Private equity firms are ‘uniquely positioned’ to instigate change on a variety of sustainability topics, a new report from Boston Consulting Group (BCG) has found, although the sector is facing criticism for prioritising financial returns over sustainable objectives.
BCG’s report, Sustainability in Private Equity, examines the private equity industry’s performance on social and sustainability matters, as well as a number of other metrics.
Importance of private equity
“Private equity is already recognized for its ability to transform financially underperforming companies,” commented Vinay Shandal, BCG’s global head of sustainable investing and a coauthor of the report.
“We believe that the industry is also uniquely positioned to drive change when it comes to both sustainability and social metrics—creating value for investors and stakeholders alike.”
Chiefly, the report assesses the performance of private equity-backed firms in three critical areas: decarbonisation, utilisation of renewable energy, and social impact.
On decarbonisation, the report finds that private equity firms have been more successful in driving decarbonization at their larger portfolio companies – ahead of their public peers – than at their smaller ones.
In terms of renewable energy, meanwhile, the private-equity model is increasingly driving the adoption of renewables, albeit from a low base, the study found.
Finally, in terms of social impact, the report examines how the private-equity industry is working to enhance the quality of the jobs they generate, noting that explores how increased employee engagement is linked to reduced attrition, leading to cost savings and heightened productivity.
‘Encouraging’ findings
“The findings of the report are encouraging. While there is still room for improvement, the potential for private equity to move the needle on important environmental and social issues—and in doing so drive outsize financial returns—is clear,” commented Ben Morley, a partner and associate director at BCG and coauthor of the report.
“We’re excited to see leading firms adapt their existing capabilities in innovative ways to lead the way toward a more sustainable and inclusive world.”
The full report can be found here: https://www.bcg.com/publications/2023/private-equity-sustainability-report
