Sustainability Transition via Mergers and Acquisitions : Corporate Sustainability Reporting Directive, Sustainable Finance Disclosure Regulation, and the Role of Advisors

Abstract

The European Union (EU) has recently introduced two sustainability reporting directives, Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR) that aim to increase corporate transparency and direct private investments towards more sustainable uses. These regulations drive a fundamental change both for sustainability data reporting and for organizational and investment strategies by requiring organizations and financial market participants to address how sustainability risks, impacts and opportunities are accounted for in their strategies, operations and investment products.

Since mergers and acquisitions (M&A) are both strategic decisions used for growth, capability development and market positioning, and large investments, CSRD and SFDR should influence M&A in the EU. However, the intersection of sustainability and M&A, or more specifically the sustainability considerations in the M&A process and sustainability outcomes of M&A, remain under-researched despite their possible relevance in accelerating sustainability transitions.

This thesis addresses this research gap with two main objectives. First, it explores how CSRD and SFDR influence M&A in the EU, considering both if these regulations accelerate the use of M&A for sustainability transition, and how M&A processes are influenced by these regulations. Second, recognizing that the sustainability transition literature highlights the role of transition intermediaries, and that M&A literature has long acknowledged the importance of external advisors in the M&A process, this thesis also explores how these regulations shape the traditional roles of M&A advisors.

This research is conducted as a cross-sectional case study using semi-structured expert interviews. These experts are consultants in the field of sustainability regulation, sustainable finance, corporate sustainability or M&A. To enhance the quality and depth of analysis, also document analysis of three market research reports was added to the research design. This research uses an abductive research method, where existing literature is used as a baseline guiding expert interviews, then deepened with interview and document analysis results, and lastly discussed together.

Key findings reveal that even though CSRD and SFDR are expected to impact all stages of the M&A process, majority of organizations do not yet proactively consider ESG factors in their M&A processes. Financial acquirers are generally more advanced in assessing acquisition targets from a sustainability perspective compared to corporate acquirers. Biggest impacts of these regulations are for M&A strategy, due diligence, deal timing and post-acquisition integration. M&A can potentially be used for sustainability-related capability exchange, but current interest is found only towards divesting non-sustainable parts of businesses. Moreover, advisors play a crucial role in integrating sustainability considerations into M&A processes. These regulations therefore reshape the traditional roles of M&A advisors. First their role focuses on guiding clients with this changing regulation but soon develops towards expansion of expertise as sustainability matters become more integrated in traditional M&A processes.

These findings contribute to the scarce literature on sustainability in M&A, particularly highlighting the role of regulation and M&A advisors in driving this sustainability transition of M&A processes.