Responsible Investor

Sustainable M&A: the value of ESG

Together with digitisation, environmental, social and governance factors are increasingly central to investment decisions to strengthen corporate resilience

Mergers and Acquisitions (M&A) are an increasingly important new trend in the creation of value and the development of new opportunities for sustainable growth.

M&A became crucial for corporate resilience during the 2020 Covid-19 crisis, which saw the sector come to a near standstill in trading in the early months, only to unexpectedly rebound in the second half of the year.

In fact, more than 28,500 transactions were announced in 2020. The Covid-19 pandemic has accelerated several pre-existing M&A trends, such as the urgency to acquire new capabilities for a digital economy, the decline in inter-regional M&A in favour of local or regional deals, and the expanded role of regulators. These trends have also been confirmed during the year 2021.

According to data from Refinitiv, the total value of pending and completed deals announced in 2021 has already reached $3.6 trillion since the beginning of the year, surpassing the annual total in 2020 of $3.590 billion. Similarly to other industries, new opportunities have also emerged in the insurance sector: the innovation and transformation of companies will bring about sustainable competitive advantages in the future in which mergers and acquisitions, partnerships and corporate venture capital initiatives will be crucial to achieving strategic transformation and innovation goals.

According to an S&P Global Market Intelligence analysis, M&A activity has grown rapidly in the insurance sector during the first half of 2021 compared to the same period in 2020. A total of 453 deals were made in the first half of this year, compared to 400 in the first half of 2020.

The factors driving global M&A activity include digitisation and ESG (Environmental, Social and Governance), which are becoming an increasingly integral part of investment decisions to strengthen corporate resilience. Deloitte's 2021 Insurance M&A Outlook report shows that digitisation has been, and will continue to be, one of the drivers of M&A activity, generating a greater tendency for InsurTech acquisitions to meet customers' digital engagement needs and support employees' new work-from-home requirements. Another key factor in the increase in M&A activity is ESG, with many CEOs and investors adapting their current and future business strategies with a focus on sustainability and long-term value creation.

Prior to the Covid-19 pandemic and the launch of wide-ranging sustainability programmes - such as Europe's Green New Deal - mergers and acquisitions and divestments were rarely influenced by long-term visions or strategies aimed at having a positive impact on social, environmental and cultural aspects of the community. However, recent agreements in sectors as diverse as energy and retail have shown that sustainability can influence both the viability and ultimate value of deals. In the current environment, companies with Corporate Responsibility and Sustainability (CR&S) programmes in place have an advantage over their competitors, even in light of new regulations and markets.