In 2026, corporate investment decisions in the United Kingdom are profoundly shaped by Environmental Social and Governance due diligence. While traditional financial due diligence services remain indispensable components of merger and acquisition evaluations and investment strategies, the integration of ESG due diligence has emerged as a strategic imperative for safeguarding long term value. Many industry analysts and investors now contend that rigorous ESG due diligence protects up to 35 percent more long term value compared to traditional approaches alone. This article explores how that percentage is derived in practice, what data supports this claim, how UK investors and regulators are adapting, and why combining financial due diligence services with ESG assessments is central to creating resilient and sustainable investment portfolios.
Understanding why ESG due diligence might protect significantly more long term value starts with recognising how risks and opportunities extend beyond conventional financial measures. Traditional financial due diligence services focus on analysing revenue stability, asset quality legal obligations and numerical forecasts. However, non-financial risks such as environmental liabilities, social controversies or governance weaknesses can quietly erode value in ways that financial due diligence alone cannot reveal. By integrating ESG due diligence into investment evaluations organisations can uncover hidden liabilities and future risks long before they materialise into value destruction.
A recent industry indication shows that eighty percent of UK dealmakers now prioritise ESG due diligence as part of their investment evaluation process reflecting a fundamental shift in how value preservation is perceived. According to Holtara’s 2025 reports covering the first half of the year, eighty seven ESG due diligence assessments were delivered globally identifying over four hundred value creation opportunities that might otherwise have been missed. These assessments went beyond compliance and uncovered strategic advantages related to supply chain resilience, talent attraction and innovation potential. The intensifying focus on ESG due diligence has coincided with more sophisticated regulatory frameworks and investor demand for transparency underscoring the notion that robust ESG evaluations help protect long term value more effectively than financial due diligence services alone.
Why ESG Due Diligence Matters for Long Term Value
In corporate finance the concept of value is multifaceted. Traditional approaches look at tangible assets, earnings forecasts and cost structures. What they sometimes overlook are intangible yet material factors such as a company’s environmental footprint, labour practices, stakeholder relations and governance frameworks. These components are not peripheral concerns. They are increasingly central to determining a company’s resilience in the face of evolving economic, social and regulatory pressures.
For example many UK investors now recognise that robust ESG practices often correlate with improved risk management and stronger stakeholder trust. A KPMG report revealed that 71 percent of UK investors observed an increase in the importance of ESG in investment transactions over recent periods and more than half of those surveyed acknowledged that ESG considerations could act as a deal stopper when significant compliance issues are identified. These insights reflect a practical understanding that ESG related risks can crystallise into tangible costs such as regulatory fines litigation reputational damage and operational disruptions if not properly assessed during due diligence.
When companies neglect ESG factors they may expose themselves to broader societal and environmental problems that compromise long term value. A business that fails to comply with emerging climate regulations or that inadequately addresses labour rights may face operational setbacks, legal challenges or investor disinterest. Such outcomes directly impact valuations and can erode investor confidence. In contrast, a systematic ESG due diligence process reveals strengths and weaknesses in a target company’s operations enabling investors to negotiate better terms, mitigate potential liabilities or even restructure deals to align with sustainable growth objectives.
Quantitatively while traditional financial due diligence services might identify immediate numerical concerns such as working capital deficits or tax exposures ESG due diligence sheds light on forward looking risk scenarios that could materially influence a company’s future profit profile. In an era where regulatory frameworks are evolving rapidly, especially in the UK where initiatives aim to harmonise ESG ratings and reporting standards by 2028, the depth of ESG evaluations can make the difference between investment success and unexpected value loss.
Quantifying the ESG Value Protection Effect
The notion that ESG due diligence can protect up to 35 percent more long term value stems from emerging data and practical experience within investment communities. While precise percentages vary by industry transaction type and risk profile, several quantitative indicators support the idea that ESG due diligence extends the protective scope beyond what traditional financial due diligence services typically offer.
One data driven insight comes from market studies showing that an improvement in a company’s ESG footprint correlates with stronger financial performance over time. For instance, research indicates that enhancing fund level ESG performance by fifty percent can correspond with a more than twelve percent increase in net internal rate of return over a fund’s lifecycle. This kind of improvement is not captured by financial due diligence alone. Rather it reflects a composite benefit where mitigation of environmental and governance risks enhances long term investor returns and reduces volatility.
Another measure is the proportion of dealmakers prioritising ESG. In the UK the proportion of professionals including ESG considerations in most transactions has increased significantly, with many global surveys indicating that more than half of transactions today involve some form of ESG due diligence. When combined with traditional financial due diligence services, this comprehensive approach leads to deeper insight into potential pitfalls and opportunities that might otherwise remain hidden until later stages of ownership.
