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Private Capital and ESG – The Business Drivers

What is ESG?

ESG stands for Environmental, Social and Governance. It is a collective term used by organisations to consider environmental, social and governance risks and opportunities. It refers to an organisation’s responsible investment management practices and how it incorporates these risks and opportunities into its governance operations and business model. The term also considers how a company is disclosing this information to key stakeholders and measuring performance against identified environmental and social material vectors.

An effective ESG strategy is built around topics which are most material/relevant to an organisation. To date, materiality has been assessed based on an outside-in view i.e., considering the risks and opportunities environmental and social challenges create for the organisation itself (single materiality).

More recently this concept is evolving, and organisations are being required to undertake a double material assessment. For example, the Corporate Sustainability Reporting Directive (CSRD)1 (Will apply to large, unlisted EU companies (including EU subsidiaries of non-EU parent companies) which exceed two of the following criteria: Net turnover of more than €40 million; More than 250 employees; Balance sheet total of €20 million) requires organisations to undertake a double materiality assessment. Double materiality means you consider the relevance of an ESG topic from two perspectives i.e., the outside-in view discussed above as well as the inside-out view, which considers the organisation’s impact on society and the environment.

The table below shows some of the factors private capital may consider under each category both within its direct operations and within its supply chain (particularly when considering environmental and social vectors).

1 Due to apply to large, unlisted EU companies (including EU subsidiaries of non-EU parent companies) which exceed two of the following criteria: Net turnover of more than €40 million; More than 250 employees; Balance sheet total of €20 million.
ESG is bespoke and its value and role in an organisation will vary. However, there is a commonly accepted consensus forming that effective ESG strategies ‘just make good business sense’.

Some of the reported business advantages of effective ESG integration include:
  • Enhanced risk management
  • Opportunity signalling
  • Value creation
  • Trust building with stakeholders
  • Improved resilience
  • Codification of existing practices
  • Business differentiation
  • Talent attraction & retention
  • Reduction in operating costs due to identified efficiencies
  • Improved access to capital
More and more investors are considering and responding to the ESG agenda and working to incorporate it into their investment decision processes. The drivers for this are multi-pronged and include:
  • Increased regulation
  • Shifting LP expectation
  • Social and Consumer demand
  • Broadening access to capital
  • Value creation
  • Competitive advantage
  • Talent attraction and retention
  • Reputational risk

ESG in action

Private capital powers the growth of dynamic new businesses in sectors like technology and life sciences, while reinvigorating established businesses too. Read examples of how private equity and venture capital help companies to innovate and flourish, here. View all case studies

Nova Pangaea Technologies, supported by Par Equity, British Business Bank & Mercia Asset Management

Moto Services, supported by USS and CVC Capital Partners

Lomond Group, supported by LDC

Hawksmoor, supported by Graphite Capital

CoachHub, supported by Molten Ventures

Cloud Technology Solutions, supported by NorthEdge Capital

Future Industrial Services, supported by NorthEdge Capital

LucaNet, supported by Hg

Altruistiq, supported by Molten Ventures

Tangle Teezer, supported by Mayfair Equity Partners

Material Exchange, supported by Molten Ventures

Private capital is coming under increasing pressure from all angles to disclose ESG related information. To make the data-gathering and disclosure efficient and useful to all stakeholders, the sector must continue to unite, collaborate and share knowledge on approaches that work well, and experiences learnt. The BVCA’s Responsible Investment Advisory Group (RIAG), works with many of the sector's ESG leaders, and provides a great platform to facilitate collaboration and support the sector to respond to the ESG challenges it faces."
Maria Carradice Managing Director, Mayfair Equity Partners & Chair, BVCA Responsible Investment Advisory Group
ESG in private markets is now a truly mainstream concern and is top of mind for the team at PAI. We consider sustainability to be essential for long-term growth and value creation. Put simply, it’s an integral part of our real economy investment strategy and underpins how we invest, manage and realise value. Our objective is for our portfolio companies to be bigger, better and more sustainable at exit than they were at acquisition. Prioritising areas such as decarbonisation, biodiversity and diversity & inclusion helps us to achieve this.”
Denise Odaro Head of ESG and Sustainability, PAI Partners

Explore ESG in private capital

Further information


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