The biggest sea change for private equity firms over the last decade has been the rapid rise of ESG. Of the $30.7 trillion in global sustainable, responsible or impact (SRI) assets under management, nearly $1 trillion is held by private equity and venture capital funds, according to the latest figures from the Global Sustainable Investment Alliance (GSIA).
The widespread adoption of ESG is forcing private equity firms to rewrite the rules of deal due diligence. Instead of looking only at financial statements and growth plans prior to making an acquisition, dealmakers are increasingly taking ESG issues into consideration. For example, is a company’s business model sustainable in a resource-constrained world? What environmental risks does a company face based on its geographic location? Is there strong gender diversity across the firm? Is executive compensation aligned with positive social or environmental outcomes?
