How to Create Value from ESG: A blueprint for private equity
Environmental, social, and governance (ESG) strategies can significantly enhance value for private equity (PE) firms when effectively implemented. Publicly traded PE funds with robust ESG practices have outperformed their lower-rated counterparts by 77% cumulatively and have achieved competitive internal rates of return. Additionally, deal values have seen a cumulative rise of 45% for portfolio companies that report on ESG, with average revenue multiples increasing by 30%.
However, only 21% of the approximately 1,800 PE-backed firms in our study (managing $6.3 trillion in assets) have published ESG reports, indicating a substantial opportunity for PE funds to leverage ESG for value creation, especially considering the 3- to 5-year exit horizon that aligns with the 2030 sustainability goals.
By incorporating ESG considerations early in the due diligence and value creation phases, PE funds can establish best practices from the outset, thereby maximizing value and avoiding later-stage sunk costs.
This report will present our research on sustainability in private equity and outline five key ESG operational strategies for driving value.
