ESG Divergence and Ownership Imbalance: Rethinking Sustainability Value Creation in Mergers and Acquisitions

This paper examines how mergers and acquisitions (M&A) affect post-deal sustainability outcomes by introducing the novel construct of ESG divergence, defined as the distance between acquirer and target firms’ pre-deal ESG profiles. While M&As are increasingly used to accelerate sustainability integration, their ESG impact remains ambiguous. Building on congruence theory and the resource-based view, we develop a contingency framework linking ESG divergence and ownership imbalance to post-M&A ESG performance. Using a dataset of almost 200 global multi-industry deals completed between 2015 and 2022, analyzed through a generalized difference-in-differences approach, we find that higher ESG divergence significantly reduces post-deal ESG outcomes, as misaligned sustainability priorities exacerbate integration challenges and dilute stakeholder value. Furthermore, larger controlling stakes, while ensuring governance dominance, limit the preservation of the target’s ESG capabilities, thereby constraining complementarity. The findings suggest that optimal post-deal ESG gains occur when acquirers target firms with similar ESG positioning and avoid full ownership structures that suppress organizational diversity and autonomy.