Private equity investors claim that sustainability has increased the revenue growth of some portfolio companies by up to 6%.
A survey of 85 investors from around the world also found that “sustainability value creation initiatives” had driven an estimated 6-7% exit-multiple uplift at holdings.
Conducted as part of a project by Bain & Company, the Principles for Responsible Investment (PRI) and the NYU Stern Centre for Sustainable Business, the survey fed into research that also included polls, interviews and workshops with more than 400 private markets investors.
Participants included PGGM, Apollo Global Management, KKR, EQT and StepStone Group.
Nearly three quarters (72%) of respondents said that sustainability already had a moderate to significant impact on financial performance, with most expecting further growth over the coming three years.
The proportion of investors prioritising the energy consumption and carbon footprint of portfolio companies looks set to rise from 59% to 84% over the same period, the research concluded.
Social issues, including the treatment of workers, were also identified as drivers of better financial performance.
The research found that large companies with the highest employee satisfaction levels, based on scores from Ecovadis, displayed a 65-75% higher EBITDA margin than those in the lowest quartile.
New PRI project on private markets
The report serves as a curtain-raiser for a new project from the PRI, looking at how to harness the financial value that sustainability can generate in private markets.
The four-year programme will address key barriers for the asset class, such as data gaps, a lack of standardised frameworks, and difficulty linking sustainability actions to measurable financial outcomes.
The PRI said it will produce “playbooks, methodologies, case studies and implementation tools [that] will aim to help investors quantify financial outcomes”.
Aditya Vikram, the PRI’s head of private equity, said rising interest rates, geopolitical uncertainty and regulatory pressure are prompting a rethink of current investment models, leading many private markets investors to consider new approaches to increase the value of businesses, including sustainability-related drivers.
“The framework – and the broader programme – are really about giving investors the tools they’ve told us they need to turn sustainability into tangible value,” he explained.
“Ultimately, we want investors to come away from this thinking: ‘I’ve seen the framework, I’ve seen the tools, case studies, I can benchmark myself across the investment lifecycle; and now I feel confident enough to commence or advance my practice by applying this in my own portfolio.’ That’s the real goal – to make this actionable.”
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