Exploring the alignment between M&A strategies and ESG goals: a study of long-term value creation

Abstract

Businesses are encouraged to demonstrate responsible corporate citizenship by considering stakeholders and the environment. Recent studies show an increasing number of companies integrating environmental, social, and governance (ESG) into mergers and acquisitions (M&A) processes as a form of risk mitigation strategy and the creation of sustainable long-term stakeholder value. Nonetheless, this research has not yet been conducted in South Africa, and publicly available information does not identify ESG as a strategy in M&A. Therefore, this study aimed at exploring the main challenges of incorporating ESG factors into the M&A process, focusing on target identification, due diligence, and valuation. The research also aimed to assess how ESG may contribute to stakeholder value creation post-merger. A qualitative, exploratory research approach was adopted to gain understanding and insights from participants experienced in M&A and ESG investing. Semi-structured interviews were conducted with six M&A practitioners and eleven ESG practitioners. The study identified stakeholder engagement and cost efficiencies as a benefit to ESG integration; however, these are hindered primarily by a lack of standardisation of ESG frameworks and cultural and resource allocation. The study offers a South African perspective, noting legislative nuances such as the B-BBEE Act and the King codes of corporate governance. Future research should explore organisational culture as a barrier to ESG implementation and contextualise the definition of the social pillar.