Sustainability-oriented private equity - The Sustainability Management Wiki

Authors: Jannek Hillen
Edited by: –
Last updated: December 02, 2025

Executive summary

Sustainability-oriented Private Equity (SOPE) integrates environmental, social, and governance (ESG) factors into the private equity model. It aims to balance financial returns with positive societal and environmental outcomes.

The SOPE approach differs from traditional private equity by embedding ESG considerations across fundraising, sourcing, portfolio management, and exit phases. Key drivers include investor pressure, regulatory requirements, and the pursuit of long-term value creation.

SOPE practices range from socially responsible investing and ESG integration to impact investing. While ESG adoption is growing, transparency and measurement challenges persist, and integration often remains uneven.

Empirical evidence shows mixed sustainability outcomes. Positive impacts include improved workplace safety and reduced emissions, but concerns remain about greenwashing and short-termism. Financial performance studies suggest ESG integration does not harm returns and may improve risk-adjusted performance, though impact investing often involves trade-offs.

Future research should address gaps in ESG measurement, transparency, and the operationalization of value creation. SOPE holds potential to drive sustainability, but its transformative impact depends on deeper integration and standardized practices.

1 Introduction

Private equity (PE) as an asset class has grown rapidly over the past 40 years, reaching $6,3 trillion in assets under management (AUM) compared to $90 trillion in public equities in 2021. By June 2023, AUM had already increased to $8,2 trillion, thereby positioning PE as a new force of financialization.¹^,² At the same time, sustainability challenges such as climate change, inequality, and resource scarcity underline the need for capital markets to address long-term risks and opportunities rather than focusing solely on short-term returns.³ Within this context, sustainability-oriented private equity (SOPE) has emerged as a promising approach to drive sustainability.⁴ On the one hand, critics argue that short-term profit orientation and high leverage could undermine the sustainability efforts of PE.³^,⁵ On the other hand, supporters highlight the unique active ownership model and governance expertise, which could make PE a powerful driver of sustainability.⁴^,¹^,⁶ Given the scale and influence of PE, global sustainability challenges cannot addressed without the involvement of this asset class, which provides the central motivation for this literature review.⁴

The relevance of this research is twofold. From an academic perspective, sustainable private equity described as an emerging field. While most of the literature on PE focuses on financial performance, value creation, leveraged buyouts, capital structure, and governance, research on SOPE has recently begun to expand.² At the same time, SOPE provides a valuable opportunity to examine how private equity investors integrate sustainability considerations into their investment practices, what drives the recent transformation of the industry, and how sustainability contributes to value creation.⁴^,³^,⁷^,⁸^,⁹ From a practical perspective, SOPE matters because private equity faces growing pressure from regulators and investors to take sustainability seriously.⁴^,¹⁰ At the same time, record levels of dry powder increase the incentive to explore ESG-related opportunities.⁴^,¹¹ Beyond compliance, sustainability is increasingly tied to value creation and competitive advantage, while the active ownership model of PE enables firms to directly drive the transformation of their portfolio companies.⁴^,¹^,³^,⁶

2 Literature review

2.1 Foundations of sustainability-oriented private equity

2.1.1 The private equity model

Institutional investors typically allocate their capital across a broad set of asset classes. This ranges from equities (e.g., shares in public companies like Apple), bonds (e.g., German Bunds or US Treasuries), real assets (e.g., real estate projects or infrastructure), and cash. Beyond these, alternative assets have gained increasing importance, including hedge funds, private debt, and private equity.¹² PE has developed into a core investment option for many investors, consistently outperforming public equity.² The following section outlines the structure of a typical PE fund (as shown in Figure 1), introduces the main strategy types within PE, and explains the investment lifecycle.

A private equity firm secures investment capital by launching a fund. Most PE funds are “closed-end” structures, marked by their illiquidity and long-term investment horizon. PE funds are typically structured as limited partnerships, comprising General Partners (GPs), who serve as the fund managers, and Limited Partners (LPs), who provide the majority of the capital.¹³^,¹⁴

Figure 1: Typical private equity fund structure, own Illustration based on Blackstone “The Life Cycle of Private Equity”

LPs are usually institutional investors, such as pension funds, sovereign wealth funds, university endowments, insurance companies, foundations, as well as private investors, including family offices and high-net-worth individuals.⁴^,¹⁴ In most cases, they remain passive capital providers, who do not intervene in the day-to-day management of the fund.⁹^,¹³ However, research highlights the growing trend of co-investing, defined as a direct investment by an LP in the portfolio company, which grants them greater control.⁴ The PE firm, by contrast, acts as the GP of the fund, making investment decisions in portfolio companies, overseeing them, and executing the fund’s value creation strategy.¹³^,¹⁵ In fact, they directly influence and actively control portfolio companies by acquiring majority equity stakes and enforcing robust governance mechanisms.⁷^,¹⁶ Additionally, GPs possess industry and operational expertise, which they use to advise portfolio companies and enhance the value creation.¹⁵ The GP-LP relationship governed not only by control rights but also by financial incentives. These financial incentives are generally grouped into two main categories. GPs receive an annual management fee on the committed capital, usually ranging between 1,5% and 2%. This provides a fixed income stream to cover operating expenses.¹⁷ The second incentive is a performance-based profit share, known as carried interest, typically set at 20% of profits exceeding a predetermined hurdle rate.¹⁵^,¹⁷ This structure intended to align the interests of GPs and LPs, although it may also introduce potential agency conflicts.⁹^,¹⁴ Prominent GPs dominating the industry, often referred to as “mega private capital”, include firms such as Apollo Global Management, Blackstone, Carlyle, Partners Group, TPG, and KKR, most of which are now publicly listed. These large firms play a key role for major LPs by enabling them to deploy substantial capital commitments, often $100 million or more, while giving them access to a diversified range of private assets.¹⁸ PE covers different investment strategies, most notably venture capital (VC), growth equity, and buyouts, including leveraged buyouts (LBOs).¹⁵ VC mainly targets young and innovative firms with high growth potential but also higher risk, whereas buyouts usually focus on established companies with stable cash flows, often relying heavily on leverage to boost returns.⁸^,¹⁵ Growth equity lies in between, investing in firms at the expansion stage with less dependence on debt than in buyouts.¹⁹ In the academic literature, however, PE is mostly linked to buyouts and LBOs, which are characterized by majority control and value creation through active ownership.⁸^,¹⁷

As previously mentioned, the private equity fund model seeks to acquire stakes in privately held companies, enhance their value over several years, and ultimately sell these stakes at a higher price than initially paid, thereby generating returns for investors.⁷ This model can be broken down into distinct investment phases, forming the private equity investment lifecycle. Zaccone and Pedrini (2020) note that the PE investment lifecycle generally comprises four main phases: fundraising, sourcing, portfolio management, and exit.⁷ In most cases, a PE fund has a time horizon of 10 years, with the possibility of extending it by three additional years.¹⁴

Figure 2: The private equity investment lifecycle, own illustration based on author’s synthesis of reviewed literature

As shown in Figure 2, the fundraising phase represents the starting point of the lifecycle. During the fundraising phase, capital raised from LPs to secure sufficient liquidity for upcoming investments.⁷^,¹⁵ The fundraising phase generally takes, on average, up to 21 months.¹⁰ Afterward, GPs have a five-year period to deploy the fund’s committed capital into portfolio companies.¹⁴ In the subsequent sourcing phase, the PE firm aims to acquire equity stakes in companies with high value-creation potential to maximize returns.¹³^,¹⁵ This phase involves three main activities: deal sourcing, due diligence, and deal structuring. Deal sourcing refers to the identification of potential investment opportunities, while due diligence denotes a comprehensive evaluation of the targeted company.⁷ During this process, the PE firm gathers and analyzes detailed information on the target’s financial performance, operational strengths and weaknesses, and strategic position, to assess its overall viability as an investment. In the context of PE, due diligence takes on particular importance because targets are privately held and therefore lack the transparency and public disclosure requirements of listed companies.⁷^,²⁰ Deal structuring sets the financial and legal framework of the transaction, covering the equity-debt ratio, governance provisions, and contractual terms. PE transactions often rely on high levels of debt, which increases equity returns through the tax advantages of interest payments.¹⁵ After the sourcing phase, the PE lifecycle moves into the portfolio management phase, where PE firms actively work with portfolio companies to enhance their value and prepare them for exit.⁷^,¹⁵ Traditionally, the primary objective was to maximize the company’s value.⁴ PE firms typically use three levers: (i) operational improvements of portfolio companies (e.g., cost reduction programs, market expansion), (ii) active governance and strategic oversight (including management changes and performancebased incentives), and (iii) financial structuring (e.g., refinancing, capitalstructure optimization).²¹ The typical holding period for portfolio companies ranges from four to seven years, with most scholars citing around five years.⁹^,²² The PE life cycle concludes with the exit phase, during which the firm divests its shares in the portfolio companies to realize returns and distribute capital back to the LPs.⁷^,¹³ The main objective is to secure the highest possible exit valuation to generate maximum returns.¹¹ Therefore, PE firms apply different exit strategies. They may sell to an operating company that identifies potential synergies with the portfolio firm, or pursue an initial public offering (IPO), which is most used among venture capital firms. Since the mid-2000s, a distinct form of exit has gained prominence: the secondary buyout (SBO), whereby a PE fund divests a portfolio company by selling it to another PE fund.¹³ Because sustainability integration may vary strongly across these phases, the lifecycle structure forms the analytical foundation for Chapter 4.

2.1.2 Defining sustainability-oriented private equity

Sustainability-oriented Private Equity (SOPE) is not a formally defined or universally codified concept in the academic literature. Rather, it is best understood as an emerging investment logic within sustainable investing.²^,⁶ The literature often frames SOPE as a spectrum of practices within private equity, ranging from minimal compliance to the deep integration of sustainability considerations.⁷^,²³ What unites these practices is a dual-objective logic, in which environmental and social outcomes are pursued alongside financial performance.⁴^,⁶^,¹⁵ The integration of ESG factors across the entire investment lifecycle (fundraising, due diligence, ownership, and exit) has therefore become the dominant approach in describing SOPE.³^,⁷^,⁸^,²² Some scholars have even labeled this evolution as “PE 4.”, where firms integrate ESG factors as a core competence to address externalities and create long-term value.³ Creating value while accounting for sustainability has thus become a defining feature of SOPE.⁷ Yet, the literature does not specify the degree of ESG integration at which private equity practices can definitively classified as SOPE. According to Dittrich (2018), SOPE can take place either in dedicated ESG funds or in traditional funds that integrate ESG considerations into already established portfolios.¹¹

SOPE also contains earlier sustainable investment paradigms. Crifo & Forget (2013), in one of the early articles, describe SOPE as a form of socially responsible investing (SRI), ranging from screening approaches to the active promotion of CSR practices in portfolio companies.⁹ At the same time, the literature frames impact investing as the most ambitious form of SOPE, where measurable social and environmental outcomes are placed at the core of the investment strategy.²^,¹⁵^,²⁴ While the literature distinguishes between these approaches, together they build the foundation of SOPE. Overall, SOPE can be understood as an emerging investment logic that spans from SRI to ESG investing to impact investing. It embeds sustainability considerations throughout the entire PE lifecycle and follows a dual approach, balancing environmental and social outcomes alongside financial goals.

2.1.3 Core approaches in SOPE

To fully grasp the concept of SOPE, it’s essential to examine the three underlying approaches that form its conceptual foundation: SRI, ESG integration, and impact investing. These approaches represent the key mechanisms through which sustainability operationalized in PE.

