The Role of Finance in a Sustainable Transition (FSI)

Summary

• In 2020, roughly $17.1tn of invested assets in the US carried a sustainable mandate, while Europe housed €467 billion in environmental, social, and governance funds.p.3
• The European Union's European Green Deal aims to mobilize at least €1 trillion in sustainable investments over the next decade.p.3
• FSI operates as the largest private equity fund dedicated entirely to Italy, managing Eur 1.4 bn in capital commitments.p.3
• An empirical panel dataset of 6638 non-financial firms across 15 years (2003–2018) shows that higher debt leverage is statistically significantly associated with lower financial and ESG performance.p.6
• Target firms that reduce their financial leverage following an M&A transaction achieve notable post-deal gains in eco-efficiency and eco-innovation.p.16

Key insights

1. Higher financial debt leverage is statistically significantly correlated with lower overall corporate ESG and pillar performance scores.p.6
2. Firms maintaining higher debt leverage emit relatively more pollutants and contribute more heavily to climate change proxied by CO2/Revenue ratios.p.7
3. M&A target firms acquiring a substantial equity ownership stake above 15% achieve larger positive changes in environmental, social, and governance profiles.p.13
4. A post-M&A reduction in corporate leverage is strongly associated with increases in aggregated ESG score, eco-innovation, and eco-efficiency metrics.p.16
5. Target firms typically experience a temporary post-acquisition drop in governance pillar performance driven primarily by lower management category scores.p.11
6. Cross-border acquisitions are linked to a downward trajectory in environmental performance for target companies compared to domestic acquirors.p.18
7. Financial investors backing M&A target firms correlate with slightly higher post-acquisition ESG ratings than non-financial investors, though the difference is not statistically significant.p.18