What Eco-Conscious Buyers Look for When Acquiring a Business

When buyers evaluate a business, they consider financial performance, operations, and future growth. Sustainability can also influence acquisition decisions, especially for those with environmental goals or customers who value responsible practices.

The Rising Demand for Sustainable Companies

Environmental, social, and governance (ESG) considerations have gained a larger role in mergers and acquisitions. A 2024 KPMG survey found that 71% of dealmakers in mergers and acquisitions said ESG considerations had increased in importance during the previous year. Meanwhile, 82% said ESG remained on their mergers and acquisitions agenda.

This interest reflects several business concerns. Environmental practices can affect operating expenses, regulatory exposure, supply chain stability and a company’s reputation. Buyers also consider whether sustainability investments can support customer retention or future growth.

Assessing Long-Term Viability and Risk

A purchaser may assess environmental performance as part of the company’s financial and operational risk profile. Weak environmental controls can lead to unpredictable regulatory expenses, cleanup costs, supply disruptions, or reputational damage.

Overcoming ESG Due Diligence

Buyers scrutinize environmental compliance and climate risk during due diligence to identify liabilities before signing. Skipping these checks can undermine a deal’s outcome and expose the purchaser to reputational damage. 

The American Bar Association highlights ESG due diligence as a way to identify risk that could affect financial performance and reputation. Thorough reviews can also help deal teams identify potential legal and regulatory concerns that may affect negotiations.

For sellers, recordkeeping makes this process easier. Energy bills, emissions data, waste logs, supplier standards and compliance documents give acquiring companies concrete sustainability evidence to review. 

The Discounted Cash Flow Impact

Eventually, these risks work their way to the numbers. The discounted cash flow method values a company by projecting its future cash flow, then adjusting that figure to present value using risk factors specific to the business.

When a company’s environmental practices raise doubts about hitting those projections, appraisers may apply steeper discounts and the resulting valuation drops. Standard business valuation methods build this adjustment directly into the math, so environmental liabilities show up just as a lower purchase price.

Key Elements Eco-Conscious Acquirers Seek

Here are some elements that sustainability-minded decision-makers often look for when acquiring a new business.

Green Supply Chains and Circular Economy Models

Buyers may favor companies that source materials responsibly to reduce waste. Circular economy practices can include repairing products, reusing materials, recycling components or designing products for longer use.

The financial scale of circular business models also demonstrates tier commercial relevance. Estimated revenue from circular economy transactions exceeded $330 billion in 2022. Businesses with established sustainable supply chain practices can give prospective buyers evidence of responsible sourcing and resource management.

Transparent Environmental Reporting

Purchasers need reliable information when assessing a company’s environmental performance. Clean records can cover greenhouse gas emissions, electricity and fuel consumption, water use, waste volumes and supplier standards.

Companies can improve their position by establishing consistent methods for collecting this data. Historical records are especially useful because they allow buyers to see whether environmental performance has improved over time.

Energy Efficiency and Resource Management

Efficient resource use can strengthen a company’s financial performance while reducing its environmental footprint. Lower electricity consumption, reduced water use, efficient transportation, and less material waste can all decrease operating expenses.

Owners can start by identifying the resources that account for most of their operating costs. Energy audits and process streamlining can reveal opportunities for savings. These improvements can appeal to decision-makers with sustainability goals or those focused on financial performance.

The Financial Reward of Green Premiums

Sustainability can contribute to a company’s sale value when environmental performance facilitates lower costs and reduces risk exposure.

Commanding Higher Valuations

Dealmakers are more likely to pay a premium for a target with high ESG maturity in line with their priorities. Environmental performance can strengthen the overall investment case when it produces measurable financial or operational benefits.

Protecting Deal Value

Environmental due diligence can also help sellers preserve the value established during negotiations. The Harvard Law School Forum reports that mergers and acquisitions professionals estimate that ESG due diligence can protect up to 10% of a deal’s value.

Securing a Sustainable Future

Eco-conscious decision-makers look for businesses that combine sound financial performance with responsible environmental practices. Owners can strengthen their appeal by improving resource efficiency, reducing waste, documenting environmental performance, and addressing potential liabilities before a sale.