Socially Responsible Investing can defined as an “investment process that integrates social, environmental, and ethical considerations into investment decision-making” (p. 21).⁹ Its origins date back to the 1960s, driven primarily by ethical and moral motivations. During the 2000s, SRI evolved from a niche strategy into a widely adopted investment practice, which is often referred to as ‘SRI mainstreaming’.⁹ While SRI was initially most common in mutual funds, it has become more important for institutional investors, such as CalPERS, and has thus gradually gained relevance in the field of PE as well.²⁵ SRI distinguishes itself from traditional investment approaches in two key respects. First, it incorporates two main screening methods that are used to include or exclude assets based on non-financial criteria.⁹ The exclusion-based approach, known as “Negative Screening”, filters out investments in companies that produce harmful products (e.g., weapons, tobacco, alcohol), or that are involved in socially irresponsible practices (e.g., water polluting, labor violations). The inclusion-based approach, known as “Positive Screening”, seeks out investments in firms that engage in socially responsible behavior, such as the production of green products, or firms that take the lead in CSR practices (best-in-class) within their industry.⁹^,¹²^,²⁵ In addition, SRI often involves shareholder engagement, where investors actively use their voting rights to promote CSR within the companies they are invested in.⁹ Among these screening methods, negative screening is the most extensively used.²⁵ Survey responses by Zaccone & Pedri (2020) revealed that 63,6% of the Private Equity investors interviewed, avoided investing in industries that do not meet ESG standards.⁷

The concept of Environmental, Social, and Governance (ESG) was first introduced by the United Nations (UN) in 2004 through the initiative “Who Cares Wins”27 and has since gained legitimacy among organizations, academia, and investors.²² Building on this, the UN launched the Principles for Responsible Investments (PRI), providing a voluntary framework for institutional investors to incorporate ESG issues into their investment and ownership decisions. Signatories commit to incorporating ESG factors into investment analysis and ownership policies, and to promoting ESG-related disclosure from the companies they invest in.¹⁵ By 2024, the list of signatories included over 5,000 organizations managing more than $128 trillion in assets, highlighting the widespread institutional adoption of ESG principles.²⁶ ESG covers three dimensions: environmental (e.g., biodiversity, emissions, waste reduction), social (e.g., human rights, equal opportunities, workplace safety), and governance (e.g., board composition, codes of conduct, anti-corruption).⁷ ESG provides investors with decision-relevant information that goes beyond financial metrics, helping them evaluate risks and opportunities across environmental, social, and governance factors. At the same time, it reflects a shift from pure shareholder primacy toward a broader stakeholder-oriented perspective.²² Unlike earlier SRI approaches, which relied mainly on exclusionary screening, ESG integrates these factors holistically throughout the investment process, following a performance-driven approach.²^,⁷ The growing focus on ESG integration rests on the assumption that these factors are financially material and can shape long-term performance.¹⁵^,²⁷ If not managed properly, they can cause significant financial, reputational, or regulatory risks.¹⁰

Impact investing emerged in the late 2000s as a new form of sustainable investing, defined as investments made with the intention of creating measurable social and environmental impact alongside financial returns.²⁴^,²⁸ It follows a dual-bottom-line logic, combining profitability with positive societal outcomes. Investors are often willing to accept returns below market level, as they expect to gain non-pecuniary utility from the positive societal externalities their investments create.¹⁵^,¹⁹ Besides its clear intentionality and the pursuit of financial returns, a defining element of this approach is impact measurement, which ensures that targeted outcomes are not only aspirational but verifiable through reliable, measurable impact data.¹⁹^,²⁴ Unlike SRI or ESG, impact investing explicitly places social and environmental benefits at the core of the investment thesis.⁸^,²⁴ Within private markets, impact investing has gained particular traction in venture capital and growth equity. Relevant examples in PE and VC include funds targeting clean energy, health services, or financial inclusion in emerging markets.²⁹

In both academic and industry discussions, ESG factors form the main framework used to translate sustainability into practice within PE.⁴^,⁷ ESG therefore serves as the analytical lens for examining how sustainability goals are implemented throughout the investment process. Accordingly, this thesis applies ESG as the overarching framework to describe and assess sustainability integration in PE.

2.1.4 Traditional vs. sustainability-oriented private equity

While the structural logic of the PE investment lifecycle remains largely the same, SOPE differs from traditional PE in terms of objectives, processes, and evaluation criteria across each phase. A systematic comparison highlights how ESG considerations reshape fundraising, sourcing, portfolio management, and exit strategies.

In traditional PE investments, fundraising primarily focuses on financial performance (IRR, MOIC). LPs also consider the fund’s track record, so additional capital allocation often depends on the GP’s ability to consistently generate profitable returns.¹³^,¹⁵ In SOPE, by contrast, LPs also integrate ESG factors into their investment decisions. Eccles et al. (2023) highlight that 90% of LPs consider ESG criteria when investing, and 77% select GPs accordingly.⁴ Thus, fundraising has shifted from a purely financial orientation toward a dual focus on financial and extra-financial performance, with impact returns gaining increasing relevance.²⁷ In the sourcing phase, traditional PE primarily evaluates investment opportunities based on financial stability and profitability. By contrast, SOPE integrates ESG screening into this process, applying inclusionary and exclusionary approaches to identify suitable portfolio companies.⁷ Similarly, due diligence in SOPE extends beyond financial and operational assessments by systematically incorporating ESG factors into company valuation.⁷^,³⁰ Portfolio management in traditional PE focuses on operational improvements and financial measures, whereas SOPE explicitly links value creation with sustainability goals.⁴^,³ To enhance company value, SOPE firms combine traditional levers with ESG initiatives such as CO₂ reduction, environmental monitoring, and health and safety programs that help decrease absenteeism and improve staff retention.³⁰ These ESG factors are tracked and evaluated through standardized Key Performance Indicators (KPIs), enabling continuous improvement.⁴ The literature also points to cases where SOPE firms actively enhance the value of portfolio companies with weak ESG performance by using ESG integration as a value lever.³^,¹¹ In traditional exits, the main objective is to maximize the selling price, with buyer selection driven primarily by financial motives. By contrast, SOPE firms pursue impactful exits that safeguard the continuity of ESG practices beyond the GP’s ownership. Thus, SOPE firms ensure that new investors are capable of managing the assets and sustaining the impact of the portfolio company by conducting due diligence on potential buyers. Suitable investors are expected to have a solid reputation, a strong mission commitment, and a growth-oriented time horizon.³¹ Additionally, SOPE firms leverage ESG factors to raise exit valuations, turning strong ESG practices into a price lever.¹¹^,³⁰ Figure 3 provides an overview of the key differences between the individual phases.

Figure 3: Comparison of traditional & sustainability-oriented private equity, own illustration based on author’s synthesis of reviewed literature

Beyond the differences along the investment process, SOPE also differs from traditional PE in its sector focus and regional distribution. Traditionally, PE investments have concentrated on mature industries with stable cash flows such as manufacturing, retail, real estate, and traditional energy. These sectors often offered predictable returns and high leverage capacity, thereby fitting the classic buyout model.¹⁴ SOPE firms actively invest in companies whose products or services generate a positive impact in line with the UN Sustainable Development Goals (SDGs), such as water purification, renewable industries, health care, or financial services in emerging economies.²^,³^,¹¹^,¹⁸ In Europe, the growing relevance of SOPE reflected in sector allocation: while information and communication technologies accounted for the largest share of PE investments in 2023 (25%), ESG-related sectors such as healthcare (15%) and energy & environment (8%) have gained notable shares.³² According to a BCG report, which contributed to the launch of the EDCI, most member firms are located in Europe and North America. The same report notes that participation from Asia is growing, but SOPE firms remain largely concentrated in developed markets.³³ This is also supported by the literature, which shows that sustainability disclosure among PE firms is highest in Europe, followed by the United States.¹⁰^,³⁴ At the same time, research indicates that impact-oriented PE and VC firms tend to focus on emerging markets, particularly in regions such as Africa and South Asia.³⁵ Although impact-oriented PE firms account for only a small share of SOPE, their presence highlights that emerging markets within the wider SOPE context continue to fall behind. This uneven regional distribution indicates that SOPE is still mainly concentrated in developed markets. Future growth in emerging regions will likely depend on stronger regulation, better institutional structures, and closer cooperation between local and international investors.⁶^,²³^,³⁶ Overall, while SOPE reshapes the traditional PE model by integrating sustainability principles across the entire lifecycle, its adoption still varies significantly between sectors and regions.

2.1.5 Origins and historical development of SOPE

Compared to its early beginnings in the 1950s, PE has moved beyond its Wall Street niche and evolved into a major global player.³ The roots of the industry can traced back to 1946, marked by the establishment of two pioneering venture capital firms: J.H. Whitney & Company and the American Research and Development Corporation.² In 1955, McLean Industries completed what scholars later identified as the first LBO.¹³ The 1980s marked a period of rising prominence for the industry, driven by the modern wave of large-scale buyouts. This expansion facilitated by deregulatory policies in the United States, the growth of the high-yield bond market, and pension fund capital inflows following the 1979 amendment to the Employee Retirement Income Security Act (ERISA), which allowed greater allocations to PE.⁹^,¹⁴^,³⁷ These high-profile deals, often financed through high-yield bonds, targeted multi-billion-dollar corporations.¹³^,¹⁵ Between 1979 and 1980, over 200 LBOs completed, culminating in high-profile deals such as RJR Nabisco (1988), which symbolized the peak of the first buyout wave.²^,¹³^,¹⁵ The collapse of the junk bond market in the late 1980s temporarily halted the industry’s expansion.⁹ This phase exposed the limits of pure financial engineering and marked a shift toward operational value creation, which later became one of the conceptual foundations of SOPE.³^,¹⁵

After this decline, the industry revived and became more institutional. Deal sizes increased, accompanied by less aggressive strategies that focused on operational efficiencies.¹³ The industry experienced continuous growth and expanded beyond the United States to Europe (particularly the United Kingdom) and Asia.¹⁴ After the dot-com crash, the PE industry rebounded between 2003 and 2007, driven by low interest rates and record fundraising.¹³^,¹⁴ During this period, large ‘club deals’ became common, with global buyout volumes exceeding $500 billion by 2007.¹⁵^,³⁸ At that time, sustainability-oriented funds still represented only a very small segment of private markets. According to Dittrich (2018), ESG-focused PE and VC funds accounted for merely a handful of funds in the early 2000.¹¹ The global financial crisis of 2007–2008, followed by the Great Recession, led to a credit shortage that directly affected PE firms, as they operate in high-yield debt markets and depend on leverage to finance their transactions.⁹^,¹³ As a result, returns increasingly relied on value creation rather than on the effects of financial leverage.⁹ This shift strengthened the industry’s focus on operational improvements, efficiency, and active ownership, which later made it possible to integrate ESG as another lever for long-term value creation. As part of this development, KKR, one of the world’s largest PE firms, introduced its Green Portfolio Program, a platform aimed at driving environmental and operational improvements across its portfolio companies.¹¹ With central banks reducing interest rates to record lows, the industry experienced an increase in fundraising and deal-making.¹³ Between 2000 and 2019, AUM in PE increased from $650 billion to nearly $5 trillion, and by 2022 the industry managed close to $7,6 trillion of global investors’ capital.¹⁰^,¹⁸ Alongside this overall growth, the Asia-Pacific region increased its share of the global PE market from 9% in 2009 to 26% in 2019.²³ However, the literature does not provide a clear starting point for SOPE. According to Crifo & Forget (2013), the formal convergence of ESG and PE began in 2009, when the United States Private Equity Council published guidelines including environmental, health, governance, safety, and social issues.⁹ Since then, ESG has attracted increasing attention across the PE industry. From 2016 onwards, this momentum accelerated substantially. Industry data showed that deal volume for ESG-related investments increased by 16% annually between 2016 and 2022, compared to 12% growth in PE overall.¹ Recent research from 2020 found that 72,7% of PE investors considered ESG factors more important than five years earlier.⁷ Moreover, nine of the world’s ten largest GPs are now signatories to the UN PRI.⁴ What has driven the industry to shift its traditional financial focus toward greater sustainability will explored in the following section.

2.2 Academic debates

2.2.1 Drivers of sustainability integration in private equity

A central debate in the literature concerns the incentives and pressures driving the integration of sustainability aspects into PE. Scholars identify different drivers that shape this development, including investor pressure, the trade-off between risk mitigation and value creation, and growing regulatory as well as societal expectations. The following sections discuss each of these in turn.

According to the literature, pressure exerted by LPs constitutes the main driver behind the industry’s sustainability efforts. Large LPs such as CalPERS, the largest pension fund in the U.S., and Nuveen emphasize that ESG considerations are essential across all asset classes, regardless of ownership structure.⁴ However, a 2012 article found that only about one-third of PE investors would avoid an investment if a GP failed to meet environmental or social standards, indicating that the majority would still go ahead despite these shortcomings.³⁹ In 2013, an early survey by Crifo & Forget offered the first empirical evidence suggesting that PE firms’ strong focus on ESG issues is largely driven by investor demand.⁹ Eccles et al. (2017) indirectly confirmed this finding by reporting that 38% of institutional investors expect investor demand to further increase the consideration of ESG in investment decisions.⁴⁰ Institutional investors, particularly pension funds, are the largest investor group in European PE funds, accounting for 27% of capital in buyout and 18% in growth-oriented funds.²² In addition, more than 70% of LPs, accounting for nearly 76% of PE AUM, follow investment guidelines that incorporate an ESG approach.¹⁰ Recent research supports this view, finding that LPs’ demand for ESG information is “important, if not the most important determinant” (p. 1642) of ESG disclosure by PE firms.¹⁰

Thus, LPs are strategically developing approaches to assess the ESG capabilities of GPs. For example, the Dutch pension investor APG, with $36 billion invested across 75 GPs, introduced a sustainability framework in 2016. Each GP evaluated annually on ESG practices using a 30-question system, and failure to demonstrate progress can jeopardize future fund allocations, regardless of financial performance.⁴ Similarly, the presence of UN PRI signatory LPs has been shown to increase ESG disclosure by about 9%, highlighting their influence as a structural driver.¹⁰ Co-investment practices further strengthen this effect, as LPs gain direct access to ESG performance data of portfolio companies, enabling stricter comparison across GPs.⁴ Studies further indicate that PE firms providing open sustainability disclosures on their websites are more attractive to LPs seeking sustainable investments. Doubling ESG disclosures can speed up fundraising by about 15%, as LPs tend to favor GPs with strong sustainability commitments.¹⁰ The main reason for this evolution is LPs’ belief that the high profits commonly achieved in PE are only sustainable when ESG issues are adequately managed.⁴ They see effective ESG practices as a way to enhance portfolio value and foster revenue growth. At the same time, LPs must also meet the ESG expectations of their own stakeholders and provide transparent disclosure.¹⁰ Scholars have argued that LPs’ growing demand linked to the delegated philanthropy theory, implying that GPs adopt ESG objectives on behalf of their LPs.⁴¹ This perspective supports the view that ESG adoption in PE is not primarily self-initiated by GPs, but rather a response to the delegated preferences and pressures of their LPs. However, some scholars caution that LP-driven ESG adoption can risk becoming compliance-oriented rather than transformative, an issue further discussed in Section 3.2.5.⁴^,¹⁰ While investor pressure represents the dominant external driver of sustainability integration, internal motivations linked to risk management and long-term value creation also play a crucial role, as discussed in the following section

