Why ESG isn't going away, despite all the noise
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Surprise! Despite all the loud political rhetoric, ESG is still a thing in the dealmaking world.
Why it matters: Even as the practice of Environmental, Social and Governance investing comes under attack by conservatives, it's standard practice for many corporate and private equity leaders to evaluate potential acquisitions along ESG lines.
Follow the money: Dealmakers and investors emphasize that their priority is making money — in other words, looking at ESG isn't about do-gooderism, it's about achieving strong financial performance.
- "We are focused on doing the right thing from a business imperative perspective," says Ken Mehlman, global head of public affairs at private equity giant KKR.
By the numbers: All 500 global business leaders surveyed by Deloitte this year said that they look at how their ESG profile would be affected by a potential acquisition or divestiture.
- 57% said they have defined metrics for evaluating ESG.
- And, across a range of industries, leaders told Deloitte that they had walked away from an acquisition because of an ESG concern, including 80% in private equity, 70% in financial services, and 72% in consumer goods.
What they're saying: "While commercial or operational concerns are often the main reasons for walking away from a deal, ESG red flags are increasingly being considered with the same level of seriousness to either pause or end deal activity," Deloitte partner Brooke Thiessen writes in the report.
State of play: ESG is "is here and it's not going away," Adam Heltzer, head of ESG at Ares Management, tells Axios. As noisy as some voices are, "we've not seen huge impact on the ground."
- This has a lot to do with regulations, particularly in Europe.
- "The reality is that the companies that we invest in are still subject to a range of pressures that require them to think about ESG and how it gets reported, tracked and measured," says Heltzer.
KKR sometimes calls ESG "responsible investment."
- It could mean creating employee ownership programs, something that KKR is promoting, that give workers a stake in the company — and make it less likely they'll quit.
- Another core tenet for the firm is addressing "relevant climate-related risks and opportunities," as Mehlman writes in a recent investor note. Companies that reduce energy use, also reduce costs, he tells Axios.
The bottom line: As the initials ESG have become controversial, some shy away from using them.
- When Mehlman, a former chair of the Republican National Committee, talks to his investors he avoids acronyms and instead tries to explain how efforts around employee engagement or energy efficiency can "future proof companies."
- "No one has ever questioned these objectives — whether from red or blue states."
