f you run a business with >£1m EBITDA and you’re thinking about an exit in the next three to five years, there’s a conversation you need to be having that probably isn’t on your radar yet.

ESG: Environmental, Social and Governance.

Before you close this page, let me be clear: this isn’t an article about saving the planet. It’s an article about protecting your deal value.

Because the data from the world’s largest advisory firms is now unambiguous. ESG has moved from a corporate responsibility initiative to a core component of how deals are sourced, assessed, priced and structured.

And if you’re not prepared for it, you’re leaving money on the table. Or worse, you’re creating the conditions for your deal to fall apart.

What the Research Says

Let me share what’s coming out of the major PE and advisory reports published in the last 12–18 months, because the numbers tell a compelling story.

ESG is rising on the M&A agenda, not falling

KPMG’s 2024 Global ESG Due Diligence Study — the largest of its kind, surveying 600+ dealmakers across 35 countries — found that 71% of respondents reported ESG has increased in importance in transactions over the past 12–18 months. Just 2% said it had decreased. Four out of five dealmakers now have ESG on their M&A agenda.

ESG due diligence is becoming standard practice

57% of dealmakers expect to perform ESG due diligence on most transactions over the next two years, up from 44% historically. On the other end, only 6% plan to conduct no ESG due diligence at all, down from 19% previously. The direction of travel is clear.

There’s a measurable price premium

55% of dealmakers surveyed by KPMG would pay a premium of between 1–10% for businesses with high ESG maturity. Those with more sophisticated ESG due diligence approaches were willing to pay even more, with 24% of “mature” investors prepared to offer premiums above 6%.

ESG failures are killing deals

45% of investors have encountered a significant deal implication from ESG findings. More than half of those experienced a complete deal stopper. Over a third reported purchase price reductions as a result of ESG issues uncovered during due diligence.

The ROI is real

PwC’s research found that 69% of PE investors believe the return on investment from ESG initiatives exceeds their costs. EY reports that funds with advanced ESG practices achieve IRRs up to eight percentage points higher than competitors. 58% of investors say the rising importance of ESG-related value creation has fundamentally shifted how they approach new investments.

What This Means for You

Here’s where it gets practical.

When a PE firm acquires your business, ESG assessment typically happens within the first 100 days. Palatine Private Equity — a UK mid-market investor — has been doing this for over a decade. They run baseline assessments, set bespoke KPIs across six pillars (Climate, People, One Planet, Customers & Community, Supply Chain and Leadership), and track improvements annually from entry to exit.

If your business arrives in their hands already ESG-ready, two things happen. First, you’re perceived as lower risk. Second, the buyer can prioritise other value creation levers immediately rather than spending the first year building ESG infrastructure from scratch.

That makes you a more attractive acquisition. And it gives you a stronger negotiating position.

Clearwater Corporate Finance, a mid-market advisory firm with a dedicated ESG practice, reinforces this: ESG-aligned businesses are attracting premium valuations because buyers view them as lower risk and better aligned with future market demands. Early preparation is critical — establishing a robust ESG framework and demonstrating measurable progress over time is what creates the valuation upside.

Where Most Mid-Market Businesses Get Caught Out

It’s not usually the environmental piece that trips businesses up. Most owners are aware of their energy costs and can tell a reasonable story about waste reduction or efficiency improvements.

The surprise is governance.

EY found that governance accounts for 43% of ESG risks identified during due diligence. That includes formalised policies, data protection compliance, anti-bribery procedures, decision-making structures, and the degree to which the business can operate independently of the founder.

Sound familiar? It should — these are the same succession planning and operational maturity issues that affect valuation multiples regardless of ESG.

The social dimension catches owners off guard too. Employee retention, training investment, diversity metrics, health and safety practices, community engagement. Buyers are looking at these as indicators of operational resilience and cultural health.

The good news? Most mid-market businesses are already doing a significant amount of this. The gap is usually in documentation and formalisation, not in practice.

Five Things You Can Do Now

If you’re 2–3 years from a potential exit, here’s where to start:

1. Audit what you’re already doing

Most businesses have more ESG substance than they realise. Employee welfare policies, energy efficiency measures, community involvement, supply chain standards — capture what already exists and formalise it.

2. Get your governance house in order

This is the single biggest ESG risk area in mid-market transactions. Ensure you have documented policies, clear reporting structures, data protection compliance, and a decision-making framework that doesn’t rely solely on you.

3. Start measuring

You don’t need a full sustainability report. But you do need baseline metrics. Carbon footprint (even estimated), employee turnover rates, training hours, diversity data, customer complaints, supplier audits. Start collecting data now so you can demonstrate progress later.

4. Build the narrative

Buyers want a credible ESG story backed by evidence. Not perfection — progress. Being able to say “we identified these areas, took these steps, and improved by this amount” is significantly more compelling than scrambling to assemble a story in a data room.

5. Consider specialist advice

An ESG health check from a corporate finance adviser with ESG capability can identify material risks and opportunities early. It’s a relatively modest investment that can have a disproportionate impact on deal readiness and valuation.

The Bottom Line

ESG is no longer a separate workstream from exit planning. It is exit planning.

The PE firms who will be buying your business have ESG baked into their investment thesis, their LP commitments, their value creation playbooks, and their exit strategies. If you’re not aligned with that, you’re narrowing your buyer pool and leaving value on the table.

The business owners who understand this 2–3 years ahead of a transaction are the ones who command the strongest valuations and the smoothest processes.

As ever, it comes back to preparation. And preparation, done properly, is a structured exercise — not something you retrofit in the final weeks before going to market.

If you’re unsure where your business stands on ESG readiness, the Exit Readiness Scorecard is a good place to start. It covers ESG as part of a broader assessment of how prepared your business is for a successful exit.

Sources Referenced

• KPMG Global ESG Due Diligence+ Study 2024 (600+ dealmakers, 35 countries)

• PwC Private Equity Trend Report 2024 & Global PE Responsible Investment Survey 2023

• EY – How Private Equity Can Optimize ESG to Maximize Value Creation (2025)

• EY – How ESG Due Diligence Is Influencing Private Equity Deal-Making (India, 2024)

• Palatine Private Equity – 2024 Sustainability Report

• Clearwater Corporate Finance – Evolving ESG in PE: From Risk Mitigation to Value Creation (PEI Forum 2024)

• Adams Street Partners – 2025 Private Markets ESG Report

• CFA Institute – Private Markets Funds: Putting Their Money Where ESG Is

‍