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ESG has become a political, expansive, and often misunderstood topic. But behind the noise lies a deeper market inefficiency where M&A can capitalize on this disconnect. This joint perspective from Clearwater’s Joanna Daley and Grant Thornton Stax’s Anuj A. Shah unpack why ESG’s financial relevance has been obscured and how reframing it as a feature of enterprise value can reveal where real opportunity exists to sharpen competitive advantage. This article was originally published by Clearwater and is available on their website.
ESG's Repositioning Creates a Market Opportunity
Over the past several years, ESG has expanded in many directions: as a political lightning rod in the US, a compliance obligation in the EU, and a shorthand for everything from climate targets to workforce diversity. Somewhere along the way, its utility to investors and operators became obscured. What often gets labelled “ESG” is either too broad to be useful for decision making or too shallow to be material. That drift has created a pricing distortion, not because ESG does not matter, but because it has been consistently misunderstood and misapplied.
In investor memorandums, board discussions and equity stories, sustainability performance is often missing, muted or misaligned to how value is created and measured. Many companies are making meaningful investments in emissions reduction, supply chain resiliency, product design or workforce quality, and those efforts increasingly influence purchasing behaviour and shape competitive positioning. But because they are often reported through a framework-first lens, rather than tied to business fundamentals, they are excluded from underwriting and left out of the multiple that determines how the company is valued.
That outcome is both predictable and avoidable. In our experience at Clearwater and Grant Thornton Stax, where we advise companies and investors on integrating ESG in a material way, we argue that ESG only enhances value when it is approached as a byproduct of strong financial thinking.
Start with the business case — unit economics, growth capacity, risk management — and sustainability becomes a lens for detecting operational and strategic advantage. Start with ESG as the organizing principle and you risk chasing immaterial disclosures, spending defensively, confusing compliance with competitiveness and getting caught in an overall cycle of administrative bureaucracy.
Seen this way, ESG is a mispriced feature of enterprise value. For investors who can surface and communicate performance in investor-grade terms, that mispricing is an opportunity.
How ESG Data Falls Out of the Model
ESG is not an asset class or a siloed initiative. It is a category of operating and strategic signals. Some of those signals are highly relevant to valuation; others are not. Mispricing arises when those two groups are treated as if they are equally important.
Disclosure regimes and popular frameworks have often encouraged breadth instead of depth. Companies are pushed to report on long lists of indicators, many of which do not move revenue, cost, capital spending or risk in any meaningful way. At the same time, truly material indicators such as energy costs, losses or employee retention may be buried in appendices or omitted from ESG reporting altogether. The market is then asked to separate signal from noise, usually without enough context to do it well.
The core problem is a translation gap. Many companies now generate solid ESG-related metrics, but those metrics are not mapped to the financial variables investors actually model: growth, profitability, capital needs and risk exposure. Evidence that sits in a sustainability report is not automatically converted into relevance for cash flows or valuation. Upside from better growth or margins is underpriced. Downside protection from lower risk is underestimated. Close that translation gap and the exact same performance will earn attention in valuation, rewarding companies for outcomes that matter in the real economy and in portfolios.
How to Get ESG Back Into the Price
Transactions compress time and focus attention on what can be underwritten. That makes the issues above — broad disclosure without materiality and precise metrics without investor-grade proof — more visible. Yet, both fail to move price.
- What doesn’t work: long catalogues of immaterial metrics, framework dumps, unaudited claims and ESG narratives detached from the equity story. These invite skepticism and keep sustainability performance out of the model.
- What works: a short list of material ESG KPIs tied to specific financial levers (for example, energy intensity to gross margin, supplier reliability to revenue and inventory turns, incident reduction to loss ratios and insurance costs, or workforce stability to retention-sensitive revenue and productivity). Show trend, causality and repeatability, with evidence that withstands diligence and aligns with the operating plan.
- Why it matters at exit: When ESG performance is financially legible, it widens the buyer universe, speeds conviction and can support stronger pricing. When it is not legible, capable companies leave value on the table and face slower, more conditional processes.
The ROI of a Focused Sustainability Strategy
Jackson Family Wines, one of the largest wineries in the US, provides a clear illustration of how a disciplined, business-first approach to sustainability can generate measurable financial results. Rather than looking across a broad swath of ESG topics, the company concentrated on a small number of material factors directly tied to its operating model, including energy use, water efficiency and packaging. It kept measurement manageable by tracking a limited set of KPIs that reflected tangible cost and operational outcomes.
Over several years, the winery invested roughly $19 million in solar generation, efficiency improvements and targeted resource management. Those initiatives delivered an estimated $26 million in savings. The impact was cumulative and reflected steady operational improvements rather than any single transformational shift.
ESG’s Strategic Utility is Growing
Capital markets are still recalibrating how they interpret sustainability-related performance. The term “ESG” may be under pressure politically and reputationally, but the underlying business signals remain relevant. The challenge is not whether ESG data matters, but how, where and when it’s applied.
In our work with investors and companies, the most actionable ESG factors are those that have a clear and direct connection to financial outcomes. And when those factors are surfaced in formats that capital markets already understand, they are more likely to be recognized and appropriately priced.
For investors, ensuring that real-world impact is properly reflected in valuation does two things at once: It supports stronger financial performance, and it strengthens the case for scaling solutions that work. ESG’s future utility does not depend on winning a political argument. It depends on execution that is relevant and grounded in how businesses deliver value.
Joanna Daley is Director and Head of ESG and Impact at Clearwater, bringing two decades of sustainability expertise alongside transaction insight to ensure ESG is embedded in value creation. She advises corporates and investors on integrating ESG into business models to unlock commercial benefits and enhance brand positioning. Since joining Clearwater in 2022, Joanna has launched the firm’s multi award-winning ESG Advisory service—the first in mid-market corporate finance to integrate ESG directly into transactions. Her approach identifies and measures ESG risks and value drivers, so they inform valuations, diligence, and portfolio strategies. Recognised for aligning sustainability with financial performance, Joanna enables clients to capture growth opportunities and manage transition risk across the investment lifecycle.
In their respective roles, Joanna and Anuj work across markets and on both sides of transactions. Their view is simple: in commercial diligence and exit execution, ESG belongs in the core analysis; treating it as optional leaves value on the table.
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