Idea in Brief
The Problem
Private equity has long overlooked sustainability issues, but the industry is now so large that society won’t be able to tackle climate change and other major challenges without its active participation.
The Opportunity
The PE business model gives private equity clear advantages over investors in public companies when it comes to promoting a sustainability agenda.
The Solution
PE firms should integrate ESG considerations into their deal-making, be more transparent with their investors about their sustainability efforts, make net-zero commitments for carbon, and take steps to reduce inequality in their own firms and in society.
Despite their reputation in the 1980s as corporate raiders, most private-equity firms attempt to improve the performance of their portfolio companies through better corporate governance. Historically their business model has been to create value by sharpening the focus and oversight of largely ignored business units inside conglomerates or poorly managed private companies, such as dysfunctional family-run businesses. But although the G in “environmental, social, and governance” has been important in the PE industry from the outset, the E and the S have been virtually nonexistent. The industry has been content to seek returns with little concern for the long-term sustainability of portfolio companies or their wider impact on society.
