Here are the reasons why private equity firms of all sizes are taking environmental, social and governance issues seriously
and thus must buy or finance companies that will not break those commitments. The effect spills down to middle-market private equity and private credit organizations, inclusive of their current and prospective portfolio companies.” Indeed, the effect spills down to organizations of all sizes.
Viewed through a different lens, companies that manage ESG initiatives represent reduced risk in the eyes of limited partners. Companies with strong ESG-related policies might find it easier to manage challenges and seize opportunities related to climate change, evolving regulations, diversity, equity and inclusion or other sustainability-related issues.
“Portfolio companies that proactively address their stakeholder concerns receive benefits beyond potential immediate increases in sales and cost reductions, tapping into deeper and more resilient network effects that lead to higher valuations,” says Kerwin. To put it another way, well-executed“Buyers don’t invest in a company’s business model alone—they invest in the strength of the management team, their ability to plan for the future and their ability to innovate.
“Employees tend to prefer working for companies that do good things for their communities, so strong ESG credibility can contribute to better talent attraction and retention,” says Kerwin. For private equity investors, that workforce edge represents an ability to create—and protect—value.
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