In PE, ESG integration is widely practiced as a way to mitigate business risks and has become one of the main motivations behind sustainability integration.³^,⁷^,⁹ Crifo & Forget (2013) view ESG investments as a mechanism for reducing risks in VC and buyout firms,9 while Block et al. (2024) stress that the comprehensive integration of ESG information into the investment process is the most effective path to risk reduction and sustainable long-term success.⁸ Zaccone & Pedrini (2020) further argue that many PE firms limit their efforts to meeting minimum requirements, aiming mainly to avoid risks and scandals.⁷ Moreover, studies show that firms suffering negative ESG events struggle to secure capital for subsequent funds, highlighting a direct relationship between ESG risks and fundraising success.⁴² A recent survey by PwC confirms this pattern, showing that 62% of surveyed PE firms worldwide use ESG as a tool for risk mitigation.⁴³ This perspective aligns with the ESG-as-Insurance Theory, which argues that sustainability initiatives build “moral capital” that helps protect firms during times of crisis. In PE, ESG initiatives thus function as an insurance mechanism that reduces reputational and financial losses when portfolio companies face operational or market shocks.⁴¹ According to the literature, PE firms take a risk-oriented view for several reasons. Weak ESG practices can cause financial harm through legal liabilities and reputational losses.³⁶ On the other hand, ESG initiatives may prevent such outcomes by mitigating shocks, including natural disasters or reputational crises, and thus reduce risks at both the firm and systemic level.⁴¹ Firms with strong ESG practices tend to experience fewer capital shortages and can lower their cost of capital, while companies operating in sin industries face higher costs of equity.⁴⁴ Protecting reputation is another central motive. By integrating ESG, PE firms aim to defend their reputation and sustain their license to operate.⁴ Negative ESG events may not only reduce demand for products and services but also impair talent recruitment and erode the market value of portfolio firms.³ Consequently, GPs integrate ESG into due diligence to manage risks and comply with legal and international requirements. The emphasis thus lies on avoiding scandals rather than seeking opportunities.⁷

By contrast, the value-creation view builds on stakeholder theory, suggesting that firms create sustainable competitive advantage when they actively align their strategies with the interests of key stakeholders.¹⁵ Within PE, this implies that ESG integration can foster differentiation, market expansion, and long-term value generation beyond mere risk avoidance.³^,⁵ From a resource-based view, ESG capabilities can be seen as intangible assets that are valuable, rare, and hard to imitate, which gives firms a lasting competitive edge in an increasingly competitive market environment.¹⁶^,⁴¹ This shift began after the 2008 financial crisis, which constrained the use of debt as a return-enhancing mechanism. According to Crifo & Forget (2013), socially responsible investment practices in PE reflect this broader move toward value creation.⁹ Scholars point to multiple arguments that explain why PE is moving away from a purely risk-oriented perspective toward a value creation approach. By integrating ESG, GPs can gain competitive advantages.⁴^,¹⁰^,³⁶ The number of GPs and VCs grew by 100% between 2002 and 2017, surpassing 3,800 PE firms globally and fueling competition.¹¹ Adopting sustainable practices allows firms to not only differentiate their funds from competitors while attracting high-quality investment opportunities, but also differentiate themselves in fundraising.¹⁰^,¹¹ The growing amount of “dry powder,” meaning already raised but still unused capital, adds to this pressure. As scholars note, “too much capital is chasing too few deals,” making sustainable investments an appealing alternative to traditional opportunities. Yet, Dittrich (2018) emphasizes that this development might not represent a structural shift but rather a cyclical substitute strategy, as firms reallocate capital in times of overfunding.¹¹ Beyond competitive pressures, ESG integration also opens up new market opportunities in areas such as health care, education, renewable energy, and clean tech.³^,⁸^,¹¹ Findings by Crifo & Forget (2013) suggest that VC firms, in particular, use ESG to actively enter new markets and establish future leadership, while traditional PE firms tend to follow a more reactive, risk-oriented approach.⁹ As PE generally targets mature industries such as manufacturing, the environmental footprint of operations is considerable. Therefore, systematic climate risk management is particularly relevant for PE firms.⁸ In this sense, VCs increasingly act as change agents by channeling capital into cleantech start-ups and impact ventures, thereby not only creating entirely new markets but also accelerating the growth of sustainable business models.⁸^,⁴¹ The expansion of impact investing within SOPE further demonstrates this, as impact-oriented VCs apply sustainability to access less competitive, proprietary markets and thereby strengthen their competitive position over traditional VCs.⁴⁵

Taken together, the literature demonstrates that ESG integration in PE functions both as a defensive mechanism and a source of value creation.³^,⁸^,⁹^,³⁶ However, an asymmetry can observed: PE investors react more strongly to bad ESG news than to good news, which suggests that the avoidance of irresponsible practices is a stronger motivator than value creation. Strong ESG performance is often regarded as a form of basic quality management, while poor practices face sharp penalties.⁴⁴ In this context, Zaccone and Pedrini (2020) argue that the strong risk focus within the PE industry limits the adoption of ESG and causes many firms to overlook opportunities for value creation.⁷ Other scholars, however, suggest that risk mitigation and value creation are not opposing but rather complementary goals. Indahl and Jacobsen (2019) emphasize that managing ESG risks and externalities can itself generate value, while Crifo and Forget (2013) also view risk reduction as a potential value lever.³^,⁹ Overall, even though risk avoidance still dominates the industry, the increasing overlap between defensive and proactive ESG practices shows that sustainability in private equity is slowly moving away from a pure compliance mindset and developing into a strategic capability.

Regulatory and external stakeholder pressure, apart from LPs, is another key driver of SOPE. According to Zaccone & Pedrini (2020), 31,8% of surveyed PE investors strongly agreed and 54,5% agreed that ESG integration is driven by pressure from regulators and public institutions.⁷ In the EU, PE firms are particularly impacted by the EU’s ambition to become the first climate-neutral continent. This ambition resulted in the Action Plan for Sustainable Finance and the introduction of the SFDR and EU Taxonomy, which classify sustainable activities and direct capital toward climate-related goals.⁴⁶ However, the literature disagrees on whether these regulations actually lead to real ESG transformation or simply encourage disclosure-driven compliance. Some authors argue that mandatory frameworks help professionalize sustainability practices and make reporting more transparent, while others warn that warn that regulatory frameworks may lead to formalistic ESG implementation with little real impact on how portfolio companies are managed.¹⁰^,²³^,⁴¹ Despite these concerns, empirical evidence still points to certain positive market effects of regulatory initiatives. The EU regulations have played an important role in driving sustainability in the PE industry, as one study notes that deal sizes in sustainable portfolio companies have increased in EU countries.⁴⁶ The growing regulatory pressure, especially regarding sustainability disclosure (e.g., CSRD), not only affects PE firms but also larger and more established portfolio companies.⁸^,²⁷^,⁴⁷ This represents a key challenge for PE firms, as they must ensure that portfolio companies are adequately prepared, which creates an additional administrative burden.¹⁰^,⁴⁷ At the same time, regulatory compliance increasingly determines competitive positioning, as failure to adapt can quickly evolve into a strategic disadvantage.⁴⁷ Beyond EU regulation, regulatory pressure is also rising in the U.S., PE’s largest market. The SEC has proposed rules that require PE firms to report additional ESG-related information to the Commission, offering greater transparency to investors.¹⁰

Beyond formal regulation, societal and reputational expectations further intensify the pressure on PE firms to integrate sustainability into their practices. PE firms face enormous attention from the media and public stakeholders to integrate ESG into their agendas, which creates a sense of urgency.⁷ High reputational risk motivates PE firms to remain transparent and consider societal outcomes.¹⁰ As previously mentioned, maintaining a social license to operate is crucial and relies on the support of society and the communities in which firms operate.¹⁸ Eccles et al. (2023) further emphasize the central role of portfolio companies, which are largely driven by shifting consumer and employee preferences as well as pressure from large public companies for which they serve as suppliers.⁴ These dynamics highlight that maintaining a social license to operate is not only a matter for PE firms themselves but also depends on the broader stakeholder environment of their portfolio companies.

Figure 4: External and internal drivers of ESG integration in private equity, own illustration based on author’s synthesis of reviewed literature

As shown in Figure 4, the integration of sustainability in PE is driven by a mix of external and internal forces. External pressure from LPs, regulators, and public expectations still plays the dominant role, but internal motives such as risk management and value creation increasingly strengthen this development from within. Together, these forces point to a gradual shift: while ESG adoption was initially triggered by LP and regulatory demands, the growing focus on long-term value creation and reputation suggests that sustainability is slowly becoming part of established PE practice. Still, this transition remains uneven, as firms differ widely in both their strategic ambitions and the depth of implementation.

2.2.2 Private equity as a potential driver of sustainability

The literature highlights that distinctive features of the PE model position it as a potential driver of sustainability. In emerging markets, where sustainability regulations and enforcement remain weak, PE can act as a substitute for institutional regulation and promote sustainability practices through active ownership.²³^,³⁶ Unlike investments in public companies, PE ownership typically involves majority stakes, which provide virtual control over portfolio companies even without holding 100% of the stakes.⁴ They typically hold one or more seats on the board, enabling PE firms to monitor managers closely and shift the focus from short-term profit realization to long-term value creation.⁴^,¹⁵ GPs also influence executive compensation and have the authority to remove underperforming CEOs.¹⁶ At the same time, PE firms have access to a wide range of information, including financial and sustainability-related data, whereas public investors only see what disclosed.⁴ These dynamics are closely linked to the principal-agent problem between portfolio firm owners and management, a topic often discussed in the PE literature.²^,⁵^,¹⁵^,⁴⁸ The PE model seeks to narrow management’s scope of action to prevent inefficiencies that harm shareholders. By linking compensation to company performance, governance incentives push managers to act more like owners themselves.¹⁵ In the context of SOPE, these mechanisms are not only tied to financial outcomes. GPs can also use their governance power to incorporate ESG factors into strategic decisions.⁴^,¹ Similar dynamics can observed in VC, which shares PE’s active ownership model but applies it to early-stage firms. VC investors combine capital with strategic guidance, technical know-how, and staged financing to help bring sustainable innovations to market faster.⁶ By investing in areas such as cleantech, healthcare, and inclusive finance, VC often serves as a testing ground for sustainability-driven innovation within private markets.¹¹^,⁹

Recent literature also highlights that PE provides structural advantages in realizing investor sustainability preferences. Hart and Zingales (2017) argue that in public markets, dispersed ownership and “amoral drift” limit investors’ ability to align firms with pro-social goals.⁴⁹ In contrast, PE’s concentrated ownership enables investors with sustainability preferences to directly influence corporate behavior, linking profit orientation and societal outcomes more effectively.¹⁵^,⁵⁰ Beyond governance, the literature underlines that PE firms, through operational engineering and the use of operating partners and expert networks, can transfer strategic knowledge and resources to their portfolio companies. This enables portfolio firms to implement ESG measures more effectively and at a faster pace than they could on their own.¹³^,⁵⁰^,⁵¹ Moreover, PE plays a vital role in financing the sustainability transition, especially for SMEs that struggle to access traditional credit due to illiquidity and risk constraints, thereby filling a critical financing gap in the transition toward a greener economy.⁴¹^,⁵¹ This active ownership model complemented by longer holding periods, typically four to seven years, which provide more time than public investors usually have to implement operational and sustainability improvements.⁴^,⁹ However, scholars also argue that even this extended horizon fosters short-term profit realization, which may conflict with long-term sustainability goals.⁵² The PE model remains rooted in a shareholder-centered logic, and its reliance on high leverage in buyouts introduces financial pressure that can constrain long-term ESG investment.⁵^,¹⁵^,⁵³ Short-term return expectations and debt repayment pressures can shift management’s attention away from sustainability goals, which may weaken ESG efforts within portfolio companies.⁵ In addition, high leverage can increase systemic risks and lead to negative social consequences, such as job losses or local disruptions, if portfolio firms fail.¹⁵ Overall, the literature highlights a dual character of PE’s role in sustainability: on one hand, its governance influence, long-term engagement, and access to capital enable it to drive sustainability forward. On the other hand, the focus on financial engineering and return expectations still constrains the depth and long-term effectiveness of ESG integration. This tension forms the conceptual foundation of SOPE, which seeks to balance traditional financial objectives with measurable environmental and social outcomes.

2.2.3 Sustainability impact of private equity: Evidence and critique

While the unique characteristics of the PE model suggest that the industry is well positioned to drive sustainability, scholars increasingly question whether these advantages translate into real and lasting changes. Research highlights improvements in environmental and social performance, yet critics argue that many of these achievements remain conditional or offset by practices that undermine long-term sustainability claims. The following section first outlines the documented environmental and social improvements in PE-owned companies and then contrasts them with research that questions the depth and long-term persistence of these effects. To provide a structured overview of the empirical findings, Table 1 summarizes the main positive and negative sustainability outcomes reported in the literature across environmental and social dimensions.

