The increasing pressure from Limited Partners to align investment practices with ESG policies and outcomes has led to a sharp increase in the number of private equity firms committing to the integration of ESG values and frameworks. As a result, ESG strategy integration has become an issue of value protection, creation, and alignment.
Expectations and regulations regarding ESG and sustainability reporting have followed this trend, heightening the business value impacts of ESG mismanagement. Volkswagen’s emissions scandal, Foxconn’s employee mistreatment, and Monsanto and Johnson & Johnson’s product liability cases are all examples of incidents that impacted share value and cost millions in legal fees and settlements.
Additionally, non-reputational damage risks include environmental compliance fines, employee retention and training costs, supply chain disruptions, and failure to prepare for climate impacts.
Assessing ESG performance and identifying potential risks, deficient practices, and key opportunities for improvement is now a vital part of protecting firms against material loss and minimising impact on negotiations around acquisitions and as firms prepare for sale.