Why ESG is something that your company can't afford to overlook

Let’s start with some examples:

- CVS stops selling tobacco and loses 3 billion dollars in turnover as a result

- François-Henri Pinault provides minimum maternity leave to employees across the world

- Gravity Payments (125 people) raises the startup's minimum wage to $70,000

- AT&T is retraining 100,000 professional telecom workers aged 50 and over (half the workforce) rather than laying them off

Do these decisions make economic sense or are they made by atypical bosses?

Take the example of Gravity: for each job position that they have open, the company receives an average of 300 applications. For every client who left thinking that the prices of services would inevitably go up as a result of the changes, the company gained 6 new ones.

ESG, a new acronym but an old concern

Social and environmental concerns are just as old as industry and capitalism themselves, and initiatives have been carried out all over the world for more than 500 years.

Indeed, in 1521 the Fugger family created the Fuggerei (Augsburg), the world’s first social housing complex. In Scotland, around 1700, the town of New Lanark was built to provide housing and education for the workers from the local textile factory. This concept was exported to the United States by the same family. In the 19th century in France, Mr. Godin modelled his Le Familistère de Guise on the same principle.

Even further back, in 1443, Sejong the Great created the Korean alphabet based on the idea that progress depends on the ability of as many people as possible to read and write. In France, Colbert championed the development of coal to fight against deforestation at a time when wood was the only source of energy and an overexploited resource.

ESG and impact in our finance practice

M&A professionals widely recognise the growing importance of ESG factors in determining a company's overall performance. What started as an add-on to traditional business operations is quickly becoming an intrinsic part of them; with less tangible assets such as employee satisfaction and company reputation making up an increasingly significant share of the company's perceived value.

No longer the domain of large companies with dedicated ESG teams, companies of all sizes – with the right tools and guidance – can implement ESG fundamentals to their significant advantage.

"Don't be put off by the depth and scope of ESG," says Florence Farriaux, founding partner of Paris-based financial advisory and training firm FL Finance. “It doesn't have to be expensive, and it's crucial for your business. If you are not aware of its importance, your business could suddenly and quickly run into trouble.”

Founded in 2001, FL Finance offers consulting and training services to companies with a turnover of between 5 and 150 million euros. Florence Farriaux's role, as head of training through the FL Finance Academy, is to combine her decade of experience in small and medium-sized M&A transactions with external expertise on important topics such as ESG.

Having two trainers with these distinct specialties allows her to deliver highly targeted training, which in turn allows small businesses to quickly understand why and how they should go about building an effective ESG strategy.

Are European SMEs affected or can they ignore the subject?

For Florence Farriaux, it is not possible to ignore it: “Indeed, we note that 45% of M&A operations include a Corporate Social Responsibility (CSR) component in Sale and Purchase Agreements and 33% in Due Diligences. During a recent business process improvement presentation of a new equity financing dossier, the first question asked of the manager was not “what is your business model? but rather “what is your CSR policy?”.

CSR concerns are required by regulation from 2024 for companies with more than 250 employees but indirectly concern smaller companies as well. For example, the regulations make it necessary for these larger businesses to examine the practices of their suppliers, some of whom may be companies of more moderate size. However, legal matters are not the be all and end all; there are value issues too, as Florence Farriaux explains:

“At FL Finance, our raison d'être and our mission is to facilitate the development and strengthen the sustainability of companies. Development and sustainability for companies means recruiting while still being able to produce.

Recruiting means taking an interest in what future employees want. A 2020 BCG study on "what young people in higher education want" found that the social utility of work is a top priority for young graduates; nor do they see the need for arbitration between salary and usefulness of work. As office workers have the right to work remotely to a certain extent, those who work in commerce or in factories are interested in companies that offer a 4-day work week.

Being able to produce means anticipating regulations and meeting the standards of tomorrow. It also means measuring the impact of climate change and a company's activity in this regard. If water shortages mean that your company risks being subject to water restrictions for 3 or 6 months a year, there’s a good chance that you’ll be in danger if you don’t have preventative recycling or storage systems in place.”

FL FINANCE ACADEMY offers educational seminars on CSR to enable SMEs and ETIs to place this issue at the forefront of their operations in order to continue along a path of profitable growth:

1) A four-day training course dedicated to ESG

2) A 120-hour long online course on Zoom on how to successfully acquire small and medium-sized companies. Includes information about finding the right target, valuation, financing the operation and integration strategy.

Contact FL Finance Academy to learn more about their training programs.

As part of their training, FL Finance Academy uses the M&A Monitor findings produced by Dealsuite to explain valuation multiples and ESG screening to its clients, providing them with case studies to work on.

“If you want to acquire small to mid-sized firms, you have very specific and relevant data on Dealsuite,” says Farriaux. “Don't hesitate to use it. It's one of the best resources you can have.”

As ESG continues to evolve, those with the right knowledge and data will gain a competitive edge by integrating ESG principles into robust value creation plans, targeted due diligence processes and compelling exit strategies.

Dealsuite allows professionals to visualise data in a more standardised format. Customers can select the most relevant metrics for each transaction. Dealsuite enables M&A professionals to filter market opportunities based on the most important factors such as revenue, geolocation, industry and other criteria.

On Dealsuite, you can find like-minded advisors putting ESG considerations into their M&A transactions. Schedule a demo to learn more about Dealsuite.