Table 1: Empirical evidence on environmental and social outcomes of private equity ownership, own illustration based on author’s synthesis of reviewed literature.

As shown in Table 1, the empirical evidence on sustainability outcomes remains mixed. While some studies report clear progress in areas such as emissions reduction, workplace safety, and diversity, others point to ongoing contradictions, especially in contexts where financial incentives or regulatory pressure are weak. Research indicates that PE and VC firms boost ESG performance in SMEs, most notably when initial ESG scores are already high. In such cases, institutional investors strengthen sustainability efforts, with improvements of up to 26,89% after standard deviation. Firms with a higher likelihood of failure gain disproportionately from this support, as sustainability reduces risk, especially in environmental and social aspects.⁴¹ Studies suggest that portfolio companies owned by PE firms with strong environmental disclosure achieve better environmental performance. Post-buyout, these companies’ lower chemical and CO₂ emissions by between 12% and 26%.¹⁰ In general, studies show that PE investments help to reduce environmental degradation. Because PE firms hold strong control over strategic decisions, they can drive sustainability in portfolio companies by implementing green supply chains, reducing waste, and lowering emissions in production processes. At the same time, they can channel capital into clean technologies, energy efficiency, and renewable energy. Between 2010 and 2021, PE and VC firms invested around $986 million in off-grid renewable energy projects in emerging and developing countries, accounting for 32% of total investment in this area.⁵² PE is also a major investor in renewables and related infrastructure generally, with about $52 billion invested in 2021.⁵⁴ These figures demonstrate SOPE’s potential to channel private capital into climate-positive sectors, although such efforts are still concentrated within a relatively small group of specialized funds.¹¹ The literature further highlights individual cases of PE firms addressing environmental challenges. For instance, Summa Equity uses the UN SDGs as a framework to evaluate environmental outcomes and deliberately avoids investments that could labeled as “net negative” in terms of externalities, preferring energy-efficient over CO₂-intensive companies.³

Yet these positive examples appear highly context dependent. Evidence from the fracking sector shows that PE-backed companies can reduce environmental harm when legal liabilities are high. In states with strict liability, toxic chemical use in new projects declined by up to 68,8%, while in states with low liability, pollution during fracking increased by up to 49,22%.¹⁵^,⁵⁰ This raises doubts about whether ESG integration reflects real commitment or merely a response to external pressure. Supporting this, Block et al. (2024) find that around one third of the interviewed PE and VC firms take climate issues into account in their investment decisions, mainly as a reaction to regulatory requirements.⁸ An additional U.S. study using EPA data (1991–2021) finds that PE-owned plants cut emissions 1,55% less but reduce production waste 1,1% more than peers, with stronger effects for more hazardous chemicals. The study shows that PE ownership does not improve ecological sustainability, and the results suggest that sustainability goals are only met when they align with financial incentives.⁵¹ A recent study on U.S. LBOs (2010–2023) supports this view, showing a clear decline in ESG engagement after such deals. This suggests that financial restructuring and cost-cutting pressures in LBOs often push sustainability goals aside, which reinforces concerns that PE’s financial logic still outweighs its ESG ambitions.⁵ Shiver & Foster (2020) show that PE-backed firms harm the environment to a similar extent as public firms, while independent private firms perform better and face fewer EPA fines.⁵⁵ This indicates that PE ownership does not automatically translate into better environmental practices. Overall, the evidence indicates that environmental outcomes in PE strongly depend on regulatory pressure and financial incentives, raising doubts whether sustainability improvements are systematically or inherently anchored in the PE model.

In addition to environmental concerns, the industry also faces social issues that challenge the sustainability claims of PE. From a stakeholder perspective, social outcomes serve as an important indicator of whether SOPE is able to balance financial returns with broader societal value creation.²² Since SOPE explicitly seeks to improve social outcomes, the literature’s findings on employment, diversity, and labor conditions are central to assessing its real transformative potential. Empirical evidence indicates that PE buyouts reduce safety violations and injury rates and therefore playing an important role in improving workplace safety.⁵⁶ Similarly, Abraham et al. (2024) point out that PE firms with strong social disclosure are linked to a notable decline in safety inspections at portfolio companies after investment.¹⁰ These findings indicate that PE’s governance influence can lead to measurable social improvements when incentives and monitoring systems are aligned with employee welfare.

Moreover, the industry continues to struggle with diversity. Research shows that PE is still dominated by white males, especially in deal teams, where only 1–2% identify as Black or Latinx, compared to 13% in public companies.⁴^,⁵⁴ Beyond workforce diversity, representation at the leadership level has become a central issue. Female representation among the largest U.S. PE firms ranges widely, from as low as 7% at Apollo to 40% at HarbourVest.⁵⁴ According to a BCG report that helped launch the EDCI, the share of women on boards in member portfolio companies increased from 6% in 2018 to 12% in 2020, showing that SOPE firms can drive measurable progress in diversity.⁵⁷ Some firms even go further. EQT, for instance, set the target that by 2020, 65% of their investment professionals and 25% of board members in portfolio companies should be women.¹⁸ To back up this commitment, EQT linked a credit instrument to their gender target, whereby the interest rate will rise if they fail to reach 26% women by 2026.⁴ Other firms address underrepresentation more broadly: Palladium Equity Partners, for example, reports that 72% of its workforce identify as minority and 64% as female, achieved through targeted recruitment partnerships and internal DEI programs.⁵⁴ PE ownership can also create indirect social benefits for consumers, particularly in competitive and service-oriented industries.¹⁵ In the hospitality industry, for instance, restaurants acquired through PE buyouts were found to become cleaner, safer, and better maintained. They generated both financial returns and tangible consumer benefits. These findings suggest that PE ownership can enhance social outcomes when market incentives and sustainability objectives are aligned.¹⁵^,⁵¹

Beyond internal workforce issues, the social impact of PE ownership also extends to employment and welfare outcomes. However, studies show that the employment effects of PE takeovers are heterogeneous, depending on the type of Transaction, firm size, sector and the region. Following public-to-private deals, employment may decrease by around 13% within two years, whereas private-to-private deals can in some cases increase employment by up to 13%.⁵⁸ Regional differences are also significant: in Germany, employment declines by about 8,96%, while in France it increases.¹⁵ Research shows that PE takeovers often benefit highly skilled employees, while low-skilled workers are more likely to face job losses through automation.¹⁵ Scholars also warn of negative societal effects particularly when strong PE incentives unfold in regulated and subsidized sectors such as healthcare, education, or insurance.¹⁵ In higher education, PE-backed institutions cut education capital while raising tuition fees per student, leading to lower completion and repayment rates, as well as reduced earnings among graduates.⁵⁹ Similarly, in the U.S. healthcare sector, PE takeovers in nursing homes have been associated with increased patient costs, reduced well-being, and in some cases even higher mortality by up to 11%.⁶⁰ These findings indicate that PE’s focus on operational efficiency and short-term profitability can conflict with its social responsibility goals, especially in sectors where welfare outcomes are central to public interest. Overall, the social outcomes of PE ownership remain mixed. While some initiatives have led to progress in workplace safety and diversity, employment effects and developments in key sectors still raise questions about PE’s broader societal impact. This ambivalence underlines why SOPE’s transformative potential depends on embedding social responsibility as a strategic priority rather than a reputational tool.

2.2.4 Financial outcomes of sustainability-oriented private equity

While the previous section reviewed the environmental and social outcomes of PE ownership, an equally important debate concerns whether sustainability integration affects financial performance. PE is generally linked to higher returns compared to public markets. Studies show that PE funds on average outperform the S&P 500 by 20–27% and deliver about 3% higher annual returns over the fund’s lifespan. Overall, PE firms generate returns of around 20–25% within five to seven years.² Thus, the central question in the emergence of SOPE is whether it can generate returns comparable to traditional PE.

Historically, PE has been focused on maximizing financial performance.⁴ Scholars argue that incorporating additional financial considerations, such as CSR practices at the portfolio company level, does not align with the general business model of PE firms, as it requires spending cash flows on public goods.⁹ Generally, the integration of sustainability into PE investments has long been seen as a trade-off, since it associated with additional costs.²⁴ Empirical evidence from Tunisia shows that most PE firms doubt SMEs will adopt ESG policies, as they are seen as too costly and difficult to finance during restructuring or growth phases.³⁶ Opportunity costs also affect LPs, since highly sophisticated GPs that allocate too much capital to ESG demands become a conservative investment choice, which can lead to relatively low payouts. In other words, while ESG makes investments more sustainable, excessive focus can reduce risk to a point where the illiquidity of PE is no longer attractive for LPs.⁶¹ In the Asian market, scholars argue that applying ESG standards can put PE firms at a disadvantage when competitors remain solely profit-focused.²³ As Eccles et al. (2023) point out, SOPE firms face competition from less sophisticated peers.⁴ Moreover, applying SRI strategies such as negative screening can reduce diversification and exclude industries that are highly profitable but unsustainable, which further reinforces the trade-off perspective.²⁴

However, this cost-centered view is increasingly being challenged by evidence showing that sustainability can also drive long-term value creation.³⁰ Sustainability initiatives can strengthen portfolio value through cost reductions in energy efficiency, improved reputation, and more efficient use of resources.³⁶ In line with this, Drobetz et al. (2024) show that ESG efforts also create signaling effects regarding product quality and build social capital, while lowering the cost of capital and improving operational efficiency through reduced agency costs.⁴¹ EQT, one of Europe’s leading PE firms, underscores that ESG and returns are not in conflict. Instead, the firm views them as mutually reinforcing, with ESG initiatives ultimately contributing to higher returns.¹⁸ Evidence indicates that industry practitioners and academics agree: long-term financial performance can only sustained if sustainability considerations are fully integrated in the PE investment lifecycle.⁴

The empirical evidence on the financial performance of SOPE firms, whether ESG-focused funds or impact funds, compared to traditional PE firms remains mixed. Even in public markets, the actual financial impact of ESG is still debated. Cerqueti et al. (2021) show that ESG integration can lower systemic risks in mutual equity funds, while a meta-analysis of 2,200 studies by Friede et al. (2015) finds 48% positive, 41% neutral, and 11% negative links between ESG and financial performance.⁶²^,⁶³ The literature also highlights case examples of SOPE firms that link financial performance to operational ESG improvements. EQT, for instance, reports in a five-year post-exit analysis that 70% of its former portfolio companies achieved growth, with average annual revenue and employment increases of 9% and 8%.¹⁸^,⁵⁴ Portfolio companies such as Sortera, acquired by Summa Equity, showed solid revenue and profit growth that was directly connected to ESG improvements and sustainability goals. Operational gains were driven by reduced logistics costs, including a 10% cut in fuel consumption, alongside lower carbon emissions and fewer accidents.³ However, scholars compared the performance of traditional VC funds and impact VC funds and found that the IRR of impact funds is 4,7% lower. The study also shows that LPs are willing to pay for impact, accepting a reduction in returns of about 3,4% to 6,2%, which indicates a readiness to trade financial performance for actual sustainable impact.¹⁹ A recent study shows that highly transparent GPs with portfolios exposed to higher ESG risks underperform, with IRRs about 4,8% lower. For PRI signatories in this group, Net IRRs drop by around 6,97%.³⁴ Gigante et al. (2023) analyzed the operating performance of 85 impact-based and 5,310 traditional portfolio companies (both PE- and VC-backed) and found that traditional firms outperformed their sustainable peers.²⁴ These findings support the trade-off theory, aligning with the assumption that impact-oriented PE firms accept lower returns in exchange for greater impact.

Market data from Preqin point to different results for pure ESG PE funds. Based on an analysis of more than 11,000 funds, including over 200 ESG funds, they found no significant statistical difference. ESG funds averaged an IRR of 13,5%, compared to 15% for traditional funds. In line with earlier findings, impact funds performed noticeably worse.⁶⁴ Other empirical evidence indicates that a systematic integration of ESG factors in portfolio companies can increase the Net IRR by up to 12,4% over a fund’s lifespan, particularly for funds with more than €1 billion in assets.⁶⁵ Overall, the empirical evidence underscores that while impact investing often comes at the expense of financial performance, ESG integration in traditional PE does not systematically reduce returns and may in some cases generate long-term value creation. Beyond absolute performance, several scholars emphasize the importance of risk-adjusted returns. The integration of ESG factors in the PE model associated with lower performance volatility, as sustainability-oriented strategies address reputational, legal, and environmental risks.⁶¹ Avoiding these risks helps stabilize cashflows and reduces the probability of several downside events, such as fines for environmental damage, which is crucial for securing financial performance.⁹ Empirical evidence supports this view: ESG-compliant PE funds report a Treynor Ratio 50% higher than that of non-ESG funds (0.063 versus 0.042), driven by lower beta risk and reduced total risk exposure.⁶⁶ This indicates that ESG integration can strengthen the risk-return profile in SOPE, even if absolute IRRs do not show clear outperformance. It also explains why many PE firms rely on sustainability mainly as a tool for risk mitigation. Ultimately, the financial debate around SOPE illustrates that sustainability integration can enhance risk-adjusted performance, yet its transformative potential depends on aligning financial incentives with genuine impact goals.

However, these findings must interpreted with caution, as the evidence base on SOPE performance is still very limited. Only a small number of studies address the financial outcomes of SOPE directly, and those that exist often rely on relatively small sample sizes. Moreover, the novelty of SOPE strategies further constrains the ability to draw definitive conclusions.

