Sustainability and Acquisition Pricing: Evaluating the Role of ESG in M&A Valuation

Date of Award

Spring 5-2026

Degree Name

Bachelor of Science (BS)

Advisor(s)

Sris Chatterjee

Abstract

This paper explores whether a company's environmental, social, and governance (ESG) performance influences M&A premiums in valuation using a linear regression model. Using samples of announced transactions from the Wharton Research Data Services' (WRDS) LSEG SDC Platinum and ESG databases, the relationship between ESG scores of target companies against M&A premiums was observed one day and one week prior to announcement. The distance between the ESG scores of the target and acquiror companies was also tested against the aforementioned M&A premium metrics. This paper found that there is a statistically insignificant relationship between ESG scores of target companies and M&A premiums, as well as the distance between target and acquiror ESG scores and M&A premiums. These findings suggest that ESG scores are not a significant factor of consideration when determining the premium marked upon an M&A target. Despite increased investment and managerial focus on ESG in recent years, the sustainability metric does not play a significant role in a company's valuation when undergoing a merger or acquisition. This paper contributes to the ongoing discourse on ESG and its implications for financial activity by further underlining a disconnect between ESG implementation efforts and overall market behavior. The findings outlined raise questions about whether ESG considerations are better reflected in alternative financial channels, such as post-merger performance or long-term value creation, rather than short-term merger market reactions.

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