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Manufacturing businesses with sustainable practices ‘attract higher investment’

Manufacturing businesses that adopt sustainable practices are worth more than those that fail to do so, attracting investors to pay a premium, research suggests.

Manufacturers that invest in environmentally friendly approaches across their production environments and supply chain receive, on average, 69% higher pre-money valuation than those without such practices, insights from chartered accountancy firm Price Bailey and data provider Beauhurst reveal.

According to Price Bailey, manufacturers that demonstrate environmental consciousness reached, on average, $37 million (£27.5m) in pre-money valuation, compared with the $18 million (£13.4m) achieved for those without.

“Despite recent Atlantic headwinds, the last 25 years shows that sustainability is an essential part of a business strategy for manufacturers who wish to run a premium business model,” said Chand Chudasama, partner and strategic corporate finance expert at Price Bailey.

Environmental efforts equal economic value

Sustainability appears to elevate a manufacturer’s value considerably. The findings indicate that eco credentials increase the worth of a business by more than two-thirds, demonstrating the strength and significance of sustainability stances and strategies.

In 2023, a PwC survey found that more than one-third (37%) of private equity respondents rejected potential deals because of environmental, social, and governance (ESG) concerns.

Furthermore, a report by consulting firm Bain & Company showed that 93% of limited partners would have a translation if it raised any ESG issues.

“There are real cost savings available to businesses who engage in more sustainable business activities, as well as tax incentives and alternative funding streams,” said Chudasama. “These factors support growth and lower the risks to investors, which we are seeing feed into investor interest, bolstering valuations.”

The data gathered by Beauhurst signals that actively backing sustainable approaches is good for the environment, satisfies consumer demands, and elevates a company’s financial worth and position.

Food and beverage (F&B) producers may amplify this value throughout their supply chains. Committing to sustainable practices within food production is a core approach that reflects growing consumer awareness and demands for environmentally conscious products, brands, and supply chains.

Evaluating environmental signals and risk

Manufacturers often use various descriptions, sectors, and buzzwords to indicate their sustainability stance.

Using five environmental signals, Price Bailey and Beauhurst reviewed these to identify whether a company operated in environmental spaces, such as clean and renewable energy, green transport, green infrastructure and building, sustainable agriculture and food production.

They also explored whether these manufacturers had received any environmental achievements or notable mentions of their sustainable progress.

Furthermore, investing in sustainability suggests a risk reduction. Price Bailey’s research found that those manufacturing companies exploring environmental goals had lower risk signals.

Analysing how likely manufacturers investing in environmentally friendly practices would become inactive, the research also investigated liquidation and insolvency, downround, county court judgements, and short runways.

Price Bailey identified the risk signal for liquidation/insolvency and downround was 4%, receiving a county court judgement 3%, and a short runway 2%.

Growing acquisitions in green eating space

Global food systems are responsible for more than one-quarter (26%) of greenhouse gas (GHG) emissions. Rethinking and transforming how we grow, manufacture, and transport food is key to combating climate change.

Notable acquisitions relating to the environmentally friendly sector have shown that sustainable investment is a priority among F&B companies.

Merger and acquisition (M&A) specialist MCF Corporate Finance has noted how 2024 was an “improved environment” for food, beverage and agriculture M&As in Europe. Heightened interest in these transactions drove a 51.1% increase in volumes in 2024, totalling 642 deals compared with 425 in 2023.

International law firm Baker McKenzie expects deals within F&B to rebound in 2025, with sustainable investments expected to gather pace through ESG acquisitions.

F&B brands should focus on improving their transparency, ethical sourcing, and recyclability.

Smaller brands should concentrate on high-growth areas like health and wellness, premium foods, and snacks, including plant-based meat alternatives and functional drinks, which are anticipated to attract investors to engage in acquisitions and divestitures.

On the smaller end of the F&B investment scale was meal replacement retailer Huel, which received $27 million (£20m), driven by Highland Europe and celebrity supporters. The brand advocates fast, nutritious, complete food and supports healthy diets with low carbon footprints and agricultural development in Sierra Leone.