Acknowledgements xiii

Introduction xv

Why We Wrote This Book and Why You Should Read It xv

About the Authors xix

Chapter 1 Defining Terms and Exploring the Sustainability/ Financial Value Link 1

A Brief History of Sustainability 2

The Link with Financial Value 19

Does the ESG Pushback Impact Financial Value? 35

References 39

Chapter 2 ESG and Regulation – The Hidden Value of Rules 43

The History of Sustainability Regulation 43

The International Sustainability Standards Board (ISSB) 49

ESG Ratings and Their Relationship to Regulation 56

Regulatory Rollback, the Real Impact 61

Unintended Consequences 64

References 66

Chapter 3 Capital Flows – How ESG Drives Deals That Create Value 67

What Do Deals Tell Us About the Financial Value of ESG? 67

How Deals Address the Plastics Problem and Create Value 81

Customer Sentiment and the Key to Sustainable Success 94

References 104

Chapter 4 Establishing the Link Between ESG Performance and Financial Value 107

The Cost of Capital – What’s ESG Got to Do with It? 107

Establishing the Link Between ESG Ratings and Price Multiples 117

The ESG ‘Value Bridge’ – Taking a More Granular Approach 131

References 141

Chapter 5 ESG Due Diligence and the Private Equity Playbook 143

What is ESG Due Diligence? An Overview 143

Three Approaches Towards ESG Due Diligence in Transactions 148

The Private Equity Approach to ESG Due Diligence 148

A Bias Towards Compliance 166

Applying the Private Equity Playbook 171

References 177

Chapter 6 When ESG Goes Wrong (And How to Put It Right) 179

The Rise and Fall of Boohoo 179

The Palm Oil Story 187

Key Deal Rationales 194

References 196

Chapter 7 Financial Value of ESG in Transactions: Lessons Learned and How to Apply Them 199

Key Takeaways for Investors 202

Key Points for the ESG Universe 205

Appendix 1 Materiality, Maturity and Sample Private Equity ESG Due Diligence 207

Appendix 2 Comparison of Three Global Private Equity Firms on How They Approach ESG in Their Own Firms 215

Index 221

Praise for GREEN GOLD

‘Through some very robust analysis of the past several years, Driessen and Schmidt have demonstrated the impact of sustainability on deal values, despite recent political headwinds. The book has the facts, figures and case studies to back up their conclusions. They then make some very compelling arguments and recommendations for the near future and beyond, as to why sustainability will remain critical for any investment decision. As an added bonus, Driessen and Schmidt provide several toolkits for the reader to use for their own analysis. No matter what your political persuasion, you would ignore this book at your peril. It should be required reading for any investor today.’
PROFESSOR SCOTT MOELLER, Founder and Director, M&A Research Centre, Bayes Business School, City St George’s, University of London.

‘At last a balanced book with a maximising mindset on sustainability. Refreshes and reinforces the view that sustainability is a driver of financial value as well as enriching societies in so many other ways.’
PATRICK DUNNE OBE, Author of Boards

‘For many investors today an important question is whether there is a demonstrable positive correlation between a company’s adherence to ESG principles and the financial return enjoyed over the long term by that company’s shareholders. Or is it the case, as some allege, that investing in an ESG-focussed manner detracts from returns? For their new book Green Gold, Driessen and Schmidt have trawled the markets to see whether data from recent deal flow and relevant company performance provides evidence that addresses these questions. Their conclusions may surprise you—in a positive way.’
JAMES ASTOR, Private Equity portfolio chair

‘A must read and fascinating perspective on a critical question facing business in today’s world, on how to create financial value through sustainability, from two incredibly knowledgeable practitioners sharing their experiences and views.’
AMITAVA GUHAROY, Harvard & INSEAD Alumnus, Board Director, CEO & Senior Partner in both PwC & EY

‘Despite the current geopolitical climate in North America and more widely, ESG remains an important element, and in some cases is the main driver, for corporate strategy, M&A and investment activity.’
DAVID PETRIE, Head Corporate Finance, ICAEW

‘Finally a business book which focuses on the financial value through sustainability in transactions from a practical angle focused on value creation. Sharing the different approaches, toolkits and case studies provides a rich and compelling story about the need to include sustainability in capital events. Sustainability is here to stay and the evidence of financial value creation makes this compelling reading for practitioners and senior executives in both corporates and PE.’
SILVIA RINDONE, EYParthenon UKI Managing Partner, Strategy and Transactions

‘There it is—a simple manual on how to incorporate the complex world of ESG into companies strategic thinking and to make it a driving force for innovation as well as operational excellence. It’s an easy read providing clear explanations, practical tools as well as hands on guidance and case studies for all kinds of investors be it Private Equity, Institutional or Corporate. If done right—following an ESG route as integral part of the M&A agenda will be key as is AI—they will both become table stakes!’
CONSTANTIN GALL, global leader Aerospace, defence and mobility EY

What is the true influence of environmental, social, and governance (ESG) factors on M&A transactions? When evaluating potential deals, how can practitioners quantify ESG risks and opportunities, instead of treating them as a ‘tick box exercise’? As regulatory requirements intensify and investors demand greater account­ability, why do many M&A professionals find it difficult to incorporate ESG considerations into their valuation models and due diligence processes?

In Green Gold: How Sustainability Creates Deal Value, Michel Driessen and Sebastian Schmidt—senior trans­­action practitioners—deliver a compre­hensive framework for understanding how ESG factors create and destroy value in mergers and acquisitions. The authors draw on real-world examples, first-hand experience, and practical methodologies to demonstrate how to move beyond superficial ESG assessments and conduct rigorous analysis that measure individual ESG actions directly impacting transaction value.

The book guides readers through the complete investment lifecycle with a focus on ESG due diligence and offers detailed explorations of materiality and maturity assessments. Driessen and Schmidt introduce an original ESG-adjusted earnings and cash flow forecast methodology that quantifies sustainability impacts on financial projections. With real life case studies the authors illustrate successful ESG integration and cautionary tales of value destruction. They address the evolving regulatory landscape across the US, EU, and Asia, and provide actionable frameworks for identifying ESG value drivers and risks through­out all phases of a deal—from pre-deal through exit.

Perfect for M&A professionals at invest­ment banks, private equity firms, hedge funds, accounting and law firms, as well as MBA students and finance students focused on sustainability, Green Gold is an essential resource for anyone seeking to master the intersection of ESG and deal value in today’s market.