Private equity might not be the first thing that comes to mind when considering sustainability. Images of green-tech startups and grassroots nonprofits typically fill that space, right? However, times are changing — and fast.
Private equity firms are increasingly adopting sustainability as a core part of their investment thesis, recognizing that what's good for the environment can also benefit the bottom line. According to a 2023 survey by PWC, a vast majority of private equity firms now integrate Environmental, Social, and Governance (ESG) factors into their decision-making processes. Even further, 80% of private equity executives noted that ESG has been a primary driver of value creation in at least one of their recent deals.
Clearly, "sustainability" has arrived at the heart of deal-making, and it's shaping the future of finance in remarkable ways. This is another reason, among the multitude of financial and non-financial benefits, that business leaders should consider sustainability in their business strategy.
Sustainability is a driver of long-term growth. Consider energy efficiency: a manufacturing facility that adopts more efficient machinery and optimizes processes can lower utility costs significantly over time. Those cost savings translate into higher profit margins and greater value for investors. Likewise, developers that receive LEED certification on their projects can demand higher rents, have higher occupancy rates, and the property value increases.
A study by McKinsey found that companies with robust sustainability strategies tend to outperform their peers in the medium and long term — and private equity is paying attention.
Consumers and regulators alike are scrutinizing companies' environmental footprints, labor practices, and governance structures. For example, a study by PWC found that consumers want to support sustainable companies and are willing to pay nearly 10% more for products that come from them. Additionally, employees also are attracted to highly rated ESG companies. This creates a more competitive and innovative workforce with higher retention than less sustainability-focused businesses.
Ultimately, PE-backed companies that embed ESG principles into their operations can enjoy a market advantage, from top-line growth to productivity uplift and a more engaged workforce.
For example, TPG's $25 billion Rise Fund invests in companies addressing climate change and social impact while balancing financial performance and returns. The fund's growth illustrates how combining sustainability with solid market strategies can elevate brand reputation and open new revenue streams.
In the United States, regulatory scrutiny of emissions, supply chain ethics, and corporate governance is intensifying. The Securities and Exchange Commission (SEC) has proposed new rules requiring publicly traded companies to disclose climate-related risks and greenhouse gas emissions. Implementing programs to track metrics like greenhouse gas emissions is an encompassing process that can take time to implement — companies need to start programs now to comply in the future.
For private equity firms with holdings that might eventually go public, or with platform companies that supply to public companies, ignoring these rules can create legal and reputational risks. As federal and state authorities consider additional guidelines, sustainability moves from a "nice-to-have" to an urgent compliance matter.
Many firms recognize the value of integrating ESG factors, but turning that recognition into reality requires a well-structured plan.
Before a deal closes, private equity firms conduct extensive ESG screenings to uncover potential ESG-related risks and benefits. This process can range from using a target company's internal sustainability datasets, if present, to hiring a consulting company to review raw data to uncover climate-related liabilities.
This process can also uncover opportunities to add value to the company by improving a weak ESG program. For example, if a target company has outdated, inefficient machinery, the private equity team might see a straightforward opportunity to implement upgrades post-acquisition, lowering operational costs.
Once an investment is made, many private equity firms bring in sustainability consultants — like our team at Emerald Built Environments — to optimize strategies, facilities, and processes. The results of our efforts might lead to new policies and procedures, upgrading equipment, reducing water usage, or revamping supply chains. The goal is to cut costs while improving a portfolio company's environmental impact, ensuring that sustainability isn't just an initiative but a fully integrated business strategy.
When it's time to sell, a company with strong ESG metrics often commands a higher valuation. In fact, a study by PwC reported that half of investors are willing to divest from companies that fail to implement ESG effectively, and 79% consider ESG an important factor in investment decisions.
An enterprise that has reduced its carbon footprint or secured a reputable sustainability certification is more attractive to buyers who increasingly view ESG as a proxy for good governance and future resilience.
Let's talk numbers. A report by McKinsey shows that companies that prioritize ESG can reduce costs by up to 60% through efficient resource use and operational improvements. Meanwhile, research from Morningstar suggests that funds with strong sustainability credentials often match or exceed the performance of traditional funds over the long run. Supporting this, a study by Kroll found that during the 2013 to 2021 period, highly rated ESG companies outperformed their peers with 4.3% higher annual returns.
These statistics underline a compelling truth: sustainability strategies can drive operational outperformance.
While private equity often views sustainability through the lens of financial value, it also plays an essential role in pushing the business world towards being more sustainable. Private equity holds significant capital — and with great capital comes great responsibility. U.S. Private equity assets under management are currently at $523 million and are predicted to exceed $1 trillion by 2033. Imagine redirecting even a fraction of that toward cleaner technologies, sustainable infrastructure, or carbon-reduction initiatives. That's a lot of impact.
Here's the exciting part: private equity firms can become catalysts for decarbonization in typically slow-changing industries. By demanding stricter ESG standards from portfolio companies, they can accelerate the adoption of renewable energy, circular economy models, and cleaner production methods.
Sometimes, this requires partnerships with specialized advisors. That's where sustainability consultants like Emerald come in, helping firms align their investments with global targets such as net-zero emissions and the Paris Agreement's goal to limit global warming.
As sustainability data becomes more standardized and transparent, the importance of ESG metrics will only grow. We will likely see deeper collaboration between institutional investors, limited partners, and portfolio companies as they track and report progress toward net zero and other ambitious environmental targets. Innovations like green bonds, carbon offsets, and technology solutions for measuring ESG impact could also become standard in private equity's toolkit.
Over the next decade, the private equity landscape will probably shift toward impact-oriented investments, where financial returns mesh seamlessly with social and environmental good. LPs and regulators will demand it, consumers will reward it, and forward-thinking private equity firms will lead the charge. That means more energy-efficient factories, reduced carbon footprints, and robust social equity programs embedded right into the heart of the business model.
The takeaway? Sustainability is no longer a mere footnote in the investment memo; it's a central narrative that's driving the future of private equity. With the right mix of capital, expertise, and strategic partnerships, private equity can — and will — continue to reshape global industries for the better. Companies that embrace this reality stand to profit, while those that ignore it face mounting risks.
Are you ready to future-proof your organization? Emerald Built Environments, A Crete United Company, can help your business improve its sustainability, whether that's from the beginning with a sustainability roadmap or by maintaining existing strategies with a sustainable facilities maintenance plan. After all, the question isn't whether sustainability matters — it's whether you're prepared to leverage it for long-term success.