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M&A uncertainty fails to slow ESG due diligence - Industry roundup: 15 July

M&A uncertainty fails to slow ESG due diligence

Economic and geopolitical headwinds have failed to slow a rise in ESG due diligence in M&A transactions globally, according to findings from KPMG International. The organisation’s ESG Due Diligence study reveals the global priority of ESG in transactions has increased in the past 12 to 18 months, despite M&A markets decelerating in many countries, in the face of higher interest rates.

When the study was first launched in 2022, there was clear evidence that deal practitioners were facing practical challenges tackling ESG despite clear evidence of the rising importance of ESG due diligence. In this year’s global report, 70% of dealmakers report an increase in the importance of ESG due diligence over the last 12 to 18 months, while four out of five say broader ESG considerations are now firmly on their M&A agenda – up from 74% in 2023. The rise comes despite softer M&A activity and an increasingly politicised debate about ESG in some countries and territories.

Looking ahead, more than half (57%) of dealmakers expect to perform ESG due diligence on most of their transactions over the next two years. Only 6% explicitly stated they don’t intend to perform this type of due diligence in the future.

The study also reveals that dealmakers are conducting ESG due diligence primarily because they believe in the monetary value of identifying sustainability-related risks and opportunities early in the deal process.  Investors are also motivated by the belief that ESG due diligence helps meet regulatory requirements, as 44% of global respondents noted. However, there are significant regional differences in this regard. EMEA (57%) and Asia Pacific (APAC) (55%) rank regulation requirements much more prominently than in the Americas region (19%).

Almost three in four respondents said they perceive ESG due diligence as more important because of changing stakeholder requirements. What this means, however, can vary from business to business. For example, the requirements of their limited partners (LPs) play an essential role for general partners of private equity funds. Additionally, about two in three respondents indicated that ESG due diligence has become more relevant for them after a recent strategy update.

Despite clear evidence of ESG’s rising importance in M&A, there are some concerns about investment. Some 60% of corporate investors and 80% of financial investors have set ‘low budgets’ for ESG due diligence – potentially limiting and risking the ability of external advisors to perform the high-quality due diligence needed by an increasing number of dealmakers.

Investors continue to struggle with selecting a meaningful, yet actionable scope, to conduct ESG due diligence with receiving quality data from target companies and quantifying potential findings. Solutions are emerging for greater scope clarity. Data quality can also improve as sellers and sell-side advisors drive value from divestments with higher-quality ESG vendor documentation. Synergies are also becoming more apparent between ESG due diligence teams and commercial and operations due diligence teams.

 

Anglo American and Bahrain Steel complete eBL transaction for Bahrain imports

Anglo American and Bahrain Steel recently completed the first ICE CargoDocs electronic bill of lading (eBL) transaction for imports into Bahrain. DBS Bank and HSBC Bahrain supported the digital execution of the financed trade transaction, leveraging ICE CargoDocs’ ePresentation capabilities.

An eBL is the digital version of a document that represents legal proof of ownership of goods in transit. The eBL for this transaction was processed electronically through ICE CargoDocs, enabling secure, online real-time collaboration between all parties across drafting, approving, signing, issuance, transfer and electronic presentation of the eBL and relevant supporting documents.

With all critical actions completed in a matter of hours, this represents significant efficiency gains compared to processing paper-based bills of lading, which typically takes days or weeks as documents must be printed and physically couriered across different parties. It also mitigates the risk of fraud as an eBL is less susceptible to being doctored than its paper counterparts.

In addition to being the first use of ICE CargoDocs for imports into Bahrain, the transaction – which covered the sale of iron ore pellet feed shipped from Acu Port, Brazil to Hidd, Bahrain – marked the first use of ICE CargoDocs by Bahrain Steel and HSBC Bahrain. DBS Bank acted as the advising bank on behalf of the exporter, Anglo American, with HSBC Bahrain acting as the issuing bank on behalf of the buyer, Bahrain Steel.

 

How election results will ripple through the French and UK economies

The second round of the recent French legislative elections delivered a hung parliament, and the next step is for President Emmanuel Macron to appoint a prime minister tasked with forming a government. While much remains in flux, Goldman Sachs Research (GSR) economist Alexandre Stott predicts that the previously expected budget tightening this year will not fully materialise and that next year's deficit will be more significant than previously assumed (4.7% of GDP, compared with 4.4% before).

According to GSR, the elections' implications for near-term growth are probably slightly negative. The tightening of financial conditions and rise in policy uncertainty are likely to more than offset the fiscal boost from a slower pace of deficit reduction. GSR shaved its French growth forecast for the fourth and first quarters by 0.1 percentage points each.

That said, the parliament has shifted less to the right than projected, leaving mainstream parties (Ensemble, Les Republicains, Parti Socialiste) as the centre of gravity of the new parliament, according to economist Simon Freycenet. Given the centre likely has enough weight to block the more expansionary fiscal policies, GSR sees room for the additional yield from 10-year French government bonds (relative to similar-maturity German debt) to compress by as much as ten basis points into the summer.

By contrast, GSR raised the UK’s growth forecast following Labour’s landslide election win. Chief European Economist Sven Jari Stehn says that while Labour has pledged to stick to the same fiscal rules as the outgoing government, he expects somewhat more spending (£24bn, or 0.8% of GDP) and somewhat higher taxes than is currently planned.

