It’s a weird time for middle market companies. They’re navigating a Rubik’s cube environment in which slow growth is the norm but fast growth is achievable, the cost of capital is high, and significant disruption is being driven by AI and climate change.
Amidst all this, pressure is mounting to communicate clearly about corporate sustainability to demonstrate that management is limiting risks and operating with long term vision. Companies that are waiting for regulatory mandates to dictate their next move are reaching the ending of the line: change is being dictated by commerce, not by policy. The government may be bogged down in a political quagmire, but the value chain and acquirers are taking sustainability seriously.
ESG in M&A: A Strategic Imperative
A recent survey by Deloitte highlights that 70 percent of M&A deals were abandoned due to ESG concerns. This is big.
The commitment from acquirers is driven by recognition that sustainability often correlates with innovation, operational efficiency, and long-term profitability. For instance, companies that prioritize reducing their carbon footprint often invest in energy initiatives or new technologies that reduce costs over time and hedge against short term, thereby enhancing value. Similarly, firms that embrace workforce diversity are more resilient and adaptable, attracting top talent while fostering a creative and inclusive culture.
Mid-market organizations that are seeking funding or an exit in this high-rate environment cannot ignore the call for reporting and communications on sustainability factors.
Stability in the Value Chain
Want to participate in the global economy and be an active part of the supply chain? Incorporating and communicating about sustainability practices just got real, with Microsoft’s recent move to impose climate requirements on its suppliers exemplifying this trend.
“Microsoft has an outsized influence over the tech sector due to its extensive supply chain and its dominant position within the market,” noted the Wall Street Journal. “Any move to force its suppliers to comply with the new directive is likely to send reverberations across the industry in the short term, but ultimately could have a significant positive impact on the sector’s efforts to decarbonize.”
Giants like Microsoft will give suppliers time to get their plans in order to comply before the end of the decade. But this is not a one-year exercise. It takes time to get a baseline of sustainability metrics, establish goals, and report effectively; proactivity will put companies ahead of lagging competitors.
Effective Sustainability Communications
Communicating sustainability efforts effectively is as important as implementing them. Clear and transparent ESG reporting can create competitive advantages, improve recruiting efforts, and pave the way for better access to capital. Mid-market firms must consider the complexities of ESG messaging that will resonate with diverse stakeholders, from investors to consumers. This involves using precise, impactful language that clearly conveys their sustainability commitments and progress.
Easier said than done. There are hurdles to creating clear language, including the lack of an overarching governing body in the U.S. In other disciplines, we have the SEC, FASB, the FDA, the EPA, the NTSB…every sector has oversight that defines parameters and terminology. Corporate reporting and sustainable investing, though, are forced to look to other regions or organizations for guidance.
Choosing the best language requires understanding your goals (both near- and long-term) and being sensitive to your stakeholders, all while conveying an authentic message. The balancing act only works with buy-in from the top and clear communications across the board.
For more detailed insights, download our white paper, “Talking Sustainability: A Complicated Conversation.”