2.2.5 Transparency and measurement challenges in SOPE

Transparency in PE is often described as limited compared to public markets. Because most PE firms and their portfolio companies are privately held, they are not bound by the same strict regulatory standards that require them to disclose financial and sustainability statements.⁴^,²^,¹⁰ To date, just a small group of the largest PE firms, among them KKR, Blackstone, Apollo, Carlyle, EQT Partners, and TPG, are listed on public markets and therefore fall under the same regulations as public companies.⁴ As a result, external stakeholders and researchers face major challenges in systematically evaluating the ESG performance of PE firms.²³ This challenge is further intensified by the fact that GPs communicate with LPs through private and confidential channels. LPs regularly receive quarterly reports and other internal data but are contractually prohibited from disclosing this information.¹⁰ The ESG information that PE firms publish is largely voluntary and often presented on their websites. Since these disclosures lack standardization and are shaped by LP demands, they reinforce concerns about greenwashing. An analysis of 133 large non-listed GPs, representing around half of the committed capital in the sample, shows that only 34.6% publish a sustainability report. Their disclosure rate is 24% lower than that of listed financial firms, and only publicly listed PE firms reach a level of transparency comparable to other listed financial institutions.³⁴ Additionally, the literature highlights that many PE funds are based in tax havens, often referred to as secrecy jurisdictions. These locations allow PE firms to privatize and financialize critical economic and political decisions beyond the reach of public oversight.³⁹ Such findings show that PE still falls significantly behind public markets in transparency, which increases the risk of selective disclosure and symbolic compliance.

The persistent lack of transparency also fuels concerns about greenwashing. Greenwashing refers to the practice of portraying PE activities as sustainable by branding investment actions as impactful, even when the actual ESG integration remains superficial or symbolic.¹⁹ In PE, this is mostly reflected in results that fall short of the claims or in the omission of negative data.²³ Strong ESG performance can serve as a differentiator in fundraising and accelerate the process, which raises concerns that PE firms might manipulate their ESG disclosures to obtain capital more easily.¹⁰ Some evidence shows that ESG information on PE firm websites is often very limited and can indicate symbolic communication rather than substantive practices.³⁴ Other findings suggest that unusually high ESG disclosure occurs before major fundraising events, which support the concerns as a tool to attract capital. Critics therefore argue that public disclosures often do not reflect actual practices and that negative data is withheld.¹⁰^,¹¹ However, Abraham et al. (2024) analyzed PE firms historical website data and found that voluntary disclosure on average corresponds with better ESG outcomes at the portfolio company level, which helps to reduce concerns about greenwashing.¹⁰ Ultimately, concerns about greenwashing reflect the structural transparency gaps in PE and underline the need for more reliable and standardized disclosure practices.

The literature highlights that the absence of a unified system for measuring and monitoring ESG data represents not only an operational hurdle but also a structural weakness that under-mines the credibility of sustainability integration in PE. Unlike public companies, portfolio firms are usually not required to publish sustainability reports, which creates substantial information asymmetries across the fund structure.¹⁰^,³⁴ This lack of disclosure at the portfolio level directly translates into significant information gaps at the GP level, making it difficult to aggregate and benchmark ESG performance.⁴ Most portfolio companies, particularly small and medium-sized enterprises, collect little or no ESG data.²³ As a result, PE firms lack sufficient information on environmental and social issues.⁷ Even when data is available, it is often considered difficult to verify, and some scholars describe it as thin, partial, and pseudo-mathematical.³⁹^,⁴⁵ In emerging markets such as Tunisia, data scarcity combined with weak government enforcement represents a major hurdle for PE investors.³⁶ A further challenge arises from the fragmented reporting of ESG data across the PE chain. Each GP applies its own KPIs and reporting practices, which prevents comparability and creates inefficiencies. For portfolio companies working with several GPs, this often results in overlapping data requests, while GPs themselves must respond to inconsistent requirements from their LPs.⁴ One GP reported receiving 37 different ESG inquiries from LPs within a single week. Such demands create high administrative costs and make systematic reporting even more difficult.⁵⁷ GPs and LPs face a large number of fragmented ESG frameworks, such as GRI, TCFD, UN PRI, EU SFDR, and UN SDG. Since these standards are not specifically tailored to PE, comparing results across different frameworks is hardly possible when firms rely on different ones.⁵⁷ Consequently, ESG measurement tends to be relational instead of standardized, which increases opacity and adds further administrative complexity.

Another recurring issue in the literature is the imbalance between qualitative and quantitative data in ESG measurement. Long & Johnstone (2023) argue that ESG relies too much on qualitative indicators instead of measurable results, which leaves space for interpretation and manipulation. They emphasize that environmental factors such as CO₂ emissions are relatively easy to quantify, while immaterial factors such as employee satisfaction or human rights are much harder to express in numbers.²³ In addition, scholars note that the concept of impact remains ambiguous in SOPE. Evidence suggests that impact venture capital fund managers redefine the idea of impact, mainly to legitimize their decisions and raise capital from LPs focused on impact. This automatically raises questions about impact washing within the SOPE landscape.⁴⁵ Some scholars go further, arguing that ESG metrics function less as scientific measures than as “performative technologies”, which are designed to legitimize financiers’ authority rather than to reflect actual environmental limits.³⁹ This lack of conceptual clarity creates a major challenge for SOPE, since the absence of consistent and verifiable metrics makes it difficult to distinguish between genuine and symbolic ESG integration. In this sense, the literature indicates that measuring the depth and quality of ESG implementation remains one of the most critical barriers to advancing SOPE.⁴^,¹⁰^,⁵⁷

2.2.6 Depth and maturity of sustainability integration in private equity

The mixed sustainability outcomes discussed earlier raise a broader question: to what extent has ESG integration in PE moved beyond symbolic compliance toward real transformation? While previous sections highlighted strong external pressures, uneven sustainability outcomes, and persistent measurement barriers, this part focuses on how mature and deeply sustainability has been embedded across the PE lifecycle.

Zaccone & Pedrini (2020) argue that the integration of ESG aspects in the PE industry is still “in its infancy” (p. 3).⁷ Seven years earlier, Crifo et al. (2013) also characterized SRI in PE as “at its early steps” (p. 22).⁹ This consistency of almost a decade shows that the industry’s progress has been gradual rather than truly transformative. Empirical findings confirm that most firms apply ESG factors inconsistently across the investment process, often limiting integration to isolated phases such as due diligence or risk screening.⁷^,²⁷ Although ESG disclosure by target firms can influence investment assessments, the extent of such influence varies strongly between GPs and is rarely institutionalized across the entire fund lifecycle.⁷^,⁴⁴ Early ESG adoption in PE is therefore often seen as more symbolic than substantive, relying on procedural tools like questionnaires and checklists.⁴^,¹⁸ This pattern reflects the dominance of risk-oriented motivation discussed earlier (see section 3.2.1), where ESG serves primarily as a mechanism for compliance and reputation management. Although PE’s governance-based ownership model theoretically provides strong leverage to embed sustainability (see section 3.2.2), most firms still fail to translate this structural potential into consistent ESG practices.⁷^,⁵⁴ Empirical evidence shows that only 31,8% stated that they considered ESG factors during the exit phase.⁷ In VC investments ESG is mainly applied during the due diligence phase, primarily for negative screening, and is not tracked with KPIs in later phases, even when firms present themselves as impact-oriented.²⁷ Comparable patterns are also evident in regional studies. Long & Johnstone (2021) identify key ESG methodologies in the Asian PE market. In line with other studies, they note that many Asian PE firms apply “compliant ESG,” which relies on checklists to ensure minimal standards and prevent major errors. They also describe the use of “selective ESG,” meaning that larger PE firms integrate ESG only in specific sub-funds, while most of the portfolio contains unsustainable investments, resulting in an unbalanced overall profile.²³ These findings underline that ESG maturity in the context of SOPE is often uneven and largely superficial.

Dittrich (2018) provides a valuable reality check on the limited maturity. He notes that less than 5% of global ESG PE and VC investments are made by firms that focus exclusively on ESG or impact objectives. Dittrich emphasizes that the main opportunity for sustainability transformation lies within the remaining 95% of traditional PE and VC firms that are gradually beginning to integrate ESG considerations into their mainstream strategies.¹¹ This suggests that the development of SOPE depends less on the growth of dedicated impact funds and more on the gradual transformation of the traditional PE market.⁴ At the same time, recent surveys indicate a shift from procedural to embedded ESG integration. A growing number of PE firms now require portfolio companies to establish ESG policies and link sustainability to value creation objectives.⁷ These findings illustrate that some firms move beyond compliance, gradually embedding ESG into core management processes. Table 2 summarizes the maturity spectrum of ESG integration in PE as described in the reviewed literature. It visualizes the shift from symbolic compliance toward more embedded and transformative practices within the industry.

Table 2: Maturity stages of ESG integration in private equity, own synthesis based on recurring concepts discussed in the reviewed literature.

According to Eccles et al. (2023), industry pioneers go beyond mere compliance. They integrate ESG at every stage, including investment, holding, and exit, while also improving disclosure practices and the ESG capabilities of their portfolio firms.⁴ In addition, empirical evidence suggests that investors pursuing active ownership and impact investing strategies embed ESG factors across the entire PE lifecycle.²⁷ Case studies further demonstrate that such integration is feasible. For instance, Summa Equity has embedded ESG management deeply into its strategy and thereby laid the foundation for integration across the entire PE lifecycle.³ In 2022, the firm launched its third fund with a total size of $2,3 billion, reflecting the continued success of its business model.⁶⁷ Overall, the maturity of ESG integration in PE remains uneven, shaped by external pressures, structural constraints, and measurement challenges. However, SOPE leaders show how sustainability can gradually become embedded across the entire PE lifecycle. Chapter 4 builds on this by examining how these integration patterns are put into practice, focusing on concrete processes and tools used throughout the investment chain.

2.2.7 Research gaps

SOPE is still a young, fragmented, and developing research field. The following section outlines the current state of research by summarizing the main research streams discussed in the literature. In each stream, it identifies existing research gaps. In addition, it highlights potential future research directions mentioned in the reviewed articles and suggested by the author. The central stream of research investigates the reasons why PE firms increasingly integrate sustainable considerations into their investment decisions. Scholars typically identify investor pressure, risk mitigation, value creation, regulatory compliance, and broader stakeholder expectations as the main drivers. In this context, the main driver is investor pressure. Moreover, the literature suggests that risk mitigation remains the dominant motivation, although a gradual shift towards proactive value creation can observed.⁷–9 However, little is known about how such value creation operationalized in practice. Existing studies often provide individual case examples but lack large-sample empirical analyses that systematically capture how ESG integration contributes to measurable outcomes.³^,¹⁶ For instance, Zaccone and Pedrini (2020) conducted a highly relevant study in the field of SOPE, but their survey included only 23 PE firms, illustrating the persistent problem of small sample sizes in this area of research.⁷ Another stream addresses the sustainability impact of private equity. While the literature provides clear evidence on the sustainability outcomes of traditional PE firms, there is still limited research examining the impact of firms that explicitly pursue sustainability-oriented strategies.⁸ In addition, the financial performance contains theoretical discussions contrasting a trade-off perspective, which assumes lower returns due to additional ESG costs and a synergy perspective that views ESG as a source of long-term value creation and risk reduction.²⁴^,⁶⁵ However, the literature on this topic is an an early stage. Only a few recent working papers addressing it and without reaching clear conclusions so far. Another part of the literature focuses on transparency, measurement, and the maturity of sustainability integration in PE. It points out that limited disclosure rules and the lack of standardized metrics make comparisons and accountability difficult. At the same time, many PE firms still treat sustainability rather superficially, showing that integration across the industry is still early and uneven.⁷^,¹⁰^,³⁴^,⁶⁸

The above listed research gaps create room for potential research. The literature on SOPE contains a major conceptual gap, as there is no clear or commonly accepted definition of the term. While most studies frame SOPE as the integration of ESG factors into the PE model, there is little understanding of the degree to which a PE firm can considered sustainability oriented. Therefore, future research should design a framework that clearly distinguishes between different levels of ESG integration and defines measurable criteria for classifying SOPE practices. Besides conceptual clarification, future research should also build a stronger empirical base for SOPE. Large-scale surveys and longitudinal studies are needed to better understand how prepared the PE sector really is for sustainability integration. These studies should use historical data to track long-term effects and changes in ESG maturity over time.³⁶ Comparative analyses between different PE markets could also show whether the shift toward responsible investing is regionally concentrated or if drivers and maturity levels differ across markets like France, Europe, the United States, and Asia. Extending research beyond Western economies would help to create a more global and balanced picture of sustainability in PE.²^,⁸^,²³^,⁴⁶ In addition, future research should examine how the integration of sustainability in GPs’ value creation processes affects the overall performance of the PE industry, supported by more quantitative empirical evidence.¹³ Since most research focuses on the integration of ESG into investment decisions, future studies should also examine how sustainability aspects can embedded across all phases of the private equity lifecycle.⁷ A broader approach of this kind would not only create more conceptual clarity but also give a better understanding of how sustainability can contribute to long-term value creation in PE.

