ESG in Private Equity (2024)

FAQs

Do private equity firms care about ESG? ›

They are looking for private equity funds to show they are aligned to their climate agenda. But beyond climate, ESG is important because PE firms, by virtue of the vast size of their capital holdings and their ability to steward their portfolio companies, represent an incredibly powerful lever for positive change.

Over the past few years, one of the biggest trends in the private equity (PE) world has been the growing consensus around environmental, social, and governance (EGS) initiatives.

3. The quality of ESG data is increasingly a central tenet of ongoing portfolio monitoring. A majority of LPs recognize the growing significance of ESG data quality: For 40 percent, the quality of ESG data has emerged as a pivotal element in their continuous portfolio monitoring process.

Accordingly, as such a company prepares for an IPO or initial listing, it should assess its ESG risks and opportunities and prepare for related disclosures and shareholder engagement. Even private companies that do not plan to become public may face requests for ESG information from investors.

The survey found that, of the 98% of investors surveyed who assess ESG, 72% carry out a structured review of ESG performance, compared with just 32% in the previous survey conducted two years earlier. Moreover, many of those who currently use an informal approach, plan to move to a more rigorous regime (39%).

Failure to comply with these regulations can result in financial penalties and reputational damage. Private companies are increasingly investing in robust ESG reporting systems, supply chain transparency, and sustainability initiatives to ensure compliance and mitigate risks.

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

Therefore, a sustainable investment in Private Equity implies that the selected companies are themselves committed to the challenges of sustainable development. The role of managers, when analysing the business model of the companies studied, is to assess their level of commitment to these issues.

Hedge Funds Are Stepping Up Exposure to ESG Strategies, UBS Says. Hedge fund managers are increasingly incorporating environmental and social metrics in their investments, according to research by analysts at UBS Group AG.

Who should care about ESG? ›

A strong ESG agenda can help companies attract and retain talented employees who share their values. Long-term value creation: Finally, emphasize the importance of ESG in creating long-term value for all stakeholders, including shareholders, employees, customers, and the broader community.

89 percent of investors consider ESG issues in some form as part of their investment approach, according to a 2022 study by asset management firm Capital Group.

On March 6, 2024, the Securities and Exchange Commission adopted final rules to require registrants to disclose certain climate-related information in registration statements and annual reports.

Almost all large companies are expected to meet reporting and audit requirements by investors, boards of directors, and increasingly by governments. The goal of managing ESG initiatives is for public companies to ensure their long-term sustainability.

We learned that consumers are indeed backing their stated ESG preferences with their purchasing behavior. This study did broadly reveal, in many categories, a clear and material link between ESG-related claims and consumer spending.