ESG transformations in the restructuring business: Who Cares?

ESG-related (environmental, social and governance) issues are no longer a topic to be put on the shelves for later – they now represent a key focus of activity for restructurers in order to provide comprehensive support for the rapid, results-oriented implementation of necessary adjustments.

Only companies that accept the challenge of transforming themselves to meet high ESG standards and, if necessary, also adapt their business models, will be able to survive in the long term. Financiers of all kinds (banks, private equity, debt funds) are already known to shy away from making or maintaining commitments in companies whose business model or corporate governance are negative in terms of ESG standards. And there is no need to mention here that in the "war for talent" a conscious approach to and active engagement with ESG issues has become a success factor.

The pandemic has also heightened interest in the ESG agenda and raised awareness of the fact that introducing ESG measures is both socially and financially profitable. In certain cases, ESG measures are even crucial for companies to continue to play a role in their respective industries and stages of the value chain, because their (end) customers make corresponding demands on suppliers.  

With this realization, the pressure has grown to adapt and also to deal with the increasingly rapid and frequent disruptions in the global economy. The AlixPartners Disruption Index highlights the increasing scale and frequency of disruptive forces impacting organizations worldwide from five perspectives - economic, environmental, technological, societal and regulatory. Each of these areas is directly related to the challenges companies face today, including from an ESG perspective. With this comes the need for continuous corporate self-examination and subsequent rapid ESG transformation. Companies that truly bring their purpose and values to the forefront will be rewarded - with accountability, intrinsic and extrinsic value - not only to the organizations themselves, but also from the many other stakeholders they serve.

However, with opportunities in many cases come ESG risks or challenges for organizations, for example on issues such as carbon emissions, labour sanctions, or requirements for transparency along the value chain. From a restructuring and transformation consulting perspective, there are various ways in which companies can reduce their ESG-related construction sites through concrete action and implementation.

Operationally, for example, restructurers support not only the realignment of business portfolios (products, markets, customers), but also business model restructuring and reorganization, as well as the value-oriented down-management of long-term non-sustainable business units in the context of "business sunsetting". Transactional solutions to ESG problems, e.g. in the context of divestments, carve-outs or mergers, are also on the rise. But of course, it also includes implementing compliance controls that not only mitigate the risk of misconduct, but also proactively prevent and warn of the potential for employee and third-party misconduct, financial leaks, and transparency/disclosure issues.

In short, who cares? Everyone.

And for those who are still putting ESG issues on the back burner, now really is the time to take action.