Generating

Value
Why PE firms are embracing ESG?
• Risk Management
• Reputational Risk
• Investment Risk

• Satisfying Stakeholders
• Pressure from LPs
• Responsibility as Signatories

• Generating Value
• Higher Returns
• Higher Valuation at Exit
• Lower Operational Costs
• Lower Cost of Capital
• Competitive Advantage
Higher Returns
• ESG Linked to Outperformance: Carlyle observes that portfolio companies with a
strong focus on material ESG issues tend to have superior performance.

• Sustainability as a Value Driver: ESG practices are leveraged as strategic tools for
product improvement, brand building, talent acquisition, and operational efficiency,
enhancing overall business value.

• TPG’s ESG Evolution: TPG reports an evolution from using ESG for risk management
to leveraging it for cost reduction, and now, employing it as a core strategy for
creating value and positive outcomes.
Higher Returns
• ESG-Driven Operational Improvements: GPs find that switching to compliant and
higher-standard suppliers can lead to better products and higher returns, despite
initial higher costs.

• Supply Chain and Pricing Benefits: ESG investments can streamline supply chains
and justify higher pricing for better-quality products, demonstrating that responsible
practices align with profitability.

• Empirical Evidence of ESG Success: Bain & Company's study shows that in Asia, PE
exits with positive social and environmental impacts saw higher median multiples on
invested capital compared to other exits.
Higher Valuation at Exit

• ESG Boosts Exit Valuations: Companies with strong ESG performance are likely to
attract higher exit multiples due to their appeal to strategy buyers with strict ESG
criteria.

• Strategic Alignment with Buyers: Aligning with the ESG targets of potential acquirers
can significantly enhance the sale price of a company at exit.

• Long-Term Value Building: PE firms are focused on building sustainable businesses

that are attractive for IPOs or strategic buyers, with ESG transparency becoming a
crucial factor in readiness for public markets.
Lower Operational Costs

• ESG Enhances Cost Efficiency: Implementing ESG initiatives can lead to significant
reductions in operational costs, such as savings from decreased electricity and paper
usage.

• Environmental and Economic Gains: Eco-friendly practices often result in direct

economic benefits by lowering utility bills and reducing waste.

• Real-World Cost Savings: Companies in energy-intensive industries that invest in

efficient technologies can experience a notable decrease in production costs,
exemplifying the financial benefits of ESG efforts.
Lower Cost of Capital

• Environmental Efforts Reduce Capital Costs: Companies engaging in positive

environmental activities can potentially benefit from lower cost of capital.

• Growing Demand for Green Bonds: In Europe, the high demand and limited supply
of green bonds create an opportunity for companies to access cheaper debt
financing.

• Financial Incentives for Sustainability: Firms that align with sustainable practices can
attract more favorable financing terms, demonstrating the market's shift towards
rewarding environmental stewardship.
Competitive Advantage

• Differentiation through ESG Commitment: Emphasizing responsible investing and

ESG practices helps firms stand out in a crowded market, offering a key competitive
advantage.

• Appeal to Values-Driven Investors: Firms with strong ESG performance attract

investors who prioritize sustainability and social responsibility in their investment
choices.

• Broader Market Benefits: Beyond investor appeal, strong ESG practices enhance
customer loyalty, brand reputation, and employee engagement, contributing to
overall business success.
Why PE firms are embracing ESG?
• Risk Management
• Reputational Risk
• Investment Risk

• Satisfying Stakeholders
• Pressure from LPs
• Responsibility as Signatories

• Generating Value
• Higher Returns
• Higher Valuation at Exit
• Lower Operational Costs
• Lower Cost of Capital
• Competitive Advantage