Incorporating Environmental, Social and Governance (ESG) ambitions into investment decisions is becoming increasingly critical, as investors and asset managers look to capitalise on the demand for investments in companies and portfolios that minimize environmental impact. To determine the environmental impact of companies globally, investors and asset managers require ESG data and related software analytics to accomplish this objective.

For investors and asset managers, ESG data and related analytics is unlocking long-term value, by providing advanced forecasting at the heart of strategic decision making. Because they invest in physical assets, investors are now on the front line of the impact of climate change and are thus, taking a more data-driven approach to managing their exposure to physical risk. ESG data and analytics is thus becoming a competitive advantage, helping to ensure capital can be allocated to assets that minimize environmental impact and reduce the risk of exposure to physical risk.

In this article, we review the recent M&A transactions in the ESG Data and Analytics sector and identify the key emerging trends.

Common Themes in the ESG M&A Space

In the last twelve months, we have witnessed a significant rise in the number of M&A transactions involving digital risk and data transformation services. Specifically, there have been numerous acquisitions involving companies which specialise in using physical risk and satellite data.

While Morningstar Inc, a leading provider of independent research who last year acquired ESG research firm Sustainanalytics. By acquiring a majority on Sustainanalytics, they are now a big player in the ESG space alongside S&P, Moody’s, WSP and ERM.

The completion of the transaction between Morningstar and Sustainanalytics means that Morningstar now has 100% ownership of Sustainanalytics. ESG has now become mainstream, with over one third of estimated assets under management globally applying ESG criteria to drive investment decisions.

The surge in M&A transactions in the ESG Data and Analytics space has, in our opinion, been influenced by the growing awareness across financial markets that companies are embracing ESG as a high priority strategy.

A Surge in Private-Equity Transactions

Some of the latest M&A transactions, as we detail below, have shown that many private equity (PE) firms and PE-backed buyers have turned up the heat on ESG investment, specifically in relation to climate change and Diversity, Equality, and Inclusion (DEI) initiatives.

Increasingly, Private Equity (PE) firms are now establishing dedicated impact funds which only invest in businesses with an ESG agenda, due to the growing realisation that ESG can be used to create value.

This has led to many opportunities for portfolio companies to obtain better financing rates if they meet specified ESG targets. Consequently, ESG is now permeating almost every aspect of the private equity market as it provides a way to transform companies to help them prepare for the future.

We follow several sectors within the broader ESG space, as noted below:

Climate Finance and Investment M&A

The rise in new technology that can measure the environmental impact of investments and address climate-related financial risks and opportunities, has been a contributing factor to the recent surge in climate finance and investment M&A.

Climate finance is now seen as vital to transforming the global economy to meet the challenge of climate change. In this section, we look at some recent examples of M&A transactions in the sectors that we track and monitor and that have a focus on pioneering climate data and analytics software:

ICE has Acquired Urgentem

Our most recent deal at Goldenhill in which we were the M&A advisors to Urgentem, a provider of global corporate emissions and climate transition data.  Urgentem’s data and analytics will enable ICE to quickly expand its climate risk offering to include extended coverage of global public and private companies across new geographies, scenario risk analysis and stress testing for fund managers and banks.

S&P Global Acquired The Climate Service

The acquisition has added many capabilities to S&P Global’s leading portfolio of essential ESG insights and solutions for its customers. Through this acquisition, S&P Global are now able to offer its clients even more transparent, robust and comprehensive climate data, models and analytics.

FNZ Investment in GIST

GIST is a impact data and analytics company that provides investors and companies with science-based, comparable and verifiable measures of corporate impact and performance. FNZ’s investment followed the launch of its sustainable investment solution, FNZ Impact, which enables financial institutions to provide their clients with hyper-personalized, transparent information around the environmental and social impacts of investments.

Sustainable Finance M&A

Recent M&A transactions have been focused helping businesses address the challenges of transitioning to carbon net-zero through sustainability-focused business transformation, while also exploring opportunities for more capital to be deployed in sustainable financing.

Many organisations are increasingly pursuing more sustainable business models which brings with it financial and competitive value to companies. This transition has generated significant new demand for climate change and carbon advisory services and led to a major shift in the business and investment landscape on a global scale.

Here are some of the top sustainability and climate advisory focused M&A deals we have witnessed in the last year:

ERM Acquired Point Advisory and RCG

ERM, the world’s largest pure play sustainability advisory firm acquired Point Advisory, a leading Australian climate change and sustainability consultancy offering strategic and technical advice to businesses in the region. This acquisition has since enhanced ERM’s ability to support clients across Australia and the broader APAC market, as organizations increasingly seek to operationalize sustainability.

