Understanding the tax aspects of ESG in M&A

ESG is rising in importance in M&A

For both businesses and investment firms, the last few years have seen an increasing focus on environmental, social, and governance (ESG) factors in corporate valuation—so much so that a company’s commitment to ESG and the effectiveness of its ESG programs have become important factors in mergers and acquisitions (M&A). it’s increasingly common for ESG to be among the primary rationales for a transaction.

As companies strive to prioritize sustainability, responsible practices, and long-term growth, understanding the tax and legal implications of ESG in M&A becomes crucial. The result is a range of new challenges—and potential opportunities for those with the knowledge and skills to address them.

This article explores ESG’s impact on the M&A lifecycle, including due diligence, valuation, negotiation, and post-merger integration, and its growing influence on how deals are done. It then addresses the associated challenges from a tax standpoint, including those which are related to the due diligence process, and the critical role of tax leaders in managing ESG metrics throughout the M&A lifecycle.

How the tax department can inform and guide M&A negotiations

From assessing regulatory compliance to quantifying financing terms and evaluating social and governance factors, tax professionals can facilitate structuring deals from a tax perspective, educate stakeholders, ensure transparency, and align tax strategies with ESG objectives.