Private equity’s ESG journey: From compliance to value creation - PwC

Global Private Equity Responsible Investment Survey 2021

• 56% of respondents discuss ESG as part of executive board agenda more than once a year

  66% rank value creation as one of their top three drivers of responsible investing or ESG activity

  72% always screen target companies for ESG risks and opportunities at the pre-acquisition stage

  56% have refused to enter general partner agreements or turned down investments on ESG grounds

Multiple crises over the past 18 months have delivered a stark wake-up call to the world. If we’re going to prevent further pandemics, reduce the risks of climate change, build a more equitable society and still generate growth, it’s clear that we’ll have to create more sustainable economies and systems.

Businesses all over the world are adapting, moving environmental, social and governance (ESG) issues from the periphery of strategic concern to the centre. They’re acknowledging ESG as a driver of value creation and urgently developing a proactive ESG mindset. PwC’s latest Global Private Equity Responsible Investment Survey demonstrates that private equity (PE) is on this same journey and is well-placed to provide leadership, thanks to decades of experience prioritising a strategic, long-term, activist approach to value creation.

The stakes are high. Sustainable investing—a category that includes ESG investing, in which ESG considerations are an overlay to the pursuit of financial performance, and socially responsible investing (RI), in which investments are selected or disqualified based on ethical considerations—already had grown to more than US$30tn globally by 2018 and has continued to grow. Just in the US, ESG-focused assets under management grew by some US$5tn from 2018 to 2020, and the global impact investing market —a segment of the sustainable investing market that focuses on positive outcomes, regardless of returns—is now estimated to be worth about US$715bn.

PE firms putting ESG at the heart of their business strategy will be the game changers in the new sustainable economy. And just as there will be leaders, there will also be laggards. Those firms that fail to embrace ESG will risk value erosion.

Our survey shows how PE firms are best adopting sustainable investing. In particular, it explains:

• that firms are entering a new age of ESG maturity

  why ESG is becoming key to value creation

  what is driving enduring business success

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