Perhaps it means nothing to you. Or you might feel overwhelmed at the thought of all the ESG-related requirements and reporting obligations (CSRD) coming your way. ESG stands for Environmental, Social & Governance, which refers to the balance between environmental, social, and governance criteria for a company's activities and their resulting impacts on the environment and society. The originally European guidelines aim to increase corporate accountability and harmonize sustainability standards within the European Union.
But what does ESG mean from the perspective of value or the (sale) purchase of a company? How can ESG affect a company's value? What opportunities does ESG offer? In this blog, I will tell you more about it.
Due to their reporting responsibilities, more and more companies are required to report on ESG, including how their suppliers handle these issues (supply chain responsibility). In a transaction environment, ESG means that the (sale) purchase of companies increasingly considers how a company handles matters such as energy consumption, climate, health, etc. A company that does not respond to this development in a timely manner will (in the long run) face decreasing demand from customers. This, in turn, puts pressure on the profitability and cash flows of companies. It goes without saying that this has a negative impact on a company's value. Failure to adequately or timely respond to this trend will eventually result in the destruction of the company's value.
Conversely, by responding to ESG in a timely manner and becoming a frontrunner in your industry, you can actually benefit from ESG. You can capitalize on the gaps left by your competitors. By profiling your company as both ESG-responsible and the designated party to take responsibility in the supply chain, you can increase your profitability and, consequently, the cash flows to your company. ESG thus offers an excellent opportunity to add value to your company. Particularly now, as society stands on the brink. Parties that want to take social responsibility may now conclude that they need a different supplier. This is especially relevant for parties in the supply chain that deal with entities in the (semi) public sector.
Are you considering selling your company in the short or medium term? Then it is important to consider the implications of ESG and analyze them accordingly. This gives you a prime opportunity to add value to your company in the short or medium term. Also, if you are considering acquiring a company, it is important to pay sufficient attention to ESG aspects to avoid overpaying. After all, you don't want to pay for customers who will leave in the short term due to ESG, do you?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.