As consumer expectations evolve and regulatory scrutiny intensifies, ESG due diligence has become a critical component of mergers and acquisitions (M&A) activity.
In the UK food industry, ESG considerations are now shaping deal structure, valuation, and post-acquisition integration strategies.
Environmental factors: from farm to fork
Environmental considerations in food-sector M&A often revolve around sustainability, carbon footprint, and resource efficiency. Buyers are increasingly scrutinising targets’ environmental practices, including waste management, energy use, and sustainable sourcing. For example, a food manufacturer reliant on single-use plastics or intensive water usage may face reputational and regulatory risks that directly impact its valuation.
Identifying environmental liabilities – such as legacy pollution, non-compliance with a wide range of environmental legislation , or exposure to climate-related litigation – is essential during due diligence. Tools such as environmental audits, warranties, and indemnities can help mitigate these risks and clarify responsibilities post-acquisition.
Social factors: labour, ethics, and supply chains
Social issues are particularly significant in the food sector, where supply chains frequently span multiple jurisdictions and involve complex labour dynamics. The Modern Slavery Act 2015, for instance, requires companies to disclose steps taken to prevent forced labour – non-compliance can lead to reputational harm and legal consequences.
Assessing a target’s labour practices, diversity policies, and ethical sourcing standards is an important part of social due diligence. Factors such as fair-trade certification, animal welfare standards, and human rights protections in the supply chain can either enhance or detract from overall deal value. Supplier audits and contract reviews help paint a fuller picture of a company’s social impact and risk profile.
Governance factors: transparency and accountability
Governance underpins all ESG components and is often the most overlooked in food-sector transactions. Inadequate governance, such as weak food safety protocols, poor board oversight, or gaps in anti-bribery compliance, can jeopardise a deal. Regulatory frameworks like the UK Bribery Act 2010 and the Food Safety Act 1990 impose stringent obligations that must be taken seriously.
Evaluating a company’s corporate governance framework, including ESG reporting, whistleblower protections, and board diversity, provides insight into how well the organisation manages risk and aligns with stakeholder expectations. Investors are increasingly seeking out targets with strong governance as a foundation for long-term value.
ESG as a value driver
Beyond mitigating risk, ESG can serve as a powerful value driver. Companies with strong ESG credentials often achieve premium valuations and access more favourable financing. In the food sector, this may include businesses that demonstrate leadership in areas like net-zero commitments, regenerative agriculture, or sustainable packaging innovations.
ESG synergies can also be built into deal terms, such as linking earn-outs to sustainability metrics or aligning post-deal integration plans with ESG objectives. These elements help ensure that the transaction supports not only short-term goals but also long-term resilience and stakeholder trust.
As ESG continues to reshape the UK food industry, it is becoming an integral part of M&A strategy. Success in this evolving landscape depends on the ability to navigate the complexities of sustainability, ethics, and governance – not just to close deals, but to future-proof them.
