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ESG in 2022: Insights for private companies

We profile why ESG factors matter in private markets, explore the diverse ESG issues private companies face across industries, highlight five key areas to prioritize, and share the essential steps private companies can take to keep up with today’s evolving ESG risks and opportunities.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE (ESG) FACTORS are critical business issues that private companies must consider. Though these factors can significantly impact financial performance (Figure 1), they’re often not addressed by many venture capital and private equity investors until companies prepare for an IPO. Notably, not every risk is material to every company. In our view, understanding and incorporating material factors as early as possible enables more informed business decisions and we therefore believe it is essential to work with our portfolio companies to proactively tackle ESG issues.

FIGURE 1

Companies with strong sustainability initiatives historically outperformed

Many private companies are well-positioned to address ESG factors, as they’re already tracking relevant metrics and working toward improving specific issues. We hope our insights as public and private market investors can help make it as easy as possible for private companies to leverage that work and adapt to growing ESG expectations — so they can remain focused on their core businesses.

Why ESG matters for your private company

We believe ESG matters in private markets for the same reasons it matters in public markets. In our view, strong ESG practices can potentially help private companies:

  • Improve financial returns. Material ESG issues, such as climate risk, talent management, and board composition, can affect a company’s financial performance and long-term intrinsic value. Global ESG leaders have outperformed the broader market by 37% over the last 16 years.1
  • Establish stronger brands and wider competitive moats. It is increasingly common for consumers to reward companies with strong ESG practices. For instance, 60% of US consumers are willing to…

To read more, please click the download link below.

1Bain & Company. “Global Private Equity Report 2020.” Data from 31 January 2003 to 31 January 2019. Based on a comparison of a STOXX index for companies identified as global ESG leaders and a STOXX index representing the broader market. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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