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.”)
About the EDCI
If you are interested in learning more:
- Please visit the EDCI website for more information about the initiative, including how to participate.
- Feel free to contact the EDCI with any questions at info@esgdc.org.
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.
Appendix: About Our Research
In our inaugural analysis from 2022, the EDCI data set included 105 PE firms and nearly 2,000 portfolio companies. Building on that momentum, the 2023 data set nearly doubled to about 185 PE firms and 4,300 portfolio companies. This year, the EDCI data set expanded to approximately 260 PE firms and 6,200 portfolio companies contributing more than 150,000 data points to the initiative. Portfolio companies in this year’s benchmark generate over $2 trillion in revenue from approximately 77 countries and 76 industries.
The increased participation has resulted in an even more diverse set of companies in the private markets across regions, sectors, and company size, allowing for a closer comparison with the universe of publicly traded companies. While coverage of the US and Europe remained strong, responses from companies in other regions also grew significantly, especially Asia-Pacific, which submitted data from more than double the number of portfolio companies compared with last year.
In addition, the proportion of companies contributing multiple years of data increased to 62%, while the vast majority of GPs also provided data from a greater proportion of their portfolio companies. This suggests that the EDCI continues to be instrumental in encouraging the collection, tracking, and reporting of consistent sustainability metrics.
The data set for the publicly traded companies referenced in the report was drawn from approximately 6,300 comparable public companies across major stock exchanges, sourced from Refinitiv. Companies with market caps above $2 billion were excluded to allow for a more accurate comparison with the EDCI benchmark; still, the two data sets are not entirely equivalent. As Exhibit 1 shows, the average private company in the EDCI data set is somewhat smaller, and more likely to be in the technology and services industries, than the average public company.
Private companies’ overall submission rate for sustainability metrics rose to an average of 70% this year, up from 67% last year. (See Exhibit 2.) Response rates on environmental metrics continued to trail those regarding social issues, most likely because of the difficulty and complexity involved in collecting this data. Still, the submission rates of these metrics continued to rise, particularly regarding Scope 3 emissions, which rose nearly 10 percentage points. Approximately 60% of portfolio companies submitted data about the new metrics designed by the EDCI to track progress on decarbonization and net zero commitments introduced this year, an encouraging result for new metrics.
The EDCI benchmark has been shared with all participating general and limited partners for their internal use through an online platform, with firms able to conduct their own customized analysis of the benchmark data. For 2024, a number of additional features have been added to the online platform to make the data as useful as possible for premium EDCI members. These include the ability to analyze the benchmark at more granular subsector levels, visualize portfolio performance via a heatmap against benchmarks, share data among GPs and LPs directly within the platform, and visualize the benchmark on their own third-party tech platforms, among others
EDCI Member Survey
This year’s report also includes
