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Unlocking the ESG Premium in Private Markets: The Business of Sustainability (L.E.K. Consulting)

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ReportL.E.K. ConsultingJanuary 202024 pages36 min readOriginal source
Key number
US$1 trillion
ESG funds assets under management (March 2020) p.6
Largest segment
Europe
Region with greatest ESG investment opportunity in next 3-5 years p.10
What changed
3x
Increase in perception of ESG positive contribution to exit multiples p.19

Summary

  • Assets under management among ESG funds reached over US$1 trillion as of March 2020.p.6
  • An overwhelming 93% of respondents agree that focusing on ESG themes will generate good investment opportunities in the next 3-5 years.p.4
  • 83% of respondents believe Europe is likely to be the primary hot bed of ESG investment activity.p.4
  • 64% of investment teams participate in their firm's ESG committee, and 86% have access to a dedicated ESG Lead or Team.p.4
  • 77% of respondents believe ESG sell-side due diligence will be undertaken more frequently in the next 3-5 years.p.4
  • Only 25% of private equity firms currently have a thematic ESG fund or strategy and actively seek out ESG-focused investments.p.4
  • 60% of respondents state that regular and in-depth board engagement during ownership is required to maximize ESG value creation.p.4

Key insights

  1. Economic opportunities created by sustainability transition challenges are estimated to reach at least US$12 trillion a year by 2030.p.3
  2. 85% of ESG equity indices outperformed non-ESG peers in Q1 2020, demonstrating strong downside resilience.p.6
  3. Climate change, societal wellbeing, water/wastewater, and circular economy are identified as the top four ESG themes for private equity investment.p.9
  4. The energy sector presents the greatest ESG investment opportunity over the next 3-5 years, followed by consumer goods and healthcare.p.11
  5. Half of respondents (50%) believe that a firm's ESG credentials act as a key factor in winning competitive deals.p.13
  6. While 96% of firms perform ESG due diligence for risk management, only 64% conduct it to identify value creation opportunities.p.14
  7. The proportion of respondents seeing ESG as a positive contributor to exit multiples nearly tripled from 10% in 2016 to 28% in 2020.p.19
  8. 53% of respondents report that they do not use any specific ESG framework to identify investment opportunities at a tactical level.p.16

Funders mentioned

Allianz Capital Partners GmbHAllianz XBain CapitalEurazeoMCH Private EquityPacific Equity PartnersProA CapitalWaterland Private EquityWaterland Private Equity

Topics and entities

EuropeGlobalClimate and impact investmentM&A and exitsPrivate equityPrivate marketsAllianzAvivaBain Capital Private EquityBlackRockCalPERSCarlyleEQTERMEurazeoKKR

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