Despite recent headlines suggesting a global retreat from ESG regulations, corporate sustainability remains a critical focus for investors and dealmakers as mergers and acquisitions activity reaches unprecedented levels. The European Union has scaled back corporate sustainability reporting requirements, while the United States has stepped away from mandatory climate disclosure rules, according to regulatory announcements. However, these regulatory shifts have not diminished investor appetite for corporate sustainability data, particularly as global M&A volume is projected to hit record highs in 2026.
Goldman Sachs has predicted that 2026 will deliver approximately $3.9 trillion in total global deal flow, according to the firm’s mergers and acquisitions division. This surge in transaction activity has placed ESG and sustainability metrics at the forefront of due diligence processes, with acquirers increasingly scrutinizing target companies’ environmental, social and governance performance as part of valuation assessments.
ESG Due Diligence Becomes Central to M&A Transactions
According to KPMG’s 2025 M&A Deal Market Study, 22% of corporate acquirers and 24% of private equity firms now emphasize sustainability and ESG factors in their acquisition strategies. Additionally, law firm Latham & Watkins LLP has indicated that ESG considerations have become “hardwired into the investment process” as essential components of both valuation and integration activities.
The firm also noted that artificial intelligence-powered due diligence tools are making it easier for acquirers to identify potential sustainability-related risks within target companies and their extended value chains. These issues, which can include child labor practices, human rights violations and environmental compliance failures, can significantly impact company valuations and deal structures.
Investors Drive Demand for Corporate Sustainability Transparency
Institutional asset managers continue to prioritize sustainable investments despite the regulatory pullback. Recent industry surveys indicate that 84% of institutional asset managers expect the proportion of sustainable assets under management in their portfolios to increase over the next two years. This investor demand creates pressure on companies to maintain robust sustainability reporting practices even without explicit regulatory mandates.
Meanwhile, companies navigating what industry experts describe as a “VUCA” environment—volatile, uncertain, complex and ambiguous—face challenges in tracking and reporting sustainability risks. Enhesa CEO Peter Schramme explained that businesses must now navigate a fragmented landscape of federal and local regulations that require region-by-region and company-by-company analysis.
Standardized Frameworks Offer Path Forward
In response to regulatory uncertainty, many companies are adopting voluntary reporting frameworks to maintain consistency in their sustainability disclosures. The International Financial Reporting Standards Foundation’s International Sustainability Standards Board has developed widely recognized standards for reporting sustainability-related risks and opportunities that are gaining global acceptance.
Another framework attracting attention is the EFRAG Voluntary Sustainability Reporting Standard for Non-Listed SMEs. Originally designed for small businesses seeking alignment with the Corporate Sustainability Reporting Directive, this detailed guide is now being adopted by larger enterprises as a comprehensive playbook for consistent sustainability reporting practices.
In contrast to earlier expectations of unified global reporting requirements, companies now face what some experts characterize as an even more complicated disclosure environment. The proliferation of local and sector-specific reporting requirements demands that businesses treat ESG and sustainability risks with the same rigor applied to financial, accounting and market risks.
As M&A activity continues to accelerate through 2026, companies seeking to maximize valuations will need to maintain transparent sustainability data regardless of regulatory mandates. The integration of AI-powered tools in due diligence processes means potential acquirers can more easily identify sustainability gaps that could affect deal terms or valuations, making proactive disclosure increasingly important for companies of all sizes.