ERM also recently announced the acquisition of RCG, also known as The Renewables Consulting Group, who are a global market intelligence advisory firm operating in the renewable energy sector. The acquisition expands ERM’s capabilities to support clients across the entire lifecycle of large-scale renewable energy projects, from market intelligence and strategy development through to the development, construction, operations, and decommissioning of projects.

Dss+ Acquired Sofies Group and KKS Advisors

Global consulting firm Dss+ completed two major transactions last year, acquiring professional services firm, Sofies Group and global ESG advisory firm, KKS Advisors. The acquisition of Sofies Group has since enabled Dss+ to provide its clients with integrated capabilities to develop and implement their sustainability plans. While the acquisition with KKS Advisors furthers the integrated transformation services that Dss+ provide to their clients, helping companies to implement their sustainability goals with the help of digital tools and capabilities in ESG and sustainability.

Environmental Health and Safety (EH&S) Software M&A

M&A Activity has surged in 2022, as environmental consultancy service providers have continued to attract significant buyer interest. Further to this, EH&S companies that have augmented online service offerings are benefiting from elevated demand as workers demonstrate a preference for online learning and safety training. This demand has led to continued corporate consolidation for additional EH&S capabilities, which in turn has also attracted private equity interest.

EH&S software allows organisations to collect, store and manage all their regulatory compliance, enterprise risk, and corporate sustainability data. According to a recent study from independent research firm Verdantix, spending on EH&S Software will reach a total of $2.5 billion in 2026.

The forecasted compound annual growth rate of 11.5% will be driven by the increasing digitisation of EH&S Processes and the expansion of EH&S software capabilities to include environmental, social and governance (ESG) via acquisitions and private equity investment.

William Berrington, Goldenhill Partner in our London office with specialist ESG Data & Analytics M&A experience says:

“EH&S software deals are booming, driven by the increased awareness of EH&S software among EH&S decision makers and government regulations advocating increased compliance with EH&S regulations. Towards the end of 2022, therefore, we could be seeing more deals like VelocityEHS’ acquisition of EH&S software and consulting company, e3 Solutions.”

For investors and asset managers, innovation ranging from AI to cloud computing software can help integrate ESG data into investment analysis and it is because of this, that there has been a significant increase in the number of M&A deals made in the EHS space.

Here are some recent EHS software M&A deals which have focused on businesses enhancing their portfolio offering of end-to-end management software and reporting of ESG data:

EcoOnline Acquired Biome Environmental Limited

Integrating Biome’s environmental management and corporate social responsibility (CSR) software was an essential strategic step in strengthening EcoOnline’s expertise and ability to provide organizations with end-to-end management and reporting of environmental, social, and governance (ESG) data.

Measurabl Acquired Hatch Data

Measurabl, a widely adopted ESG data management solution for commercial real estate, announced the acquisition of Hatch Data, a smart building platform designed to decarbonize real estate portfolios.

The Future of ESG-Data and Analytics Driven M&A Transactions

Based on our analysis of global M&A activity, we predict that there will be more demand for and a focus on impact investing, as investors and asset managers look to invest with the intention to generate positive, measurable social and environmental impact alongside a financial return.

The opportunities presented by ESG, and impact investing are becoming a key focus for private equity firms looking to invest in robust and innovative ESG data and analytics software. Private equity firms will continue therefore to seek investments in ESG Data and Analytics, which will be a significant driver for continued M&A activity in this space

As demand for more credible ESG performance data and insight grows, many businesses will furthermore, be looking to improve the way they collect and aggregate their own data, while also looking to enhance their data analytics capability.

Kevin O’Neill, Goldenhill Partner in our US office with significant ESG Data & Analytics M&A experience adds:

“ESG will continue to rise in importance for Acquirors. As we have seen in the last several years, there has been a growing realization that high quality ESG data and related analytics can add significant value for firms that own this data and can deliver it with value added via analytics. Based on our experience and market connections we predict there will continue to be numerous transactions in the ESG data and analytics space this year and in 2023.”

Get in Touch with Our M&A Advisors Today

We are specialist M&A Advisors who have significant experience of completing successful M&A transactions in the ESG Data & Analytics sector. We have advised high growth clients with market leading data and analytics products, on transactions with acquirors such as Moody’s, S&P, ICE and Institutional Shareholder Services (ISS.).

Find out more about our recent ESG Data & Analytics M&A deals and activity here. Or contact one of our specialist M&A Advisors here for further information about how we can help you with your buy-side or sell-side M&A projects.