After a prolonged period of stagnation, UK economic growth turned the corner this year with real (inflation adjusted) GDP up 0.7% in the first quarter and real GDP growth tracking at 0.6% for the second quarter. Stehn’s team expects rising household incomes and a diminishing headwind from higher interest rates to support growth in the second half of the year. GSR forecasts real GDP growth of 1.1% in 2024 and 1.6% in 2025, each 0.4 percentage points above the consensus.

 

Billtrust and Visa to extend B2B payments network collaboration

Billtrust, a B2B order-to-cash and digital payments market leader, announced that it has extended its collaboration with Visa, a world leader in digital payments, to support its Business Payments Network (BPN). Visa will continue to offer BPN access to its financial institution clients to streamline the B2B digital payments process for their corporate customers.

Launched in 2018 in collaboration with Visa, BPN seamlessly links suppliers to their buyers through connectivity to their preferred bank and payables providers, simplifying payment acceptance through straight-through processing of virtual card payments and capture of all available remittance data. Suppliers benefit from eliminating manual virtual card processing and optimized acceptance costs, while buyers can transact using their preferred payment method. In addition, banks and accounts payable (AP) providers benefit from transparency regarding supplier virtual card acceptance and preferences.

“We continue to be encouraged by BPN’s volume growth and potential and our ability to offer it to clients,” said Veronica Fernandez, SVP, Head of Visa Commercial Solutions North America. “The network's expansion and innovative features underscore our commitment to empowering financial institutions and fintech partners with essential 'last mile' capabilities focused on reducing friction and driving incremental payment volume through this mutually beneficial B2B payment method.”

“Visa’s continued collaboration with Billtrust is a testament to our mutual belief in the power of BPN to expand the B2B payment ecosystem through continued ergonomic and economic support of virtual card acceptance, driving frictionless and more cost-efficient acceptance,” said Nick Izquierdo, Executive Vice President, Payments, Billtrust. “BPN’s critical infrastructure connects hundreds of suppliers and hundreds of thousands of buyers while facilitating billions of dollars' worth of payments at exceptional straight-through processing rates.”

 

Contour gets upgraded functionality from fintech owner

Xalts has unveiled a suite of enhancements to Contour, the blockchain-based trade finance network. The new features include enabling corporates to issue letters of credit (LC) applications to multiple banks, even if the sellers or notifying banks are not network participants.

Acquired by Xalts in February, Contour is now "future-proofed to move to full digital transactions" as membership grows, according to the company. Corporates can now also specify mixed payment instructions, exemplified by terms such as 10% advance payment, 30% at sight, and the remaining 60% payable 90 days post-due date. Moreover, members can leverage up to 10 LCs issued in the past 60 days as templates, expediting the creation of new financing requests.

Additional projects in development include Contour APIs, designed to streamline the platform’s integration with corporates’ and banks’ internal systems and a self-onboarding process for buyers and sellers looking to commence their documentary credit digitisation journey. The fintech says that future enhancements will enable users to create and amend LCs in near-real time, add comments to fields in LC applications, and compare LCs with Swift messaging standards.

 

Swift shares net zero progress

Swift has shared its progress towards the Science-Based Targets initiative (SBTi) objectives as part of its dedication to sustainability. In the last four years, the cooperative says it has reduced Scope 1 & 2 emissions by 43%. This has been achieved by purchasing green electricity, installing additional solar panels, shifting towards a more hybrid-working approach, and transitioning to a fleet of electric cars. 

Swift also exceeded its goal of ensuring that 37% of its leased vehicles were fully electric by the end of 2023. Since 2019, Scope 3 emissions from commuting and business travel have also dropped by 30%. To keep up the momentum and achieve net-zero targets, the company said it is committed to continuing to emphasise sustainable choices for our business travel. 

In a statement on the Swift website, the cooperative emphasised the crucial role the private sector has to play in the push towards a more sustainable future. As such, in partnership with its procurement teams, Swift is in communication with its top suppliers to engage with them about their sustainability goals and encourage more businesses to set science-based targets.

Swift is on a journey to achieving its near-term 2030 science-based targets. This year, it is focused on crafting a detailed roadmap to achieve these targets, with continuous evolution, and innovation in sustainable practices at its core. 

The strategy includes further distancing from fossil fuels and enhancing its environmental, social, and governance (ESG) criteria when choosing suppliers. Nearly 2,400 companies, including Swift, have already had their 2030 science-based targets validated, and over 2,000 more have committed to setting targets in the future. 

 

Finastra helps connect Swiss banks to new instant payments service

Finastra has announced the completion of a Swiss Interbank Clearing (SIC) instant payments readiness project. Using Finastra’s cloud-based Service Bureau offering, Swiss banks can seamlessly transition to facilitating instant interbank payments.

The 50 largest banks are expected to facilitate instant interbank payments in Switzerland and Liechtenstein by August this year. By the end of 2026, all active participants in the Swiss customer payment transactions system via SIC are expected to be capable of processing incoming customer payments instantaneously.

Finastra’s 24/7 instant payment service, already used by several banks, includes real-time sanctions screening, with transactions processed in seconds. The tech firm says it will continually evolve the service, allowing banks to respond quickly to changing customer, industry and regulatory demands.

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