Research shows private equity and venture capital investors positively impact sustainability of portfolio companies
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Sustainability has become a key value creation tool for private equity investors, and a new study reveals that Finnish private equity and venture capital investors are contributing positively to the sustainability of their portfolio companies. While there is still room for improvement, the overall trend is encouraging.
A new study by the Finnish Venture Capital Association and PwC examined the impact of private equity and venture capital (hereafter referred to as private equity) investors on the sustainability of Finnish portfolio companies.
According to the research, over 90% of Finnish companies owned by private equity investors have adopted at least one ESG (Environmental, Social, and Governance) policy in their operations. The study reviewed 21 commonly used policies, including those on calculation of greenhouse gas emissions, diversity and corporate responsibility.
Private equity investors, as active owners, aim to develop and increase the value of their portfolio companies during their ownership. For private equity investors, developing sustainability factors is one of the key tools for value creation, and this is reflected in the results of the study – the percentage of companies with at least one ESG policy in place increased from 57% (2021) to 90% (2023) during private equity ownership.
“Looking at individual policies with data spanning several years, almost all show an increase in implementation rates under PE-ownership – in most cases by more than 20 percentage points,” comments Jussi Lehtinen, Partner at PwC.
“While the policies themselves don’t guarantee sustainability improvements, they play a vital role in structuring and refining operations,” says Suvi Collin, Head of Legal & ESG at the Finnish Venture Capital Association.
Carbon intensity significantly lower than peers – more work to be done to promote gender diversity
In addition to ESG policy adoption, the study focused on key sustainability themes, such as carbon intensity and board diversity of portfolio companies.
Results show that more companies are measuring carbon emissions during the private equity ownership period. Additionally, the carbon intensity of Finnish private equity-backed companies – greenhouse gas emissions relative to turnover and staff – is significantly lower than that of their European peers.
This suggests that private equity investors are taking into account the climate impact of their portfolio companies and that, on the other hand, portfolio companies often operate in sectors with lower carbon intensity compared to traditional industries.
“Private equity investors have a key role to play in fostering and financing new innovations and promoting sustainable business models that respect planetary boundaries. These findings indicate that we’re heading in the right direction and that sustainability has become a key driver of value creation for private equity investors,” says Collin.
The study shows that the representation of women on the boards of companies owned by Finnish private equity investors remains lower than that of Swedish and broader European peers. According to the study, private equity ownership appears to have little impact on female board representation, with numbers remaining stable over time.
“However, the number of companies that have implemented a diversity policy has increased significantly during private equity-backing, which reflects more broadly the desire of portfolio companies to diversify their organisations,” Lehtinen points out.
“Private equity investors wield considerable influence over their portfolio companies and have the opportunity to build more sustainable businesses. It is crucial that decisions are made by individuals with diverse backgrounds and perspectives,” concludes Collin.
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