Private Markets: It’s Time to Embrace ESG if You Want to Attract Assets

April 5, 2022

At a glance

  • Main takeaway: Whether believers or skeptics, private markets need to embrace environmental, social and governance (ESG) initiatives in their operations if they want to increase their profitability to attract investors.
  • Invest with confidence: In a three-part series, we will explore ESG investing in private markets from attracting assets, creating value and getting buy-in from the boardroom.
  • Discover the value of ESG: Aprio’s ESG Team can help you identify measurable ESG opportunities and navigate your firm on a sustainable journey.

Are you ready to build your social balance sheet? Contact our team for a free consultation.

The full story:

Private equity (PE) firms are known for their ability to focus on growth and have a view of the future, yet there is uncertainty whether to prioritize environmental, social and governance (ESG) initiatives and standards of measurement. The reluctancy for some can certainly be attributed to inconsistent data and reporting guidelines for ESG, but investors know you can profit from doing good.

Europe-based PE firms have led the pack when it comes the acceptance and adoption of ESG by embedding ESG into the core principles of their business strategies. The outcome has set their companies apart and way ahead of their competition. However, we are starting to see the needle behind U.S. PE firms embracing ESG move in a positive direction. In October 2021 it was estimated that “there are $3.1tn of private capital assets under management (AUM) managed by firms that are committed to ESG investing, representing 36% of total private capital AUM ($8.52tn),” according to a report by Preqin. 1

You could call it pressure from investors demanding PE firms adopt ESG strategies, but Millennials and Gen-Z are turning the heat up as their values are becoming the dominate force of the labor and consumer market. Their ideals are reshaping the landscape of investing by demanding healthy workplace cultures, prioritizing organic products, taking a stand against injustices and a dedication to going green.

If U.S. PE firms keep up with the momentum and commitment to ESG standards, they have a massive opportunity to pull ahead. So how can PE firms deliver on ESG?

  1. Commit to see it through and communicate that. It may sound corny, but ESG is an all-in approach and not the latest trend where you delegate the responsibility and moved on. While everyone in the company needs to buy in to ESG, true-believing must start in the boardroom and C-suites.
  2. Look at where you are now. Establish a clear ESG path that aligns to your overall company strategy and mission. If there are current ESG strategies in place, look at their performance and see what can be modified.
  3. Determine where you want to be. Define goals based on your firm’s area of interest and identify the best options to embed your ESG strategy. Remember, change doesn’t happen overnight, so it’s important to remain patient.
  4. Put your plan in action. ESG is a work in progress, but focused execution and consistent monitoring will drive measurable results for continuous improvement.

The bottom line

ESG is not a new phenomenon, but we believe it has crossed the chasm and can be a key differentiator that can set your firm apart and attract investors. Every PE firm’s ESG journey is different. Aprio’s ESG Team can help you identify quantifiable ESG opportunities to take your firm to the next level.   Stay tuned for the second part of our series on ESG investing in private markets where we will discuss how ESG is impacting levers of value creation from growing EBITDA and lowering working capital to reducing costs of financing.

Are you ready to build your social balance sheet? Contact our team for a free consultation.

[1] Preqin, “ESG in Alternatives: Navigating the Climate Crisis,” October 2021, accessed March 2022.

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About the Author

Simeon Wallis

Simeon is the Chief Investment Officer of Aprio Wealth Management and the Director of Aprio Family Office. Simeon brings two decades of professional investing experience in publicly traded and privately held companies, as well as senior-level operating and strategy consulting experiences.