Just as with listed equity, institutional investors in private equity are increasingly widening the scope of their analysis to include wider environmental, social and governance (ESG) issues, in addition to traditional risk/return analysis.
Many factors are driving the trend towards greater ESG integration.
Meanwhile, investors are increasingly prioritising responsible investment in their evaluation of investment managers.
At a fundamental level, private equity is about the transformative power of investment.
Private equity managers can do this in two broad ways.
Secondly, once invested, an ESG framework can be used to reveal new strategic and growth opportunities.
The global trend towards ESG integration in private equity means such processes will soon become necessary, rather than optional.
This is all the more important given the many uncertainties that businesses and investors face today.
Meanwhile, ageing demographics, climate change and technological disruption all represent serious longer-term challenges.
Those that fail to prioritise ESG considerations are, in contrast, increasingly being held accountable for poor performance.