David Solomon Interviews Salesforce's Marc Benioff...When Will We Achieve Herd Immunity?...ESG's Role in Deal-Making

[Goldman Sachs]( [BRIEFINGS] January 28, 2021 Talks at GS With Salesforce’s Marc Benioff Above (L to R): David Solomon of Goldman Sachs and Marc Benioff of Salesforce One of the greatest lessons from the pandemic is that leaders must fundamentally change the way they plan for the uncertainties of the future, says Salesforce Chair and CEO Marc Benioff on a recent episode of Talks at GS. “We have to look at all the different potential outcomes here, because we're in a new pandemic world,” he tells Goldman Sachs Chairman and CEO David Solomon in the sit-down filmed at the firm’s Tech & Internet Conference. “How will you execute in multiple scenarios? How will you look at your business? Where are you in your digital transformation?” For Salesforce, that emphasis on flexibility is reflected in its recent acquisition of the business communication platform Slack. “We're altering our company to prepare for the future,” Benioff says. “Because we want to be well-positioned and relevant for our customers in the future. We have been this year. But we also want to be for the next decade.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20With%20Salesforce%E2%80%99s%20Marc%20Benioff&body=https%3A%2F%2Fyoutu.be%2FZnMzyZLhIJk) The Daily Check-In With Goldman Sachs The global rollout of the COVID-19 vaccine has seen a slow start, but many of the bottlenecks—insufficient planning, supply shortages, and complex prioritization plans—are likely to prove temporary as policymakers learn from other success stories abroad and supply ramps up, says [Daan Struyven]( of Goldman Sachs Research in an episode of The Daily Check-In. Goldman Sachs Research estimates that developed markets should be able to vaccinate around 15% of their populations per month by May. Together with the impact of prior infections, a rapid vaccination timeline “should result in effective herd immunity by the end of summer in most advanced economies,” Struyven says. In another episode of The Daily Check-In, Goldman Sachs Research’s [Heath Terry]( describes the evolution of the online food delivery industry, which surged in demand during the pandemic. “We think a lot of the habits that are being formed during this pandemic are going to stick,” Terry explains. “The pandemic just accelerated [growth] dramatically across all of these categories including online food delivery.” And building and expanding a network of delivery providers could have implications well beyond food, Terry adds. “You’ll see these companies go from being food delivery companies to last-mile logistics providers that may not cover everything that the traditional logistics providers do.” Also on The Daily Check-In, [Andrew Tilton]( chief Asia economist for Goldman Sachs Research, discusses China’s efforts to create a digital yuan and the potential macro implications, including more efficient transmission of monetary and fiscal policy. “You would potentially be able to target fiscal stimulus in a more narrow way...the infrastructure might aid in doing that,” Tilton says, adding that policymakers could also adjust interest rates on digital currencies to transmit monetary policy more directly. He also points to potential information advantages from digitization. “You'd have a lot more information as a policymaker about what's potentially going on [in] real time in the economy if you're capturing transaction information,” Tilton says, which could be “an enormous source of data.” For more Daily Check-In videos, [subscribe to our channel]( on YouTube. [Watch videos]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Daily%20Check-In%20With%20Goldman%20Sachs&body=https%3A%2F%2Fwww.youtube.com%2Fplaylist%3Flist%3DPLIyiGQywEp65ogt2Bi3vTK7ngXDTM6wT9) Insights From Great Investors: David Blood of Generation Investment Management Above (L to R): Katie Koch of Goldman Sachs and David Blood of Generation Investment Management David Blood co-founded Generation Investment Management with former U.S. Vice President Al Gore in 2004 with a focus on sustainability, which he continues to see as the key investing opportunity of the 21st century. “The transition to net zero carbon emissions could be the most significant investment opportunity in our lifetimes,” Blood tells Goldman Sachs' Katie Koch in an episode of Talks at GS Presents: Insights From Great Investors. “Almost everything we’ve done today will need to change to allow economies and society to get to net zero. What that means is that entire businesses, entire sectors, entire industries need to be transformed.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Insights%20From%20Great%20Investors%3A%20David%20Blood%20of%20Generation%20Investment%20Management&body=https%3A%2F%2Fyoutu.be%2FsGgbK7OwPNI) Briefly…on ESG’s Role in Deal-Making Companies evaluating mergers and acquisitions are increasingly looking at how the transaction may impact their environmental, social and governance (ESG) strategy, according to Goldman Sachs’ Avinash Mehrotra, global head of the Activism and Shareholder Advisory and Takeover Defense practices. We sat down with Avi to discuss how ESG considerations are starting to influence deal-making. Avi, can you describe the role of ESG in companies’ M&A strategies? Avinash Mehrotra: Strategic fit and financial profile remain the most important factors driving a company’s M&A strategy. The ESG rationale can be thought of