3 Practical implementation

This chapter follows a process logic and examines how SOPE implemented across the phases of the PE lifecycle: fundraising, sourcing, portfolio management, and exit. For each phase, relevant tools, measures, and practices are identified that translate the concept of SOPE into practice. The drivers discussed in section 3.2.1 and the barriers outlined in section 3.2.5 apply across all phases of the lifecycle. Therefore, they are not repeated in every section but are considered as overarching dynamics.

3.1 Fundraising phase

The fundraising phase marks the starting point of the SOPE lifecycle (see Figure 2), where capital from LPs secured for future investments. At this stage, the degree of ESG integration is largely determined, as LP expectations play a decisive role. The following section outlines the main processes and tools in this phase and then examines the drivers and barriers that shape integration of sustainability considerations in fundraising.

3.1.1 Processes, measures, and tools

LPs and GPs use different tools to integrate ESG considerations in the fundraising phase. Historically, LPs relied on ESG DDQs as the most established tool to assess a GP’s ESG capabilities when raising a new fund. One survey by the Institutional Limited Partners Association (ILPA) found that about two-thirds of LPs make use of formalized questionnaires or GP-ESG surveys.⁶⁹ As discussed in section 3.1.5, sustainable integration often remained superficial, but today LPs increasingly apply more professional frameworks.⁴^,⁷^,¹⁸ For instance, the ILPA developed the ESG Assessment Framework, which helps LPs evaluate GPs’ responses to DDQs and track ESG integration over time. The framework classifies processes and activities into four stages: not integrated, in development, intermediate, and advanced. Questions, for example, ask whether the GP has individuals or teams responsible for ESG.⁷⁰

Another important mechanism lies in contractual agreements between LPs and GPs. Contractual instruments such as Limited Partnership Agreements (LPAs), side letters, or memorandums are frequently used to reduce information asymmetries between GPs and LPs. Such provisions allow LPs to embed sustainability requirements directly into the fund structure, for instance by introducing annual ESG reporting duties or exclusion lists.¹^,⁷⁰ These contractual mechanisms are also highly relevant in the context of impact investing within SOPE, as they directly define impact obligations. Research points to a “flow-through” effect, where contractual obligations between GP and LP translate into similar obligations between GP and portfolio companies. Another key contractual element is the advisory role of LPs (e.g., deal structuring) and the alignment of impact and financial goals.³⁵ Building on these fund-specific arrangements, the UN PRI serves as an industry-wide benchmark for responsible investment.¹ The UN PRI supports LPs in assessing how a fund integrates ESG factors.¹⁰^,⁷¹ It includes a fundraising module that checks whether the Private Placement Memorandum (PPM) refers to responsible investing. In addition, it evaluates ESG integration in pre-investment, post-investment, and reporting practices of GPs, often through Responsible Investment Due Diligence Questionnaires (DDQs) for LPs. Each indicator weighted within the PRI assessment, contributing to the overall module score.⁶⁶^,⁷¹ Moreover, being a UN PRI signatory raises the disclosure requirements for LPs and thereby increases the demand for ESG information from PE firms.¹⁰

In that sense, publishing ESG reports or disclosing ESG factors on their websites has become an increasingly important process for GPs. Empirical evidence shows that LPs often review GPs’ websites for ESG information as part of their own due diligence.¹⁰ GPs rely on different reporting frameworks for this purpose. One of the most widely used is the Global Reporting Initiative (GRI), which enables firms to assess and disclose their economic, social, and environmental performance and supports benchmarking.⁷^,³⁰^,⁵⁴ Another important framework is the SASB standards, which provide guidance on financially material ESG factors.⁵⁴ In addition, the Task Force on Climate-Related Financial Disclosures (TCFD) offers a framework to report climate-related risks, focusing on governance, strategy, risk management, and key metrics.⁵⁴^,⁷² In the EU, the SFDR requires funds, including PE, to disclose how they address sustainability risks and the impacts of their investments.⁶⁸ It also distinguishes between different types of funds and introduces mandatory indicators on principal adverse impacts (PAIs) to improve comparability.⁵⁴ Some GPs voluntarily publish ESG reports aligned with established frameworks. Triton, for instance, established a reporting system in 2014 built around the “three Ps”: policy, program, and performance. The firm also uses the SASB standards to identify financially material ESG issues when screening and managing portfolio companies, thereby linking disclosure frameworks directly to investment practice.⁴ However, the coexistence of multiple frameworks creates challenges for comparability and consistency.⁴^,⁵⁴^,⁵⁷ This fragmentation has led to initiatives such as the ESG Data Convergence Initiative (EDCI), which aims to harmonize and simplify reporting standards in PE. It launched by LP CalPERS and GP Carlyle and counted over 375 members by January 2024, representing $28 trillion in assets under management.⁴^,⁷³ In fundraising, EDCI primarily signals a GP’s alignment with standardized metrics and LP expectations on comparability. The operational adoption of EDCI metrics for portfolio monitoring and benchmarking detailed in section 4.3.

Another alternative tool is B Corp Certification, developed by B Lab. To achieve certification, firms must score at least 80 points on the B Impact Assessment, which evaluates governance, worker policies, community engagement, and environmental impact. They are also required to make a legal commitment to stakeholder accountability and to disclose their performance publicly on the B Lab platform. For GPs, this certification can serve as a strong fundraising signal, as it demonstrates a verified and externally benchmarked commitment to sustainability.⁵⁴ Investindustrial certified as a B Corp in 2020 with one of the highest scores among buyout firms (116,2), and successfully recertified in 2023 with an improved score of 133,1.⁷⁴ The firm uses the B Impact Assessment not just as a signal but as a tool to track improvements across governance, environment and social dimensions, and encourages portfolio companies to undertake similar sustainability certifications.⁵⁴

3.1.2 Drivers and barriers

The main driver for integrating sustainability in the fundraising phase is pressure from LPs, as discussed in section 3.2.1. A global survey shows that 93% of LPs avoid investing in a fund if they have serious ESG concerns, for example misaligned values or weak ESG reporting.⁶⁹ Thus, many LPs request contractual safeguards, which has driven the inclusion of ESG clauses in LPAs.¹ In addition, UN PRI signatory status serves as a signal for ESG commitment and increases the possibility of attracting PRI sophisticated LPs.¹⁰ Another related key driver is the competitive advantage that ESG can create. GPs increasingly use sustainability commitments as a differentiator in fundraising.⁹ An industry report shows that around 20% of global deployed capital flows into ESG-labeled or impact funds.⁷⁵ ILPAs research notes that ESG is now seen as essential to winning LP commitments from this pool.⁶⁹ During fundraising, both regulatory requirements, particularly in the EU, and investor expectations push PE firms to apply frameworks like GRI, SASB, TCFD, and SFDR.¹⁰^,⁴⁶^,⁶⁸ Many GPs proactively adapt to such frameworks to remain attractive to compliance driven investors. Empirical evidence shows that doubling GPs ESG disclosure can accelerate the fundraising process by up to 20%, while transparent disclosure lowers information asymmetries between LPs and GPs and monitoring costs for LPs, which shows how the call for transparency actively drive SOPE in the fundraising process.¹⁰^,³⁴

Despite these drivers, several barriers hinder the effective implementation of SOPE in fundraising. As already discussed in section 3.2.4, a persistent challenge in fundraising is the lack of standardization among ESG reporting frameworks. The varying metrics and objectives across frameworks hinder LPs’ ability to compare and benchmark the ESG performance of GPs, creating additional burdens.⁴^,¹³^,²⁷ At the same time, the application of reporting frameworks, such as the SFDR, can lead to additional operational costs and increase complexity for GPs. Critics argue that these reporting mechanisms can easily applied incorrectly, which heightens the risk of greenwashing.⁴⁶ In emerging markets, fundraising is often hindered by regional misalignments between LP expectations and local ESG priorities. While European LPs demand detailed climate reporting, local investors may focus more on issues such as social inclusion or diversity. This can create tensions in contractual negotiations and disclosure practices.²² ESG DDQs are widely used, but are often criticized as a pure box-ticking exercise. Since they are not harmonized across LPs, they make a deep integration of sustainability considerations in the PE lifecycle even more difficult.⁴^,¹⁸

3.2 Deal sourcing phase

The sourcing phase covers deal sourcing, due diligence, and deal structuring. It determines how sustainability considerations are embedded in investment decisions and thus directly influences the sustainability profile of the portfolio.

3.2.1 Processes, measures, and tools

In the screening phase, SOPE firms operationalize sustainability by applying concrete screening mechanisms. The most common approach is negative screening.⁷^,³⁰^,⁵⁴ Aloe Private Equity, for instance, applies the IFC exclusion list to rule out sectors such as weapons, tobacco, alcohol, and gambling already in their due diligence process (Gate 0, see Figure 5). This exclusion is even anchored in their fund by-laws, which makes it legally binding.³⁰ However, the main critique of negative screening is that it remains a passive and defensive strategy, as it primarily eliminates risk but leaves opportunities for proactive value creation untapped.²⁷ Some SOPE firms go a step further and apply positive screening, or best-in-class, by targeting companies that rank highest among their peers in terms of ESG performance.¹^,⁸ This allows SOPE firms to foster sustainability while maintaining diversification across industries.¹ Another strategy is thematic screening, where SOPE firms target companies in areas such as renewable energy, circular economy, or sustainable agriculture.¹^,⁸ Impact-oriented PE firms apply impact screening, focusing only on companies whose business models aim to generate lasting social and environmental benefits.¹⁵^,³¹ To guide this process, many rely on the SDGs as a framework for identifying opportunities.³^,¹⁸^,⁵⁴ Summa Equity, for example, applies the SDGs in its positive screening process to evaluate whether a company is future-proof. Rather than investing in traditional sectors, the firm prioritizes energy-efficient companies over coal-based ones. An illustrative case is Sortera, a Swedish recycling company, whose impact directly relates to SDG #11 (sustainable cities and communities) and SDG #12 (responsible consumption and production).³

ESG due diligence (DD) extends the traditional approach by not only identifying hidden risks that may affect company value but also by uncovering opportunities for long-term value creation.¹ Yet, in practice, in-depth ESG DD is still not common. Survey evidence shows that 59.1% of PE firms systematically consider ESG factors, but most approaches remain checklist-based and compliance-driven.⁴^,⁷ Zaccone and Pedrini (2020) report that 63,6% of firms use questionnaires to verify compliance with ESG laws and standards, while another 63,6% apply them to evaluate how ESG factors may influence business risks and value creation opportunities. Only a minority of firms involve external ESG advisors or use public ratings.⁷ This indicates that ESG DD often remains focused on minimum requirements, with limited emphasis on the strategic dimension of value creation. However, industry evidence shows that advanced ESG due diligence goes beyond compliance by systematically reviewing areas such as carbon footprints, supply chain risks, governance, and labor standards. Instead of reducing the process to a risk checklist, leading investors use ESG due diligence to identify value-creation levers like de-risking, revenue growth, and cost reduction. These findings form the basis for action plans and link ESG results directly to the investment thesis. In this way, ESG due diligence is an instrument to shape long-term value creation.⁷⁶^,⁷⁷ More advanced approaches integrate ESG factors directly into valuation models.²²^,⁷⁸ This can achieved by adjusting cash flow projections or the cost of capital to reflect climate risks, resource efficiencies, or new revenue opportunities, thereby linking ESG due diligence even more closely to long-term value creation.⁷⁸

Aloe Private Equity provides a practical example of advanced ESG due diligence. Its framework goes beyond compliance by using a multi-gate process that classifies target companies as high, medium, or low ESG risk. High-risk sectors such as mining or oil and gas require a full Environmental and Social Impact Assessment, while low-risk service firms may only go through simplified checklists. At each gate, a dedicated assessment carried out and documented. The process only continues once the report completed and approved. Gate 3 concludes with a Corrective Action Plan that defines ESG gaps and mitigation measures, which is contractually anchored in legal agreements together with a Social and Environmental Code of Conduct based on the UN Global Compact.³⁰ A key strength of Aloe’s approach is the direct link between ESG due diligence and value creation, as findings are translated into post-acquisition roadmaps with management.³⁰^,⁷⁶ Figure 5 illustrates the structure of Aloe’s gating process.

