A recent paper from Green Buoy and Green Clout – two consulting houses – published interesting findings from their interviews with “nine representatives from seven different private equity firms with a combined total capital raised of over $400 billion and ranging from firms with a focus on generic global growth strategies to those with specific impact investment theses.” The authors explored two “hypotheses” about ESG in PE:
- “PE firms and their portfolio companies continue to consider ESG factors because investors see value in the data and see opportunities to leverage operational efficiencies.
- ESG is directly tied to higher exit valuations by reducing risk and improving EBITDA.”
Among what they found is support for things we have been discussing for a long time:
- “Many firms see incorporating ESG as a way to mitigate risk; few are considering proactive value creation.
- Firms that focus on ESG as a risk management tool often lack in-house expertise or an impact thesis. Those who embrace ESG as a value creation tool have a dedicated, in-house ESG lead and/or a long-term ESG strategy…
- ESG reporting is often equated with value creation.”
We tend to focus on operational opportunities and ROI rather than stock price, capital markets or exit valuations – but they are usually related.
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