as one—albeit increasingly important—component of assessing strategic fit. In some transactions, improving a company’s ESG profile may be the primary driver behind the strategic rationale for the transaction. In other deals, the ESG rationale may play a more minor role—if the ESG impact from the deal is neutral, for example. In the current environment, as companies evaluate a potential deal, they are more likely to consider the transaction’s effect on their carbon footprint, supply chains and social impact, and to incorporate assumptions about those factors into their valuations. Where a company is evaluating a target with a different ESG profile than its own, positive differences in ESG footprints and disclosure practices may be a source of synergies. In other situations, drastic differences in buyer and target ESG profiles can even scuttle deals. How is ESG entering the deal process? Are companies screening for ESG considerations when they’re looking at potential acquisitions? Avinash Mehrotra: ESG considerations are becoming an important part of identifying M&A targets and performing due diligence on them. Understanding differences in buyer and seller ESG profiles often cuts to the heart of the social and cultural norms of the organizations and those norms have always been essential to successful M&A. When companies acquire targets with a meaningfully different ESG profile, it can create cultural tensions between the employee bases and broader stakeholder communities. It is critical, then, that integration strategies contemplate what the pro forma ESG profile of the combined business will be and the effect that profile is likely to have on the target’s stakeholders. At a minimum, companies want to make sure they’re philosophically aligned. We’re working more frequently with companies to also explain the ESG benefits of an acquisition upon announcement. These kinds of disclosures are still in their early stages, but companies understand the potential benefits of announcing an acquisition that is ESG accretive. Conversely, if merger partners don’t address ESG benefits or the strategy for mitigating potential ESG risks, that can raise investor concerns. The mere fact that ESG is now considered a risk factor, alongside reputational risk and cyber risk, speaks to its growing prominence in deal-making. But to gain an accurate picture of ESG-related risks and opportunities, acquiring companies need to have good data. So is the lack of standardization around ESG reporting a problem? Avinash Mehrotra: The lack of standardization is a less significant issue in an M&A context because, unlike a retail or institutional investor which may rely on ESG scores, a merger partner is usually going to be involved in a deeper level of diligence to understand the target’s disclosures and practices. On balance, having a more reliable and standardized system of disclosure will certainly facilitate public diligence but is unlikely to be sufficient for most deals to reach announcement. One important way ESG disclosures influence M&A may be through their impact on relative valuations of those companies with ESG-friendly profiles and best-in-class disclosures from those without. We’re already seeing that the cost of capital or financing for companies with better ESG scores can be lower than the cost of capital for companies with poorer ESG scores. For instance, there is higher investor demand and better pricing for issuers for many green, social or sustainable bonds versus traditional (non-ESG) issuances. ESG has certainly been a key focus for investors. How is that impacting corporate strategy? Avinash Mehrotra: The growth of the assets under management in ESG-focused funds is important because if the investor base—particularly the next younger generation of investors—cares about these issues, that will set the tone for how these funds push the ESG agenda forward. And since those funds are meaningful shareholders in many large companies, that will in turn influence corporate behavior. Companies have noticed that ESG-oriented capital is now the fastest growing segment of the asset management industry and that global, non-ESG fund flows have been contracting. While ESG investing may have initially gained momentum among European pension funds, it is now a fully globalized phenomenon and funds based in the U.S.—both active and passive—are rapidly catching up. Additionally, shareholder activists have identified ESG improvements on their growing list of demands when targeting companies. In response, companies are shifting their disclosures, behavior and culture toward more ESG-friendly practices, and we, along with our colleagues across many parts of Goldman Sachs, are advising our clients on that journey. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20ESG%E2%80%99s%20Role%20in%20Deal-Making&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Bloomberg - January 27 [Goldman Sees $200 Billion Opening From European Tech Unicorns]( Bloomberg - January 27 [Goldman Sachs' Kostin: Concerned about High Multiple Stocks]( (13:09) Business Insider - January 27 [Meet Kim Posnett, the youngest head of a powerful team inside Goldman Sachs' investment bank that's focused on pitching new, innovative ways to get deals done]( CNBC - January 25 [Watch Goldman CEO David Solomon and ECB’s Lagarde Debate How to Drive a Post-Covid Recovery]( (52:50) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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