ERM has identified some strong Environmental, Social and associated Governance (ESG) market trends through the completion of over 250 annual assignments across the globe for Private Equity (PE) firms.

Market Trends

  1. There is heightened scrutiny and pressure from investors and Limited Partners (LPs) to address ESG
  2. An increasing number of PE firms are developing priority actions to implement and embed their ESG policy into their investment processes
  3. Many PE-backed companies do not have board approved policies and initiatives in place to address material ESG issues
  4. However, leading portfolio companies are realising value from a proactive and systematic ESG approach and appreciate support from PE owners
  5. ESG initiatives are being tailored to address both material risks and opportunities facing the company and prepare them for eventual exit

What ERM has learned:

  • Given the sustainability megatrends facing companies, ESG issues have the potential to present material risks and opportunities
  • Corporate leaders have generated multi-billion dollar value from ESG opportunities, and some PE firms are starting to realise their own multi-million dollar gains
  • Shaping an effective ESG framework, including processes and reporting, to align interests of stakeholders is critical
  • Applying a holistic ESG mind-set early in the investment process can help maximise business value 
  • Focused engagement is needed with portfolio companies to obtain buy-in to improve performance and realise value at exit