Private Equity Managers Prioritizing ESG Over New Deals

Private equity fund managers intend to direct most of their capital to setting up impact funds or investing in targets with ESG-focused themes, according to new research.

Audit and consultancy group BDO’s Spring 2022 Private Capital Pulse Survey polled 200 US private equity fund managers and found that impact funds and ESG strategies are becoming more of a priority than new deals for managers.

BDO said its survey was not designed specifically to focus on ESG, with questions about value creation, exit planning and deal-making. 

However, ESG “emerged as a solid strategic underpinning”, it said, with 99% of those surveyed have already identified an ESG strategy, with objectives including increasing value at exit, and talent retention.

Half of private equity managers claimed that they would direct most capital towards ESG-focused themes in the next six months, compared to 14% who intend to direct it to applying equity relief to portfolio companies. 

More than one-third, or 38%, of fund managers are adopting and implementing an ESG strategy to “do their part” to address the threats of climate change.

“Limited partners and the public at large have been clamoring for ESG action, and funds are responding,” said Verenda Graham, tax partner and national private equity practice co-leader at BDO. 

Graham added: “Among the fund managers who said they are raising an impact or ESG fund, 46% said their top post-M&A challenge was improving performance.”

Less than 1% of fund managers said they did not perform an ESG assessment on new investments.