Dealmaking associated with environmental, social and governance issues – or ESG – is enjoying a surge, thanks in part to President Biden’s climate change policies.

M&A volume for North American companies with an ESG focus reached USD 48bn across 52 deals in the year to date (through 29 July), a nearly sevenfold increase on the same period in 2023 and the highest volume since 2011 at this point in the year, according to Mergermarket data.

The surge comes as a raft of regulatory changes in Europe and the US – both at the federal level and by individual states such as California – are expected to make it mandatory for companies to report environmental compliance.

A new rule from the Securities Exchange Commission (SEC) will require US-listed companies to summarize climate-related financial risks, including greenhouse gases produced by suppliers, known as Scope 3 emissions. Though the rule faces legal challenges, it comes on the heels of multi-year efforts by states and the European Union calling for increased disclosures around climate risk, which until now have been largely voluntary.

Feeding frenzy for consultants

It is not just renewable energy companies and carbon-zero technologies that are seeing a surge in M&A interest, however. The rule changes also are making the consultancies that advise corporations on how to boost their ESG bonafides the subject of consolidation.

Information providers that identify climate-related financial risks, such as the impact of severe weather on physical infrastructure, have been seeing acquisition activity, says Matt Hartman, senior manager of ESG and sustainability for consultancy Schneider Downs.

Providers of carbon offsets and renewable energy certificates stand to benefit from regulatory changes too. Heavy industries such as manufacturing and steel production rely on carbon credits to offset their emissions.

“Chemical producers are actively working on improving ESG credentials from a manufacturing and operational perspective,” says Hardeep Parmar, global head of M&A and vice president of business development-Europe, for Kline Management Consulting. They are asking questions such as “how can we source recycled raw materials,” she adds.

Credit where credit is due

Helping companies earn carbon credits is also an area ripe for M&A. ClimeCo is among the active acquirers in that space, according to Mergermarket. The company develops and trades environmental credits and advises clients on emissions compliance. Competitors include TPG Rise Climate Fund-backed Anew Climate, 3Degrees, and Finite Carbon.

AgriCapture, another company active in carbon offsets, has been receiving interest from big agriculture companies, although it is not ready to sell yet. It helps rice farms reduce water usage and cut methane emissions, from which it generates carbon credits that are then sold to corporations seeking to offset their greenhouse gas emissions. AgriCapture competes with Indigo Ag, which was looking at a crossover round ahead of an expected IPO.

Another company benefiting from CO2 credits is CIBO Technologies, which is eyeing a growth equity raise within 12 months. CIBO helps farmers adopt regenerative agriculture practices using support from corporations in exchange for CO2 credits. It also provides farmers access to public and private incentives.

“It’s still going to take a lot of effort to get to carbon net zero. A big round of investment will be required on that,” said Parmar. “ESG is one of the key drivers of M&A activity.”