How private equity can leverage ESG to generate alpha

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– Private equity should be urging portfolio companies to embed ESG in their business strategies just like public companies are being pushed to do.
– ESG and impact should not be something that PE firms manage through a separate investment fund.

Here’s an article from Michael Brigl of the Boston Consulting Group about how private equity can use ESG as a barometer. Here’s an excerpt:

In his keynote, Christian Sinding, CEO and Managing Partner of private equity group EQT Partners, provided a powerful perspective on this. Sinding argued that PE firms have the robust systems of governance, the resources, the time, and the optimal business model needed to make a positive impact.

He believes integrating sustainability into the strategy and operations of portfolio companies may represent the biggest value-generation opportunity in a lifetime—one that will enable PE-owned companies to future proof their businesses while making a positive impact on society. EQT is working to harness this opportunity. It has set clear targets on diversity and inclusion—some 40% of the board members of its new portfolio companies are female, for example, and it is moving its portfolio companies to reliance on renewable energy.

ESG and impact should not, Sinding stressed, be something PE firms manage through a separate investment fund. Rather, sustainability should be embedded in everything they do. For GPs, the benefits of this approach are already becoming apparent. This is the case for Carlyle Group, according to another speaker, Kewsong Lee, the firm’s CEO. Lee said that among its portfolio companies, those with diverse boards have earnings that are growing 12% faster than those without diversity at board level.