ESG considerations for investment exit strategies
ESG performance has become a significant measure of business health, value, and longevity, so communicating successful ESG management is vital.
It demonstrates the value of portfolio businesses, the success of investments on exit and maintains a positive perception of both portfolio businesses and investment firms.
From inefficiency to liability, ESG failures are expensive. With possible legal, reputational, and financial costs to ESG mismanagement, understanding the ESG landscape of a potential acquisition is increasingly important in value protection.
Value protection is a priority for buyers and sellers and poor ESG management can impact the value of a business at sale. Identifying weaknesses in ESG management gives private equity firms the chance to identify any failings before they become a problem.
For firms exiting an investment, it is vital to be prepared to respond to any questions or challenges a potential buyer may identify during their due diligence process. With increasing value placed on good management and low ESG risk, this means conducting a comprehensive sell-side review.
ESG management reporting
While exit may signal the end of an investment, it is not an end to the private equity lifecycle. The performance here can significantly impact how firms perform when fundraising for subsequent investments – the next stage of the cycle. Maintaining investor satisfaction is the key to ongoing success throughout the private equity lifecycle.
With investors expecting increased transparency from firms and prioritising corporate and social responsibility and sustainability, good communication of ESG management is vital to the maintenance of investor confidence and to securing capital for future investment cycles. Firms can use the information gathered during sell-side due diligence to produce ESG management reports for current and potential investors. They can present evidence of their responsible investment practices to reassure current and potential investors.
Our approach to investment exit strategies
As your strategic partner, our ESG and transaction advisory expertise can help you identify the ESG issues key to your firm and maximise the impact of diligence and communication at exit. From sell-side diligence reporting to investor relations, we help clients find the best way to communicate their ESG management decisions and successes. Acknowledging that each firm and its portfolio is unique, we can help you create short and long-term value across your portfolio and strengthen your firm’s reputation during exit.
Effectively communicating ESG accomplishments can help:
- Highlight growth opportunities
- Increase brand value
- Establish competitive advantage
- Meet investor expectations.
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