We are pleased to present the 2024 edition of our annual report on sustainability in private equity (PE). Last year we shared our inaugural report, outlining the sustainability performance of the industry and its connection to value creation. This year’s data from the ESG Data Convergence Initiative (EDCI) shows that, relative to their public company peers, privately owned companies’ performance on sustainability topics continues to be mixed—outperforming public entities in some areas, such as job creation, and lagging in others, such as board diversity. (See “About the EDCI.”)
An encouraging finding is private companies’ improvement across various sustainability metrics during their traditional hold period, often outpacing their public peers. The inherent investment approach of PE firms—which have a long-term focus and considerable influence over management of their portfolio companies—positions them to drive improvements in the social and environmental performance of their companies, especially where there is a link to long-term value creation. Increasingly, this trend is helping to make sustainability a competitive advantage for private equity and the companies in which the sector invests. While the exact value creation mechanisms vary by industry, this advantage can come through reduced operating costs, lower risks, and new green growth opportunities.
Over the past year, the conversation around sustainability in the private markets has continued to advance at pace. We have observed an acceleration in the number of dedicated climate funds and growth in sustainability-focused value creation efforts among portfolio companies. The EDCI has rapidly increased its coverage of the private equity universe, to more than 450 major PE general partners (GPs) and limited partners (LPs). With more than 150,000 data points collected from approximately 6,200 PE-backed companies, we now have a significantly greater understanding of sustainability outcomes in the private markets. (See “Appendix: About Our Research”)
In this year’s report, we offer new insights on how sustainability in the private markets has evolved over the last year, alongside deep dives into decarbonization and data-driven perspectives on the sustainability expectations of the industry’s LPs and how GPs are organizing in response.
We believe this report adds to the growing evidence that many PE firms are well-positioned to drive change on a variety of sustainability topics, while offering insights on how they can best realize this change in practice. Still, there is much work to be done. As the markets continuously reward a long-term focus on sustainability, PE investors are well-positioned to pursue this opportunity, driving value for investors and communities alike.
This year’s report shows that over the duration of private equity ownership, companies can significantly improve sustainability outcomes including renewable energy use, safety, diversity, and employee engagement.
Most general partners at private equity firms and their limited partner investors agree that sustainability is fundamental. How are they working together to promote it?
Private equity-owned companies are taking steps to reduce their carbon emissions in both the long and short term. The key is establishing a decarbonization strategy and clear goals.
Managing Director & Senior Partner; Global Leader, Principal Investors and Private Equity Practice
Paris
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This year’s report shows that over the duration of private equity ownership, companies can significantly improve sustainability outcomes including renewable energy use, safety, diversity, and employee engagement.
Most general partners at private equity firms and their limited partner investors agree that sustainability is fundamental. How are they working together to promote it?
Private equity-owned companies are taking steps to reduce their carbon emissions in both the long and short term. The key is establishing a decarbonization strategy and clear goals.