Energy M&A Market in the Baltic States Analyzed through the Lens of Sustainable Development

Abstract

Mergers and acquisitions (M&A) may serve as a catalyst in energy transition by accelerating this trend and “greenwashing” the deals. M&A are often used by large energy companies as a tool to explore potential synergy benefits. Recently, M&A strategies in the energy industry have been pursued to transform traditional business models into more “sustainable” models. On the one hand, it may be observed that companies are taking a proactive rather than reactive approach towards environmental-, social-, and governance (ESG)-related M&A deals. On the other hand, sustainable M&A deals do not interest activist shareholders and regulatory authorities only anymore. Inclusion of a sustainability framework and managing ESG-related risks have become part of the overall strategy of most companies within the energy industry. This research addresses the problem of how energy M&A are contributing to sustainable development on the one hand and reflecting sustainable developments on the other hand. The current research focuses on the systematic literature on the M&A deals in the energy industry through the lens of sustainability by applying the SALSA methodology. Further, we applied a SWOT analysis of M&A in the energy industry from the perspective of sustainable development. Thomson Reuters DataStream 5.1 database was used for developing a case study. A sample of Lithuanian, Latvian, and Estonian energy companies that were involved as acquirers or targets in the M&A events from 1995 to 2020 was developed. Establishing a methodological approach construed of SALSA, SWOT, and case study analyses allowed us to bridge a gap in the existing literature and provoke further discussion in regards to market developments through the lens of sustainable development. The research results showed that there are relatively few M&A of renewable companies as the M&A market is dominated by traditional energy companies within Baltic states. However, companies in the Baltic states are pursuing energy security, have set targets for emission reductions, renewables and energy efficiency, are supporting EU climate neutrality, and put great emphasis on climate change mitigation.