Sustainability and ESG Strategy: Important success factors for the business handover

Due to demographic change, the topic of company succession is becoming increasingly explosive, especially in medium-sized businesses. It requires careful preparation and poses numerous challenges for both the transferor and the transferee. Moreover, a takeover process can extend over several years if legal and tax aspects are to be used optimally.

Since the topic of ESG (Environment, Social & Governance) will continue to gain importance within society, it is necessary for the management to deal with this topic or to have optimally positioned the company in this respect, at the latest when making transfer plans to a younger generation.

What is the importance of sustainability for companies??

In addition to mandatory ESG reporting, which will be introduced from 2024 onwards and will be graded according to company size, awareness of the issue of sustainability has increased significantly within society.

Young people in particular attach great importance to a company with a clear sustainability focus and choose their employer accordingly. The importance of sustainability is also reflected in customers’ purchasing decisions. Consumers are asking more about where products and services come from and under what conditions they were produced. Banks are increasingly taking sustainability into account when granting loans, so that sustainability risks can quickly turn into financial risks.

This shows that the topic of sustainability is not only an obligation, but also an economic necessity.

How important is an ESG strategy for the corporate handover?

Companies that have not currently established sustainability in their strategic core business are confronted with major challenges, as the market and regulatory policy are setting a clear path here.

Companies should use this development to shape their future and increase their opportunities in the market. Since sustainability is one of the central topics for the future, it is indispensable to deal with it at the latest in connection with the topic of company succession and handing over one’s own company to the younger generation. If a company is not sustainable, there are significantly fewer potential successors – especially as these are becoming increasingly scarce anyway.

Tip: The earlier the better! Company owners who are already dealing concretely with the issue of company succession will be able to set other priorities in the short term than to deal with the issue of implementing sustainability in the core business during the handover process. Making a company fit for a handover in the short term is multi-faceted.

What value contribution can sustainability make in a company handover?

• Reputation and brand value: Sustainable corporate governance can have a significant impact on a company’s reputation and brand value. Buyers and acquirers are increasingly paying attention to a company’s reputation for environmental protection, social responsibility and ethical business practices. Strong ESG performance can positively influence the sale price.
• Risk management: ESG risks can have a significant impact on company value and future profitability. When selling a business, potential ESG risks need to be identified, assessed and made transparent to gain the confidence of buyers.
• Regulatory requirements: ESG and sustainability legislation and regulatory requirements are constantly evolving. Companies should ensure that they comply with all relevant regulations to avoid legal risks. This can also play a role in sales.
• Transparency and reporting: Transparent ESG reporting is crucial to give potential buyers or acquirers a clear picture of the company’s sustainability performance. The availability of comprehensive ESG data and reports can facilitate the sales process.
• Sustainability strategy and targets: Companies should develop and implement a clear sustainability strategy and concrete targets. These can serve as a positive value driver in the sales process and attract the interest of ESG-oriented investors or acquirers.
• Supply chain management: ESG risks can also manifest themselves in the supply chain. Companies should ensure that their suppliers follow sustainable practices and analyse potential impacts on the sales process.
• Employee engagement: Employees are an essential part of a company’s ESG engagement. An engaged and well-trained team can help improve ESG performance and thus increase company value.

These aspects illustrate that ESG and sustainability are not only important for ethical reasons, but can also have a significant impact on the financial success and sale or transfer of a company.