Eye on the prize: unlocking the ESG premium in private markets

The world is changing, and forces from all directions are pushing governments, regulators, businesses, NGOs and investors to build a more sustainable future – fast. These sustainability shifts and resulting disruption is creating significant investment and value creation opportunities for the perceptive investor.

In this context, ERM set out to complete a survey of the private equity sector to investigate the impact of ESG issues on the value of their investments. Our engagement with over 50 private equity (PE) professionals reveals that ESG issues offer significant opportunities in the coming three to five years and that there are specific actions that PE firms can take to mitigate risk and maximize their returns.

Key highlights include:

• 93% of respondents overwhelmingly agree that focusing on ESG themes will generate good investment opportunities;
• 83% believe that Europe is likely to be the hotbed of ESG investment activity;
• 64% of investment teams are part of their firm’s ESG committee;
• 60% said that to maximize value, there needs to be regular and in-depth board engagement within firms; and
• 50% believe that ESG credentials are a factor in winning deals.

Sectors that offer the most significant investment opportunity in the next 3 to 5 years include energy, consumer goods, healthcare and technology – with climate change, societal well-being, water and wastewater, and the circular economy as the top areas of investment opportunity.

Based on this survey, firms should feel galvanized to take bold steps toward the significant opportunities presented by the transition to a sustainable, low carbon and equitable economy. While value protection is important, future-facing firms will generate higher returns by incorporating an ESG approach that systematically targets value creation and proactively invests behind the sustainability megatrends.

Read Eye on the prize: unlocking the ESG premium in private markets.