Energy Monitor

Weekly Newsletter

07 August 2023

Weekly Newsletter

ESG the biggest theme driving mergers and acquisitions in Q2 2023

Increasing efforts by governments to decarbonise their economies are driving merger and acquisition activity in the ESG area.

Environmental, social and governance (ESG) was the key disruptive theme that drove the most mergers and acquisitions (M&A) activity globally and across sectors during the second quarter of 2023, research from GlobalData, Energy Monitor's parent company, shows.

The Thematic intelligence: Global M&A Deals in Q2 2023 - Top Themes by Sector report explores the themes that drove M&A activity in Q2 2023 across all sectors. It found that ESG drove 104 M&A deals worth a combined total of $145bn during the quarter.

ESG was also the top theme driving deals in the business and consumer services and the energy sectors – specifically, the environmental aspect of it.

Of this, GlobalData has noted: “There will be a greater focus on the ‘E’ component, with a shift from a voluntary regime to a mandatory one, driven by government mandates rather than consumer pressure. A host of new environmental laws are in the pipeline, as well as more state support and investment in clean energy technologies.”

Christopher Papadopoullos, senior analyst at GlobalData, commented: “As more governments push to decarbonise their economies, incumbent energy companies and miners are investing in renewable energy and the materials needed for energy transition.

“Decarbonisation is not just impacting industrial deal-making. Business and consumer services firms are looking to build capacity as more companies seek advisory services on their decarbonisation strategy amid increased regulation and greater state financial support for clean energy.”

The other top four themes driving M&A activity in Q2 were emerging economies as companies diversify into faster-growing markets; artificial intelligence as the technology increasingly becomes able to solve real-life problems; and supply chain disruption as organisations seek to stabilise following the shocks of Covid-19 pandemic, the semiconductor shortage and the Ukraine war.

Q2 2023 saw deals worth a total of $602bn concluded, up 28% from the $469bn of M&A deals globally in Q1 2023. The number of deals, however, fell from 8,275 deals in Q1 to 8,001 in Q2.

The basic materials sector saw the highest cumulative deals value in Q2, with 1,611 deals worth a total of $212bn. The sector also saw the third-largest single deal in Bunge’s $18bn acquisition of Viterra, driven by supply chain disruption. The largest single deal was Oneok’s $19bn acquisition of Magellan Midstream Partners in the energy sector, driven by the energy transition and the environmental aspect of ESG.

ESG 2.0 marks a shift towards stricter environmental rules

ESG is moving into a different era, which we call ESG 2.0. While ESG 1.0 was driven by voluntary corporate action, spurred by pressure from activist consumers and investors, ESG 2.0 is being driven by a new wave of government policies. The EU has taken the regulatory lead, with rules introduced or in the pipeline that will price emissions, regulate the use of the terms ‘ESG’ and ‘sustainability’ in marketing materials, and make ESG reporting mandatory. The US has taken a different approach, favoring less regulation and more financial support in the form of tax breaks for clean industry (renewables plus nuclear and hydrogen). China is planning to expand its emissions trading system to more sectors, decarbonize its heavy industry, and ramp up its use of renewables. The new policy direction is mainly motivated by the ambition to hit net zero emissions targets. But on top of this, governments are now competing for clean industry and trying to challenge China’s leadership on the production of the world’s green technologies such as solar panels and batteries, as well as the production and refinement of materials needed for energy transition such as lithium. These driving forces are leading to policy that will impact every sector, not just heavy industry, and will keep ESG near the top of the regulatory agenda over the longer term.