Figure 5: ESG due diligence framework based on Aloe Private Equity’s process, own Illustration based on Aloe Private Equity³⁰

During the deal structuring process, SOPE firms increasingly rely on contractual mechanisms to embed sustainability into transactions. Impact-oriented covenants in investment agreements can ensure continuity of robust governance and ESG risk management practices beyond the investor’s exit.³¹ Some investors also document the ESG intent of an investment across its life cycle through a Sustainability Migration Plan (SMP). These plans define material ESG factors, set medium-term targets, and specify metrics to track progress, anchoring sustainability expectations from the start. By integrating SMPs into deal structuring, SOPE firms create a consistent framework that links contractual safeguards with long-term value creation.²³ Similarly, structuring deals with longer or even undefined exit horizons provides portfolio companies with the flexibility to build capacity and embed sustainable practices without pressure for quick returns. Norfund, for example, operates without a fixed exit timeframe to increase the likelihood that operational improvements endure beyond its ownership.³¹ To reduce ESG risks often associated with highly LBOs, additional structuring mechanisms can applied in practice.⁵ These include excluding dividend recapitalizations, which allow PE firms to improve their IRR but weaken the capital structure of portfolio companies by financing dividends through additional debt, and enhancing GP accountability in highly speculative deals.⁵³ Such mechanisms illustrate how contractual and financial structuring can used within SOPE to better align financial engineering with long-term sustainability objectives. Another emerging mechanism is the use of sustainability-linked loans (SLLs) to finance transactions. These instruments link lending conditions, such as interest rates, to the achievement of predefined ESG targets.⁷⁹ Thus, they can used to align financial incentives with sustainability performance. Survey evidence shows that their use is still limited in PE, with only about half of firms having used SLLs or similar ESG-related financing in at least one deal between 2022-2023.⁸⁰

3.2.2 Drivers and barriers

Several factors foster the implementation of SOPE in deal sourcing. In past practice, the decision to conduct an ESG DD largely depended on the business model of the target company and the ESG maturity of the industry.⁷ The growing institutionalization of ESG DD, with 64% of investors applying it in every transaction, demonstrates that ESG due diligence is becoming a market standard. More importantly, in 90% of cases the results are directly embedded into post-acquisition value-creation plans, showing how value creation, as discussed in section 3.2.1, drives the practical implementation of concrete value levers.⁸¹ Another driver for ESG-oriented deal structuring is the growing availability of green incentives and tax credits. Programs such as the EU Green Deal or the U.S. Inflation Reduction Act provide substantial financial benefits for climate-related investments, creating strong incentives for GPs to integrate sustainability into deal structures.⁸⁰

As in the fundraising phase, the lack of standardization remains a major barrier. Practitioners criticize that there is no unified way to assess a company’s ESG performance.²⁷ Identifying the most suitable core set of relevant ESG factors during ESG DD continues to be a key challenge for many GPs. This step considered essential for ensuring value-creation opportunities, as it reduces the risk of a superficial or overly broad assessment.⁷⁶ At the same time, the lack of sufficient quality ESG data for ESG DD remains a major issue for most PE firms, which described in more detail in section 3.2.5.⁷^,⁵⁴ In addition, even when ESG data is available, its integration into valuation models remains limited. One study suggests that ESG is only superficially considered in pricing models during due diligence and remains largely untouched due to its qualitative nature. The study shows that ESG risks are graded and integrated into DCF and WACC, while intangible factors such as human rights or transparency are mostly excluded.²² A further challenge lies in the frequent misalignment between the ESG ambitions of PE firms and the maturity of smaller target companies, which often lack the structures or capabilities to meet investor expectations.⁸⁰ PE firms also emphasize that they lack internal resources to adequately assess ESG data, with the ESG DD process often described as too costly and time-consuming.⁷^,²⁷^,³⁶ Another limitation is the scope of ESG due diligence itself. Evidence shows that governance factors dominate the assessment, with more than 40% of identified risks in Nordic transactions falling into this category, while environmental and social issues are often examined less systematically.⁸¹ This imbalance constrains the potential of ESG DD to fully capture sustainability risks and opportunities across all three dimensions When it comes to impact-oriented covenants, it is often difficult to determine in advance how the impact will materialize after exit, which makes contractual design more complex.³¹

3.3 Portfolio management phase

The portfolio management phase in SOPE is arguably the most important stage for PE investors to actively drive sustainability within the portfolio company. During this phase, GPs can continuously work on integrating ESG into the management of the portfolio company.⁴ This goes beyond financial oversight and operational improvements, as GPs are uniquely positioned to implement concrete sustainability measures, monitor progress through standardized KPIs, and shape governance structures. By embedding ESG factors into day-to-day decision-making, PE firms can both mitigate risks and unlock new value-creation opportunities, making portfolio management the central lever for achieving measurable and lasting ESG outcomes.

3.3.1 Processes, measures, and tools

In this phase, GPs should use ESG factors as a lever to actively drive operational improvements in their portfolio companies. This can achieved by establishing CO₂ reduction and energy efficiency plans, supporting the shift to renewable energy, adopting cleaner technologies, implementing energy-efficient upgrades in industrial facilities, and introducing greener supply chain practices.¹⁸^,⁵² To ensure this, PE firms should commit to net-zero targets. A prime example is the iCI, which by 2022 included more than 164 GPs representing $2 trillion in AUM. Each member commits to reducing carbon emissions in its portfolio companies.⁴ Another important practice is the optimization of waste and resource management in portfolio companies. A good example remains Sortera, which invested in an electric recycling facility that increased recycling rates, reduced downstream costs, and at the same time lowered energy consumption.³ When it comes to social factors, private equity firms should focus on employee welfare by fostering a supportive working environment.¹ This can reduce costs through lower turnover while at the same time increasing employee productivity.⁷^,⁹^,⁴¹ A good example is Blue Wolf Capital Partners, which has specialized in turnarounds that combine operational efficiency with social impact. The firm, for instance, acquired a labor-abusive and wasteful sawmill, where it worked with management to improve labor relations, strengthen employee welfare, and engage with the local community, while simultaneously boosting efficiency and reducing waste.¹¹ This case illustrates how social initiatives can directly translate into both measurable ESG benefits and financial performance. Another important governance-related mechanism in SOPE is driving impactful exit readiness. Impact-oriented GPs assist portfolio companies in building robust governance, impact measurement, and risk management systems to ensure that ESG practices remain in place beyond their own exit. This strengthens operational discipline and makes companies more attractive to future buyers. Adenia Partners, for instance, embeds impact practices by organizing trainings, developing formal ESG management systems, and holding management teams accountable through KPIs and reporting requirements.³¹

Thus, GPs should implement and collect ESG data from their portfolio companies through standardized KPIs on an annual or quarterly basis. These KPIs should capture sustainable related information based on ESG or SDGs that is financially material to the business’s performance of portfolio companies, and thereby help track and mitigate ESG-related risks while also identifying and leveraging value-creation opportunities.⁴^,¹^,⁷^,⁵⁴ They therefore form the backbone of measurable ESG goals. Leading GPs such as EQT already require their portfolio companies to report on core KPIs including ethics and anti-corruption training, diversity, employee engagement, greenhouse gas emissions, water usage, and waste to landfill. In addition, each company must define at least three company-specific KPIs based on a materiality and risk assessment.¹⁸ These firm-level practices show the range of ESG monitoring and prepare the ground for harmonized initiatives such as the ESG Data Convergence Initiative (EDCI).

As already mentioned in section 4.1.1, the EDCI represents a harmonized approach to ESG reporting and monitoring, based on six key principles that can be directly implemented in the monitoring process of portfolio companies. These principles comprehend scope 1 and 2 of greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires, and employee engagement; in 2023, the net-zero principle added. Table 3 summarizes the six-draft metrics defined by the EDCI, along with their associated data points that GPs are expected to collect annually. Each principle includes its own KPIs, all of which are linked to established frameworks, such as GRI, SASB, or TCFD.⁴^,⁵⁴^,⁵⁷ Any GP or LP with interest can join as a member.⁵⁴ Participating GPs commit to reporting this data in a standardized template, which anonymized and stored in a central database. This enables systematic benchmarking across funds and portfolios, enhancing both internal monitoring and external reporting.⁴^,⁵⁷ Guidance on the key metrics, along with an EDCI data submission template that also includes an SFDR PAI reporting template, is available for download on the EDCI website.⁸²

Table 3: ESG data convergence draft metrics, own Illustration based on ESG Data Convergence Initiative, 2025

Some firms make use of more advanced approaches. Aloe Private Equity, for example, requires annual monitoring reports on environmental, social, and community indicators, which feed into a Corrective Action Plan reviewed with management each year. These monitoring duties are embedded in the legal investment documents, which allows Aloe Private Equity to enforce ESG compliance if necessary.³⁰ Specialized providers such as Novata, Persefoni, and Green Project Technologies equip GPs with practical tools for carbon accounting and portfolio-wide ESG data aggregation, which can be directly implemented in portfolio companies.⁵⁴ EQT, on the other hand, relies on its inhouse developed Motherbrain platform, which combines internal and external data with advanced analytics and machine learning to support ESG monitoring and decision-making across its portfolio.¹⁸

Besides monitoring and benchmarking, several other governance mechanisms serve as ESG value levers in portfolio management. As discussed in section 3.2.2, PE firms can alter board structures. SOPE firms use this influence by taking board seats and shaping overall composition, thereby strengthening board diversity.¹⁶^,⁵⁴ In practice, Carlyle, for example, set the goal of ensuring at least 30% diverse board members in its portfolio companies.⁴ In addition, Palladium Equity Partners joined the 30% Coalition and linked this commitment to its B Corp certification, reporting in 2022 that nearly half of all board members across its portfolio identified as female or minority.⁵⁴ Another common governance mechanism is a portfolio-wide Code of Conduct that addresses issues such as anti-corruption, fair competition, and labor rights. CEOs are usually required to confirm compliance, and GPs can intervene in cases of violations. This makes the Code of Conduct a practical tool for embedding ESG standards across portfolio companies.¹⁶ Moreover, leading GPs increasingly invest in building internal ESG capabilities and linking governance to learning processes. Apollo Global Management, for instance, introduced post-exit analyses to assess how ESG issues influenced investment performance, using these insights to refine governance practices for future deals. Other firms, such as Investindustrial, send deal teams and portfolio managers to sustainability certification courses to ensure that ESG expertise embedded in governance from the top down.⁴

3.3.2 Drivers and barriers

The active ownership role of SOPE firms acts as a key driver, as it allows GPs to take a continuous and hands-on role in overseeing and improving ESG performance in portfolio companies. The unique position of PE firms (as discussed in chapter 3.2.2) enables GPs to exercise direct control through board seats, Codes of Conduct, and KPIs, thereby laying the foundation for deep ESG integration.⁸^,⁹^,¹⁶ Technological advances in monitoring systems serve as an important driver, as they enable GPs to continuously track the ESG performance of their portfolio companies.⁵⁴ Moreover, the growing value-creation logic (as described in section 3.2.1) encourages GPs to implement ESG levers such as CO₂ reduction and energy-efficiency plans within their portfolio companies.¹ Dedicated ESG teams function as a key driver, as they provide the organizational capacity and expertise needed to integrate ESG considerations throughout the investment cycle and to ensure that tools such as KPIs, Codes of Conduct, or monitoring systems are effectively implemented.⁴^,⁷

A potential barrier to implementing ESG factors in the portfolio management phase is a lack of alignment in sustainability awareness between GPs and portfolio company management. In emerging economies in particular, local managers often show little interest in sustainability.²² In Tunisia, PE firms believe that SMEs in their portfolios are not ready to comply with regulatory ESG reporting guidelines, as these are viewed as too resource- and time-intensive to implement. This also highlights the absence of effective monitoring systems.³⁶ A further barrier arises from the financial pressure associated with leveraged buyouts (LBOs). The high debt service requirements that typically follow such transactions increase the pressure on portfolio companies to prioritize short-term profitability over long-term sustainability objectives, which highlights that short-termism can hinder the practical implementation process in this phase.⁵ Another persistent barrier is the limited availability of reliable ESG data, as portfolio companies often provide incomplete or inconsistent information, thereby undermining the effectiveness of KPI systems and monitoring tools (see section 3.2.5 for further discussion).⁷^,²³

3.4 Exit phase

Exit strategies in PE take different forms, including IPOs, secondary buyouts, trade sales, management buybacks, and, less favorably, liquidations. While financial return maximization remains the primary goal for most GPs, ESG considerations increasingly shape the design of exit processes.⁵⁴ Compared to fundraising, sourcing, and ownership, the exit stage has received less attention in the academic literature. Drivers and barriers are therefore discussed here directly in relation to the relevant tools and processes, rather than in a separate subsection.

