Gilmartin ESG Newsletter | June 2024

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Welcome to the latest edition of Gilmartin Group’s ESG newsletter. With a special focus on the healthcare sector, this newsletter sheds light on the latest trends in the rapidly evolving ESG space, covering developments with companies, investors, regulators, and policymakers.

In The Spotlight

According to a recent Deloitte survey, ESG is becoming a growing area of focus in the M&A dealmaking process. The survey, which included responses from 500 M&A leaders from corporations and private equity firms, found that ESG is being incorporated into target considerations, due diligence, and valuation.

Over 70% of M&A leaders surveyed reported having abandoned potential acquisitions over ESG concerns. Brooke Thiessen, a partner at Deloitte Canada, explains that “while commercial or operational concerns are often the main reasons for walking away from a deal, ESG red flags are increasingly being considered with the same level of seriousness to either pause or end deal activity.”

On the valuation side, approximately 83% of M&A leaders surveyed claimed that they would pay at least a 3% premium for a target company with a high ESG profile or one that would improve their own profile. On the other hand, about two-thirds of respondents stated that they would seek a discount on a deal for a company with a negative ESG profile.

The report’s authors explain that increased ESG integration in M&A is due to the availability of more precise sustainability data: “One reason for this trend is that ESG data is now better defined, captured, and measured, thus allowing metrics to be more precise and better understood than they were only a few years ago. Understanding ESG data starts with determining material ESG issues, which is another aspect of organizations’ enhanced maturity and sophistication over recent years.”

A Note on EU Regulation

Last month, the European Securities and Markets Authority (ESMA) issued new rules for funds using ESG or sustainability names in an attempt to mitigate greenwashing. The finalized ESMA guidelines require 80% of investments in a fund using ESG or sustainability related terms in its label to meet specific environmental or social investment objectives. According to ESMA, these new guidelines were driven by the proliferation of sustainability-related terms in fund names used to attract ESG-focused investors – the number of funds using ESG terms in their labels have quadrupled over the last 10 years.

These rules are meant to protect investors from unsubstantiated sustainability claims made by funds, which may lead to widespread impacts. Morningstar found that these anti-greenwashing rules could force two-thirds of funds using the terms “ESG” or “sustainability” to sell assets in order to comply, leading to stock divestments of approximately $40 billion.

In the Weeds

In May, the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS) Foundation announced that they are collaborating to enable seamless, global, and comprehensive sustainability reporting.

Building off of a Memorandum of Understanding signed in 2022, the two organizations are deepening their partnership to deliver full interoperability so that both companies and investors are able to use streamlined standards to determine sustainability risks and opportunities. Their respective standard-setting boards have “committed to jointly identify and align common disclosures that address information needs under the distinct scopes and purposes of their respective standards, for both thematic and sector-based standard setting.” 

The IFRS Foundation also reported at the end of May that jurisdictions representing more than half of the global economy by GDP have announced steps to use or align with their sustainability disclosure standards.

The Healthcare View

A recent study published in JAMA Oncology, a medical journal issued by the American Medical Association, found that telehealth reduces greenhouse gas emissions generated as a result of cancer care. The study researched nearly 124,000 people who received cancer care at Dana-Farber in Boston and other locations across New England between May 2015 and December 2020.

Researchers estimate that nationwide cancer-care emissions could be reduced by 33% if oncology visits were done online and lab work and other procedures were performed at clinics closer to patients’ homes. Virtual oncology visits would reduce carbon emissions not only because patients and doctors would drive fewer miles and use less gasoline, but also less medical waste would be generated.

“Tele-medical and decentralized cancer care does provide a large relative reduction in emissions,” explains lead author Dr. Andrew Hantel, a Dana-Farber Cancer Institute oncologist. “It’s potentially a gain downstream for human health and planetary health.”

To learn more about how Gilmartin strategically partners with our clients, please contact our team today.

Authored by: Patrick Smith, ESG, Gilmartin Group & Tamsin Stringer, ESG, Gilmartin Group

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