By comparison traditional due diligence outcomes often quantify fiscal risks like debt levels, potential tax liabilities or forecast deviations. ESG due diligence expands that framework to include environmental regulatory exposures, social licence concerns and governance practice robustness. The cumulative effect of this wider perspective can translate into materially stronger deal outcomes and more durable investment performance. The figure of thirty five percent more long term value protection is a composite estimate reflecting the ability to avoid value erosion while capturing additional strategic opportunities that purely financial analysis might overlook.
The Regulatory Environment and Investor Expectations
The regulatory environment in the UK and the European region continues to evolve impacting how due diligence is conducted and reported. Bodies like the Financial Conduct Authority have announced plans to regulate the ESG ratings industry to improve transparency and mitigate conflicts of interest among rating providers. This regulatory active stance recognises that accurate and unbiased ESG assessments are crucial for market confidence and long term value preservation. By 2028 new rules will require enhanced disclosures from ESG ratings agencies strengthening the reliability of ESG data used in due diligence.
Moreover regulatory initiatives such as the Corporate Sustainability Reporting Directive and alignment with international sustainability standards emphasise the importance of reliable non financial data. As companies face increased obligations to disclose ESG related information the quality and depth of due diligence work must match these heightened expectations.
Investors are responding accordingly. The emphasis on ESG due diligence reflects an understanding that modern investment decisions must integrate both financial and non financial factors. If a target company lacks adequate governance protocols or is vulnerable to climatic regulation changes the long term consequences could outweigh short term financial metrics.
These evolving regulatory pressures reinforce the importance of using financial due diligence services that include robust ESG components. When investors engage such services they benefit from insights into compliance readiness scenario risk assessments and forward looking strategic implications that go beyond balance sheet figures.
Challenges and Practical Considerations
While the case for ESG due diligence is compelling there are real challenges that must be navigated. One key issue is the variability and inconsistency in ESG data across companies and sectors. Unlike financial metrics which are often standardised, reporting on ESG factors can vary widely in quality and completeness.
Consequently skilled practitioners must often exercise judgement in interpreting ESG information and integrating it with traditional financial due diligence services. Investors may need to work with experts who specialise in ESG evaluation methodologies and who understand how to translate qualitative findings into quantifiable impacts on value.
Another challenge lies in balancing the costs and efforts of comprehensive ESG due diligence with the need to close deals within reasonable timeframes. Effective ESG assessments require time rigorous analysis and often cross functional collaboration. However these upfront investments can be justified when viewed against the potential costs of unanticipated ESG issues that emerge after ownership change or investment closure.
Despite these challenges the trend towards deeper ESG integration is clear. As knowledge and tools improve and as investors demand stronger assurance around environmental social and governance performance the practice of combining financial due diligence services with ESG due diligence will continue to mature.
Best Practices for Integrating ESG Due Diligence in the UK
To maximise the protective effect of ESG due diligence investors and advisors should adopt a systematic approach that aligns with broader investment goals and regulatory expectations. Some best practices include:
Strategic alignment
Start ESG due diligence early in the investment cycle to ensure that insights can meaningfully influence transaction terms and pricing.
Data quality and benchmarking
Leverage multiple data sources and benchmarks to assess ESG performance and compare it against industry peers.
Scenario risk assessment
Incorporate potential regulatory shifts and future climate or social impacts into long term value models.
Cross functional collaboration
Ensure that financial legal and ESG specialists work together to integrate findings from various due diligence streams.
Transparent reporting
Document findings clearly and quantitatively where possible to provide a defensible basis for investment decisions.
By following these practices investors in the UK can harness the full value of ESG due diligence in protecting long term value and in achieving sustainable investment outcomes.
In summary the integration of ESG due diligence with traditional financial due diligence services represents a powerful evolution in how long term value is protected and enhanced in UK investment activity. With eighty percent of dealmakers prioritising ESG considerations and with regulatory frameworks tightening to ensure greater transparency the protective effect of ESG due diligence is increasingly acknowledged.
The idea that ESG due diligence protects up to thirty five percent more long term value reflects a composite appreciation of avoided risks and captured strategic opportunities that might otherwise remain undetected through financial due diligence services alone. By broadening the scope of analysis to include environmental social and governance factors investors gain deeper insight into future liabilities, resilience drivers and value creation pathways.
In an era where sustainability and resilience are central to investment decisions the combination of financial due diligence services with robust ESG evaluation is no longer optional. It is a strategic necessity that protects value today and secures durable performance tomorrow.
Finance Advisory 