The Cat Is Out Of The Bag

The mandatory corporate disclosure of sustainability-related key performance indicators is on its way, driven by the European Union.* The enhanced level of transparency has implications for global finance and M&A that may be dramatically underestimated.

It is worth checking the ESG <GO> function on a Bloomberg terminal to get a taste of what is coming. It shows, for example, the 14 Principal Adverse Impacts** (PAIs), if already available, for any listed firm in the world, with a performance assessment against peers (illustration for a U.S. company below).

In this note, I will argue that corporate disclosure obligations related to sustainability drivers in one significant jurisdiction (e.g., the E.U.) will lead to voluntary disclosure in most jurisdictions (e.g., the U.S. and Japan); and that mandatory or voluntary disclosure in the public market will lead to widespread disclosure in private market (M&A) processes worldwide. There is no running. There is no hiding.

Imagine a corporate world split into companies with mandatory disclosure requirements related to ESG data (the ‘reporting’ companies) and those without (the ‘non-reporting’ companies). Assume that a large and growing pool of ‘sustainability investors’ find ESG disclosure valuable to their investment strategy, if not strictly required from a regulatory perspective (like the PAIs next year.)**

Publicly listed firms in any jurisdiction have an incentive to maximize demand from investors to achieve a premium valuation multiple. In that context, some non-reporting companies will voluntarily disclose their ESG performance to attract sustainability investors with a global remit. This voluntary disclosure to appeal to incremental investor demand will pressure domestic peers to do the same.

The same goes for newcomers to the stock market. Wherever located, IPO candidates have a clear incentive to report sustainability data to maximize global investor demand, independently from their regulatory reporting obligations. Naturally, they are encouraged to work on their sustainability profile ahead of a transaction to be in a position to market differentiated credentials and maximize value.

In M&A, potential buyers subject to mandatory or voluntary disclosure – including private equity firms – will seek to incorporate sustainability metrics into their due diligence process. Aside from assessing these parameters’ impact on the target’s value, they will have to determine whether an acquisition is accretive or dilutive to their own sustainability profile. Sellers of assets in any jurisdiction will need to facilitate that due diligence process. Otherwise, the pool of interested parties might be reduced.

Once the cat is out of the bag, it cannot be ignored by any financial market participant – even by non-sustainability investors. Having immediate access to new data related to the operational quality, resilience, and sustainability of companies, as illustrated by the picture below, will they dismiss this information as irrelevant to their investment decision? I am betting that they will also eventually integrate material data into their investment strategies.

The upcoming mandatory disclosure requirements of sustainability data in the European Union is a global phenomenon. It will affect all market participants in the public and private markets – worldwide. It will enable sustainability performance due diligence and benchmarking.


It will transform corporate finance.




* In parallel, the International Sustainability Standard Board intends to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities. The ISSB standards will be made mandatory by certain jurisdictions (e.g., the UK)


** PAIs must be disclosed by financial market participants (incl. asset managers) for the first time by June 2023 for the calendar year 2022 as a matter of transparency vis-à-vis end investors


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