Challenging their old reputation as ruthless capitalists, private equity firms are now tackling environmental, social and governance [ESG] issues in an attempt to boost the value of their investments.

London 08/07/11

A management briefing, published in the July-August edition of Ethical Corporation magazine, examines how the influence of sustainability issues on private equity investments has magnified in the aftermath of the financial crisis.

The briefing highlights how ESG factors hold enough sway to affect whether a private equity firm will invest in a company or not.  This new influence results from an increased awareness of sustainability issues, the potential for cutting costs as well as risk management.

“General partners should be willing to consider whether there is a value-creation angle in this, not just in risk management.  If that happens, then the private equity community can take ownership of the ESG agenda rather than having it thrust upon them,” says Tom Rotherham, associate director private equity for Hermes Fund Manager, in the briefing.

However, Rotherham and others argue that private equity firms’ primary responsibility is to ensure proper governance for these issues within portfolio companies, not manage all of a company’s ESG efforts.

The briefing also includes case studies of 3i, KKR and investment in fishery companies that reveal how high standards for corporate responsibility and sustainability led to enhanced reputations and cost reductions.

But even with the notable increase in sustainability involvement, the briefing maintains that some professionals believe that private equity firms will pursue ESG efforts only as long as these efforts directly correlate with financial value.

Furthermore, despite the lessons of the financial crisis, the briefing reveals that companies still fail to consider operational improvements when debt returns.

Ultimately, experts expect an increase in individual ESG investments, but hope for sustainability investments throughout private equity firms’ portfolios in the future.

The article is available to Ethical Corporation readers here.

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Ethical Corporation was established in 2001 and provides business intelligence for sustainability to more than 3,000 multinational companies every year. Ethical Corporation publishes the leading responsible business magazine, website, and research reports. 

For more information on this briefing or Ethical Corporation contact:

Liam Dowd
Marketing Manager
Ethical Corporation: Business Intelligence for Sustainability
+44 (0)20 7375 7238
liam.dowd@ethicalcorp.com