In more and more acquisitions, sustainability is considered a pillar of value creation.
Sustainability is still a tick-box exercise for some organizations. But not for long, if it is up to Leonie Schreve, sustainability expert in PwC's mergers and acquisitions practice. “We show our customers that sustainability offers financial value to differentiate yourself from competitors, open new markets and make it easier to attract financing. Organizations that integrate sustainability into their core business have the future.”
More than compliance
Leonie Schreve has been working at PwC for a year and a half. Before that, she was employed by ING for eighteen years and worked for a number of years as a consultant at Royal HaskoningDHV. At PwC, her focus is on realizing sustainable deal value. Not only during the deal process, but preferably well before and after. “As an organization, you should not look at sustainability because it is or will become mandatory, but as a must to run your business even better. This requires a 360-degree approach to properly understand the organization and the market and to help provide insight into the possibilities for value creation.”
Creating new value
Of course, laws and regulations must be complied with, but Schreve talks to customers about the insights that arise once everything has been implemented. “If, as an organization, you know exactly which buttons you can press to save costs and work more efficiently, you ultimately create more value. And that is also where our strength lies. In contrast to the traditional compliance approach, we look much more at whether organizations have already set things in motion, whether they are already well positioned and whether/how they can then create opportunities. In principle, we try to quantify sustainability as much as possible and then involve different expertise. Consider tax capabilities, both in terms of subsidies and taxes. But also strategy, data capabilities, operational efficiency and of course our financial expertise. This may be different per deal, depending on the type of deal and the sector. We also work closely with HR specialists and can identify issues such as significant gender pay gaps. In this way we make sustainability aspects very transparent and show the potential for developing value.”
PwC's Global Private Equity Responsible Investment Survey 2023 – a survey of more than 150 private equity firms – shows that respondents overwhelmingly believe that ESG management can help create value. About seventy percent place value creation in the top three drivers for their organization's ESG activities. The survey results also indicate that it is now standard for PE firms to consider ESG factors when seeking opportunities, conducting due diligence, developing post-acquisition plans and deciding on deal terms.
From awareness to actual transformation
Ideally, Schreve and her team are already on board with an organization a year before a (potential) deal. To prepare her as best as possible for the deal and to include sustainability in the entire sales story. And after a deal there are always post-deal recommendations, which can then be taken up by other departments. “The positive thing about this approach is the reactions we receive from more and more customers: 'I didn't feel like starting with sustainability at all, but I found this process really interesting. I have learned so much and now know that you can also look at it in a different way. It is not something we 'do on the side', but something to fully integrate into our business.' Because of these types of reactions, I think organizations are increasingly appreciating sustainability. And the next step is to translate that realization into actual transformation. Because ultimately, sustainable deal value also means financial value: staying in business or expanding your business. You have to clearly market that story.”
Impact of climate change and other challenges
Sustainable deal value is also related to external factors such as climate change and biodiversity. “Climate change has an impact on production and the future sustainability of that production,” says Schreve. “That's a big risk to think about. Think of coffee producers or wine growers... you have to make sure that you grow your products in different places now, because there is a chance that a harvest will fail or will no longer be possible in five to ten years. This also means that as an organization you must have good insight into the entire value chain in order to optimize it. Water is also going to be a challenge. Too much water or too little water. There were recently alarming reports that we in the Netherlands also run a possible risk of not having clean drinking water in x number of years. And water problems around the world can also cause other problems, such as climate refugees. That will be a very big challenge.”
Breaking the ecosystem together
“With our 360-degree approach, we zoom in on various components from the outside and then look at how we can respond to all those components and associated drivers”, Schreve continues. “And that involves critical questions, such as: you say you are sustainable, but how do you measure that? Do you have certifications? Perhaps not everywhere yet? But what are your ambitions in this regard? What targets have you set? Do you respond to sustainable customer questions, such as sustainable products? How do you deal with questions from the ecosystem in which you operate? What is your emission? Have you measured it yet? And how do you do that? Have you also set targets for that? How do you prepare for regulations, and do you have insight into possible implications? And what do you want to know from the organizations you work with? Do you also want to collect data from them? And if so, what data? How do you deal with scarce staff? Do you also have programs to attract and retain talent? And do they work? What are your turnover figures? How do you deal with a possible 'gender pay gap'? How diverse are you already? And how do you score compared to your peers? We make an analysis based on these types of questions. So that we can anticipate based on calculations and valuations. We see the latter more and more often. If ESG implementation and initiatives are lacking or insufficient, we see potential buyers taking some of the price off for the sake of sustainability.”
While a compliance approach is mainly based on evidence, Schreve and her team look much more at market dynamics and opportunities. “In many cases we base our decisions on conversations with the management of organizations. We interview experts in the market to test certain statements from our customers. And then we look more ahead. In the field of sustainability, there are still many data points that are not available. But that does not alter the fact that we do put a stamp on it that it is PwC-proof. That has a lot of value in the market.”
This articles was previously publiched on MenA.nl (the website for the Dutch M&A Community) on September 22, 2023
