The conversation around sustainability in the private markets has intensified considerably in the past year. Even as some critics accuse the industry of greenwashing, others express concerns about whether private equity firms are prioritizing sustainability objectives over financial returns.
In hopes of shedding light on the real status of sustainability in the industry—and perhaps reconciling these two opposing points of view—we offer BCG’s first annual “Sustainability in Private Equity” report. Following up on last year’s initial analysis of early data from the ESG Data Convergence Initiative (EDCI), this year’s report offers a considerably more detailed picture of the PE industry’s current performance on social, energy, and sustainability metrics. Deep dives into decarbonization, renewable energy use, and social considerations offer insights into the importance of these key metrics as indicators of business excellence, how performance is changing over time, and how it is connected to financial outcomes.
Read the “Sustainability in Private Equity” report's deep-dive chapters:
Private Equity’s Pivotal Role in the Climate Battle
Private Equity Is Making Gains in Renewable Energy Use
Private Equity Delivers on Job Growth and Quality, Lags on Board Diversity
Launched in 2021, the EDCI is a coalition of 350 major PE general partners (GPs) and limited partners (LPs), led by a steering committee chaired by The Carlyle Group and CPP Investments. The initiative’s mission: to drive convergence around meaningful metrics for the private markets and generate useful, comparable, performance-based data.
The EDCI has made strong progress in this regard. With more than 62,000 data points collected from around 4,300 PE-backed companies, we now have a broad understanding of how the private markets currently compare with the public markets across a variety of topics. (See the appendix, “About Our Research.”)
The results show that, to date, the performance of privately owned companies on sustainability topics relative to their public peers is mixed, outperforming in some areas and lagging in others. And while it continues to be early days for this analysis, we are beginning to see evidence of effective links between sustainability performance and financial outcomes.
Meanwhile, there is now strong evidence that the PE investment model—which can effectively transform financially underperforming, unloved companies—can work to improve sustainability outcomes as well. As we noted in a 2022 article in the Harvard Business Review, PE firms’ high degree of control and long-term perspective can have a powerful impact on portfolio companies’ sustainability and create stronger business outcomes. This year’s EDCI results support this view: we see significant improvement in several metrics over the lifetime of companies’ ownership by PE firms.
We believe this report makes clear that PE firms are uniquely positioned to drive change on a variety of sustainability topics. But there is much work to be done. As the global economy transitions in the coming years to become more sustainable and inclusive, PE investors have a unique opportunity to effectively deliver sustainability performance gains that drive positive business outcomes, for investors and other stakeholders alike.
Managing Director & Senior Partner; Global Leader, Principal Investors and Private Equity Practice
Paris
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PE firms are making progress in pushing their portfolio companies to decarbonize, especially the larger players. But there’s room for improvement.
PE-owned companies are showing significant progress in renewable energy use, and the longer they are owned, the more that use increases.
Private companies owned by PE firms continue to make progress in key social metrics, including diversity, job growth and safety, and employee engagement.
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