.
ESG also opens up opportunities for value creation. It can help businesses achieve resource efficiencies, thereby saving costs and improving margins (for the wider value chain, too). It can also create merger and acquisition (M&A) opportunities for corporates, especially if they’re looking at acquisitions that will help them meet their sustainability targets.
To take one example: a company selling forest-friendly toilet paper – Who Gives a Crap – raised AUD$41.5 million in a fundraising round. Because of the significant demand for ESG assets, the company had the luxury of being able to pick a partner from a range of interested parties. Clearly, it pays to be proactive in strengthening your ESG strategy.
ESG, risk, and value creation
With environment, social, and governance (ESG) issues now firmly on the regulatory agenda, businesses across all sectors now have no choice but to assess their value chains and implement initiatives. Otherwise, their operations simply won’t fit into the ESG-informed landscape of the future. As Lao Tzu said, “If you don’t change direction, you might end up where you’re heading.”
Corporate website
©2023 Eight International
Crystal clear?
Looking at business
through an ESG lens
Global value creation stories
eight insights
