Point of View
M&A · Private Equity · Sustainability Diligence
If You're Planning to Sell, Buyers Will Audit Your Sustainability Numbers
Most small and mid-sized business owners assume sustainability due diligence happens only to large public companies. It doesn't. It happens to any business being acquired by a private equity buyer, a strategic acquirer, or a well-capitalized competitor -- and whether your numbers hold up is largely decided years before the deal.
Nov 2025
Points of View is Vaxa's opinion column. Each article states a position on a question where reasonable people disagree — and makes the argument for that position directly.
VAXA POINT OF VIEW
Most owners of small and mid-sized businesses assume sustainability due diligence is something that happens to large public companies being acquired by other large companies. It isn't. It happens to any business being acquired by a private equity buyer, a strategic acquirer, or even a well-capitalized competitor — and most lower-middle-market buyout targets are small or mid-sized businesses, not household names. If you're planning to sell in the next few years, your numbers will be checked. Whether they hold up is largely decided years before the deal.
Pattern
Private equity's ESG apparatus is usually described in large-fund, large-target language — LPs, GPs, billion-dollar funds — which makes it easy for the owner of a smaller business to assume it doesn't apply to them. But the volume of private equity activity sits overwhelmingly in the lower and middle market, not in mega-deals, and buyers in that segment increasingly run some version of the same ESG diligence process that used to be reserved for large public targets. The practice has scaled down because LP pressure on funds scaled down with it: institutional investors — pension funds, sovereign wealth funds, insurers — now expect the funds they back to demonstrate ESG discipline across the entire portfolio, not just the marquee holdings.
The UN Principles for Responsible Investment now counts more than 5,000 signatories managing over $121 trillion in assets, and nearly every major private equity firm has signed on. A firm that has made that commitment to its own investors has a direct incentive to apply real diligence to every acquisition it makes, including the smaller ones — because a portfolio company with unreliable environmental data is a liability the fund has to answer for at its own next fundraise.
Trust
Private equity's ESG apparatus is usually described in large-fund, large-target language — LPs, GPs, billion-dollar funds — which makes it easy for the owner of a smaller business to assume it doesn't apply to them. But the volume of private equity activity sits overwhelmingly in the lower and middle market, not in mega-deals, and buyers in that segment increasingly run some version of the same ESG diligence process that used to be reserved for large public targets. The practice has scaled down because LP pressure on funds scaled down with it: institutional investors — pension funds, sovereign wealth funds, insurers — now expect the funds they back to demonstrate ESG discipline across the entire portfolio, not just the marquee holdings.
The UN Principles for Responsible Investment now counts more than 5,000 signatories managing over $121 trillion in assets, and nearly every major private equity firm has signed on. A firm that has made that commitment to its own investors has a direct incentive to apply real diligence to every acquisition it makes, including the smaller ones — because a portfolio company with unreliable environmental data is a liability the fund has to answer for at its own next fundraise.
A number nobody has ever independently checked tends to drift toward the version that looks best — whether or not anyone intended it to.
Response
The response that's emerged among more sophisticated sellers — and one increasingly available to smaller businesses, not just large ones — is commissioning an independent sustainability review before going to market, rather than waiting for the buyer to run their own and find the gaps first. One private equity sustainability lead has described the value of receiving this kind of report from a seller directly: it gives the buying team a credible starting point for their own diligence, shows the business has genuinely thought about the issue, and identifies exactly who on the seller's team to talk to — rather than the buyer having to reconstruct all of that from scratch, adversarially, during a compressed deal timeline.
The practical effect for a seller is twofold. A verified, defensible number removes one of the more common places a deal gets re-traded downward late in the process, when a buyer's own diligence turns up a discrepancy the seller didn't know was there. And in a market where buyout funds are sitting on a growing backlog of unsold portfolio companies and exit pressure is rising across the industry, a business that shows up to market with its numbers already verified is a meaningfully easier deal to close quickly — which, in a competitive sale process, can matter as much as the number itself.
Implication
Verified data doesn't happen retroactively. A business preparing for a sale two or three years out has time to establish a real, activity-based baseline, correct it if it needs correcting, and walk into a sale process with a number that's already been checked rather than one a buyer's diligence team discovers on their own. A business six months from a planned exit has far fewer options — mostly limited to commissioning a rushed review that a sophisticated buyer will read as exactly what it is. For an owner who already knows a sale is somewhere on the horizon, this is a preparation item that belongs on the same timeline as cleaning up financial statements, not something to address once a buyer is already at the table.
The Question to Ask
If a buyer's diligence team independently checked your energy and emissions data tomorrow, would it match what you'd tell them yourself — or is there a gap you haven't looked for yet because nobody's ever asked?