Insights

M&Nay

Cakes to courts in climate activism. Sustainable flows (and temperatures) soar. Plus, ESG comes for acquisition terms.

In the world

💸 Sustainability gains ground. In public and in private markets, through equity and debt, sustainability remains a hot commodity. In April, reports Bloomberg, a “borrowing blitz” fuelled global sustainable bond sales to their highest volume since the inception of the market in 2007. Climate ETFs accounted for 40% of all new fund launches in Q1, though there are notable differences between vehicles spawned in Europe relative to those in the US or China. 

🗳️ Let them eat cake. Investors involved in the Climate Action 100+ initiative have declared their support for a resolution requiring Shell to align its Scope 3 targets with the Paris Agreement. Other companies in the proxy-season hot seat include Chevron, Valero, and Volkswagen, the latter subject to cake-fuelled climate and human rights protests at its AGM this week. Elsewhere, an investor initiative is calling for “urgent action” on plastic waste.

⚖️ Baked goods aren’t all. Italian oil firm Eni has been hit with a climate lawsuit for its “lobbying and greenwashing” activities, with more litigation expected globally and in the US in particular. Despite its alleged ties to fossil fuels, the US Supreme Court — rebuffing appeals by oil & gas companies — has paved the way for climate lawsuits to be brought to state court. Banking on litigation risk, at least one lender has withdrawn gas project financing.

🌡️ Brace for a hot summer. El Niño — a naturally occurring weather phenomenon associated with increased heat — is back. Compounding the effects of human-induced climate change, the climatic shift is fuelling concerns about ocean warming. It could also exacerbate the human displacement crisis (the scale of which was recently underscored in a new report) among other socioeconomic risks, including power cuts and commodity shortages from China.

In the headlines: M&Nay

Forget dedicated buy-side corners: In recent years, ESG factors have infiltrated and become a core consideration for large swathes of capital markets. This year, month, and week alone, there has been no shortage of headlines trumpeting the growing influence of sustainability on VC and private-market decision making.

Social and environmental performance is an increasingly valuable lens through which to evaluate liquidity events, particularly M&A. In a March survey, Deloitte found that private equity investors and corporates are already evaluating ESG during pre-deal due diligence (49.6% and 43.2% of respondents, respectively), while a significant number plan to begin doing so within the next year (32.6% and 23.2%). 

ESG provides investors with “meaningful insights prior to a transaction,” reported Deloitte, adding that “it's easy to see a future where ESG considerations can have a meaningful impact on many M&A transactions."

Case in point? The latest development in one ongoing global wrangle between two mining giants with very different ideas about how to navigate the energy transition. 

Last week, Teck Resources Ltd. rejected mining giant Glencore’s $23 billion takeover bid on environmental grounds. Despite their surface-level similarities, the tug-of-war has exposed a major tension: one playing out in energy and commodity businesses globally. 

Glencore SDG impact, Util data

Whereas Teck is banking on long-term electrification via its base metals business — which, it argues, would be tarred by association — Glencore has faced criticism for its healthily financed coal business and dubious commitment to the energy transition.

Ordinarily, writes Bloomberg’s Matt Levine, “the stumbling blocks to a big deal involve some combination of price, control, or strategic fit.” Given Glencore’s proposal offered Teck shareholders a 20% premium, this was not that. 

Citing, instead, exposure to Glencore’s “dirty” coal business and “significant ESG misalignment” as its justification for refusing, Teck introduced a new variable into global M&A action: “ESG-dilutive acquisitions becoming a 'deal-breaker’.”

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