A new study released by PwC into responsible investment among global private equity (PE) firms reveals that, similar to their public market investment counterparts, PE investors are increasingly integrating ESG considerations and strategies into their investment processes. For the study, PwC surveyed 209 firms across 35 countries.
According to PwC, its research indicates a significant shift in private equity investors’ mindsets over the past several years regarding ESG, as it has moved from primarily a compliance-focused concern to a central consideration in strategy and investment approach. For example, 56% of respondents reported featuring ESG in board meetings more than once per year, compared to only 35% in PwC’s 2019 survey.
The PwC study also found an increasing ESG influence on business strategy throughout the transaction life cycle and across portfolios, with firms using ESG criteria to assess risks and identify value creation opportunities, and also to manage their portfolio and ultimately deliver a better investment at exit. ESG is now viewed as a key source of value creation among PE managers, with 66% citing that factor as one of their top three drivers of responsible investing or ESG activity. Risk management fell from the top driver in 2019 to fourth place in the current survey.
The PwC study reflects activity among private equity and alternative asset investors recently observed in the market, including recent sustainability-focused fund launches, energy transition-themed investments, and firms adding ESG talent.
Other key findings from the report include:
- Climate risk. 36% of respondents report that they consider climate risk when making investment decisions at the due diligence stage. While 47% have yet to undertake work to understand the climate risk exposure of their portfolios, but more than half of these intend to within the next two years.
- Diversity and inclusion. 46% of respondents report having set gender and ethnic or racial diversity targets. 77% say that diversity is a core value and integral to their culture.
- Responsibility for ESG. More than half of firms surveyed believe that responsibility for ESG and responsible investing rests with the firm’s partners.
Click here for the PwC survey.