3.4.1 Processes, measures, and tools

SOPE firms should use ESG as a value lever in exit valuation. Comprehensive ESG compliance, supported by documentation, can strengthen exit negotiations by reducing arguments for potential downside valuation, since ESG risks can significantly affect company value.³⁰ Beyond risk mitigation, ESG performance also enhances the divestment equity story by demonstrating the long-term resilience and market attractiveness of the company.³^,³⁰^,⁷⁷ Firms with embedded ESG practices can achieve higher valuation multiples, attract a broader pool of ESG-oriented buyers, and facilitate smoother sales processes, as strong governance and transparent disclosure create trust and differentiation in competitive exit markets.⁴^,¹^,¹⁶^,³⁰ A central instrument in this context is the use of ESG Vendor Due Diligence (VDD) and ESG factbooks, often conducted by third parties, which provide potential buyers with a consolidated view of a company’s ESG performance. These reports reduce information asymmetries and increase buyer confidence.⁷^,⁷⁷ Beyond disclosure, several processes aim to ensure impact continuity after the GP’s exit. Rationality assessments evaluate whether sustainability practices are sufficiently embedded to survive ownership changes. Swedfund, for example, conducts a pre-exit analysis that assesses the outcomes of the exit on sustainable impact and identifies the actions needed to sustain long-term impact.³¹ Another process is safeguarding management, which helps preserve the mission of portfolio companies after the exit. This is particularly important in IPOs, as the heterogeneity of new shareholders often results in differing views on the future direction of the company.⁸³ A complementary approach is buyer alignment through targeted due diligence of potential buyers. This process assesses whether potential investors have the capacity to ensure sound asset management and sustain the impact.³¹ Other criteria include a strong reputation, expertise in the portfolio company’s field, regulatory compliance, and adherence to ESG standards.⁸³ In this context, impact-oriented GPs ensure that potential buyers are aware of both the ESG and impact achievements, as well as the remaining gaps. This process often includes outlining major corrective actions and value-creation measures performed during the holding period, supported by pre-exit monitoring visits conducted by external consultants. Adenia Partners, for instance, places particular emphasis on raising ESG and impact awareness among bidders by presenting key achievements together with areas that still require improvement.³¹ Legally safeguarding the mission of investee companies is another instrument, achieved by including dedicated clauses in exit documents that guarantee impact continuity.⁸³ In that sense, Adenia Partners ensures continuity under new ownership by including specialized clauses in the exit documents.³¹ Besides ensuring responsible exits, PE firms can also share exit proceeds with portfolio companies, thereby rewarding improvements in ESG performance. HCAP Partners, for example, uses so-called ‘carrot agreements,’ in which part of the exit proceeds distributed to employees if both financial return targets and improvements in job quality are achieved during the holding period.⁵⁴

References

1
Gangi, F. & Daniele, L. M. Sustainable private equity: Leveraging ESG integration. in Sustainable Finance and Society 101–110 (Routledge, 2025).
2
Sharma, S., Malik, K., Kaur, M. & Saini, N. Mapping research in the field of private equity: a bibliometric analysis. Manag. Rev. Q. 73, 61–89 (2023) doi:10.1007/s11301-021-00231-y.
3
Indahl, R. & Jacobsen, H. G. Private Equity 4.0: Using ESG to Create More Value with Less Risk. J. Appl. Corp. Finance 31, 34–41 (2019) doi:10.1111/jacf.12344.
4
21 Private Equity Should Take the Lead in Sustainability. in Sustainable Business Model Innovation 203–212 (De Gruyter, 2023). doi:10.1515/9783111295268-022.
5
Balume, F. S., Gajewski, J.-F. & King, T.-H. D. LBO and firm ESG commitment. Manag. Finance 51, 1601–1627 (2025).
6
Lin, L. Venture Capital in the Rise of Sustainable Investment. Eur. Bus. Organ. Law Rev. 23, 187–216 (2022) doi:10.1007/s40804-021-00238-8.
7
Zaccone, M. C. & Pedrini, M. ESG Factor Integration into Private Equity. Sustainability 12, 5725 (2020) doi:10.3390/su12145725.
8
Block, J. et al. Climate issues in portfolio investment decisions: a comparison of Private equity and venture capital. Venture Cap. 1–31 (2024) doi:10.1080/13691066.2024.2351218.
9
Crifo, P. & Forget, V. D. Think Global, Invest Responsible: Why the Private Equity Industry Goes Green. J. Bus. Ethics 116, 21–48 (2013) doi:10.1007/s10551-012-1443-y.
10
Abraham, J., Olbert, M. & Vasvari, F. ESG Disclosures in the Private Equity Industry. J. Account. Res. 62, 1611–1660 (2024) doi:10.1111/1475-679x.12570.
11
Dittrich, M. Sustainable private equity and venture capital. in Sustainable Innovation and Impact 107–115 (Routledge, 2018).
12
Cumming, D. & Johan, S. Socially Responsible Institutional Investment in Private Equity. J. Bus. Ethics 75, 395–416 (2007) doi:10.1007/s10551-006-9261-8.
13
Ljungqvist, A. The Economics of Private Equity: A Critical Review. https://rpc.cfainstitute.org/en/research/foundation/2024/economics-of-private-equity (2024) (accessed 30 July 2025) doi:10.56227/24.1.10.
14
Kaplan, S. N. & Strömberg, P. Leveraged Buyouts and Private Equity. J. Econ. Perspect. 23, 121–146 (2009) doi:10.1257/jep.23.1.121.
15
Sorensen, M. & Yasuda, A. IMPACT OF PRIVATE EQUITY.
16
Süsi, V. & Jaakson, K. Corporate governance and corporate social responsibility interface: a case study of private equity. Corp. Gov. Int. J. Bus. Soc. 20, 703–717 (2020) doi:10.1108/cg-11-2019-0348.
17
Sorensen, M., Wang, N. & Yang, J. Valuing Private Equity. Rev. Financ. Stud. 27, 1977–2021 (2014) doi:10.1093/rfs/hhu013.
18
Eccles, R. G., Lennehag, T. & Nornholm, N. EQT: Private Equity with a Purpose. J. Appl. Corp. Finance 32, 73–86 (2020) doi:10.1111/jacf.12419.
19
Barber, B. M., Morse, A. & Yasuda, A. Impact investing. J. Financ. Econ. 139, 162–185 (2021) doi:10.1016/j.jfineco.2020.07.008.
20
Daley, B., Geelen, T. & Green, B. Due Diligence. J. Finance 79, 2115–2161 (2024) doi:10.1111/jofi.13322.
21
Gompers, P., Kaplan, S. N. & Mukharlyamov, V. What do private equity firms say they do? J. Financ. Econ. 121, 449–476 (2016) doi:10.1016/j.jfineco.2016.06.003.
22
Reis, G. T., Fontes-Filho, J. R. & Bandeira, M. L. ESG practices and investment decisions in private equity funds: recovering debates on business sustainability. Soc. Responsib. J. 21, 597–614 (2025) doi:10.1108/SRJ-04-2024-0246.
23
Long, F. J. & Johnstone, S. Applying ‘Deep ESG’ to Asian private equity. J. Sustain. Finance Invest. 13, 943–961 (2023) doi:10.1080/20430795.2021.1879562.
24
Gigante, G., Sironi, E. & Tridenti, C. At the Frontier of Sustainable Finance: Impact Investing and the Financial Tradeoff; Evidence from Private Portfolio Companies in the United Kingdom. Sustainability 15, 3956 (2023) doi:10.3390/su15053956.
25
Junkus, J. & Berry, T. D. Socially responsible investing: a review of the critical issues. Manag. Finance 41, 1176–1201 (2015) doi:10.1108/mf-12-2014-0307.
26
Principles for Responsible Investment (PRI). PRI Annual Report 2024. https://www.unpri.org/about-us/about-the-pri/annual-report#storytext-end (2024).
27
Lange, E. M. & Banadaki, N. G. ESG consideration in venture capital: drivers, strategies and barriers. Stud. Econ. Finance 41, 724–739 (2024) doi:10.1108/SEF-06-2023-0380.
28
What you need to know about impact investing. The GIIN https://thegiin.org/publication/post/about-impact-investing/ (accessed 27 July 2025).
29
EMPEA. How Private Equity Models and Practitioners Can Advance Impact Investing in Emerging Markets. in Responsible Investment Banking: Risk Management Frameworks, Sustainable Financial Innovation and Softlaw Standards 563–574 (Springer International Publishing, Cham, 2015).
30
Duke, G. Sustainable Private Equity Investments and ESG Due Diligence Frameworks. in Responsible Investment Banking (ed. Wendt, K.) 349–358 (Springer International Publishing, Cham, 2015). doi:10.1007/978-3-319-10311-2_22.
31
Islam, S. M. & Akroyd, C. Control strategies for impactful exits in impact private equity firms. Account. Finance 64, 3419–3442 (2024) doi:10.1111/acfi.13258.
32
BVK. Private Equity: Investitionen in Europa nach Branchen 2023. Statista https://de.statista.com/statistik/daten/studie/232968/umfrage/private-equity-investitionen-in-europa-nach-branchen/ (2024) (accessed 18 August 2025).
33
A Year of Sustainability Progress in the Private Markets. BCG Global https://www.bcg.com/publications/2024/sustainability-progress-in-private-markets (2024) (accessed 6 October 2025).
34
Böni, P., Hendrikse, J. & Joos, Philip. ESG Transparency of Private Equity and Debt Firms. (2023).
35
Geczy, C., Jeffers, J. S., Musto, D. K. & Tucker, A. M. Contracts with (Social) benefits: The implementation of impact investing. J. Financ. Econ. 142, 697–718 (2021) doi:10.1016/j.jfineco.2021.01.006.
36
Ben Noamene, T. Do private equity investors value ESG and SDGs? Evidence from Tunisia. Soc. Bus. Rev. 20, 455–469 (2025) doi:10.1108/SBR-09-2024-0303.
37
Fenn, G. W., Liang, N. & Prowse, S. The Private Equity Market: An Overveiw. Financ. Mark. Inst. Instrum. 6, 1–106 (1997) doi:10.1111/1468-0416.00012.
38
Barber, F. & Goold, M. The Strategic Secret of Private Equity. Harvard Business Review.
39
Bracking, S. How do Investors Value Environmental Harm/Care? Private Equity Funds, Development Finance Institutions and the Partial Financialization of Nature‐based Industries. Dev. Change 43, 271–293 (2012) doi:10.1111/j.1467-7660.2011.01756.x.
40
Eccles, R. G., Kastrapeli, M. D. & Potter, S. J. How to Integrate ESG into Investment Decision‐Making: Results of a Global Survey of Institutional Investors. J. Appl. Corp. Finance 29, 125–133 (2017) doi:10.1111/jacf.12267.
41
Drobetz, W., El Ghoul, S., Guedhami, O., Hackmann, J. P. & Momtaz, P. P. Entrepreneurial finance and sustainability: Do institutional investors impact the ESG performance of SMEs? J. Bus. Ventur. Insights 22, e00498 (2024) doi:10.1016/j.jbvi.2024.e00498.
42
Duevski, T., Rastogi, C. & Yao, T. ESG Incidents and Fundraising in Private Equity. (2024).
43
PwC. Global: top-ranked ESG benefits among PE firms 2023. Statista https://www.statista.com/statistics/1500063/top-ranked-esg-benefits-among-pe-firms-worldwide/ (accessed 20 August 2025).
44
Crifo, P., Forget, V. D. & Teyssier, S. The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors. J. Corp. Finance 30, 168–194 (2015) doi:10.1016/j.jcorpfin.2014.12.006.
45
Johnsen, C. G. & Lenhard, J. Navigating the Ambiguity of Impact Investing: How Impact Venture Capitalists Access New Markets, Founders, and Capital. J. Bus. Ethics doi:10.1007/s10551-025-06053-2 (2025) doi:10.1007/s10551-025-06053-2.
46
Boni, L. & Scheitza, L. Analyzing the role of regulation in shaping private finance for sustainability in the European Union. Finance Res. Lett. 71, 106435 (2025) doi:10.1016/j.frl.2024.106435.
47
Thelen, M. Von CSRD über Prozess-Synergien bis zu Impact Investing: Wie Private Equity nachhaltige Werte schaffen kann. in ESG als Treiber von M&A (eds Niggemann, K. A., Dahlhausen, U., Hofer, M. B., Schmitz, R. & Everling, O.) 201–214 (Springer Fachmedien Wiesbaden, Wiesbaden, 2024). doi:10.1007/978-3-658-45406-7_12.
48
Jensen, M. C. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. Am. Econ. Rev. 76, 323–329 (1986).
49
Hart, O. & Zingales, L. Companies Should Maximize Shareholder Welfare Not Market Value. J. Law Finance Account. 2, 247–275 (2017) doi:10.1561/108.00000022.
50
Bellon, A. Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks. Rev. Financ. Stud. 38, 2517–2556 (2025) doi:10.1093/rfs/hhaf035.
51
Sunzenauer, P. S. How Sustainable Is Private Equity? Unlocking the Impact of Private Equity on Asset-Level Sustainability: An Empirical Investigation. Jr. Manag. Sci. 9, 1100–1122 (2024) doi:10.5282/JUMS/V9I1PP1100-1122.
52
Malik, K. & Sharma, S. Role of ESG and private equity on environmental degradation: a nexus of opportunity and responsibility for developing and developed countries. J. Econ. Stud. 52, 532–548 (2025) doi:10.1108/JES-11-2023-0672.
53
Philippot, A. A Moral Evaluation of LBOs. J. Bus. Ethics 196, 695–709 (2025) doi:10.1007/s10551-024-05656-5.
54
Whelan, T. & Balakumar, U. Stakeholders at the Gate: Driving Financial Value Through Sustainability in Private Equity. in Sustainable Investing 61–107 (WORLD SCIENTIFIC, 2024). doi:10.1142/9789811297786_0003.
55
Shive, S. A. & Forster, M. M. Corporate Governance and Pollution Externalities of Public and Private Firms*. Rev. Financ. Stud. 33, 1296–1330 (2020) doi:10.1093/rfs/hhz079.
56
Cohn, J., Nestoriak, N. & Wardlaw, M. Private Equity Buyouts and Workplace Safety. Rev. Financ. Stud. 34, 4832–4875 (2021) doi:10.1093/rfs/hhab001.
57
Buck, L. et al. How Private Equity Can Converge on ESG Data. https://mkt-bcg-com-public-pdfs.s3.amazonaws.com/prod/private-equity-convergence-on-esg-data.pdf (2021) (accessed 22 August 2025).
58
Davis, S. J. et al. Private Equity, Jobs, and Productivity. Am. Econ. Rev. 104, 3956–3990 (2014) doi:10.1257/aer.104.12.3956.
59
Eaton, C., Howell, S. T. & Yannelis, C. When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education. Rev. Financ. Stud. 33, 4024–4060 (2020) doi:10.1093/rfs/hhz129.
60
Gupta, A., Howell, S. T., Yannelis, C. & Gupta, A. Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes. Rev. Financ. Stud. 37, 1029–1077 (2024) doi:10.1093/rfs/hhad082.
61
Bian, Y., Gao, H., Wang, R. & Xiong, X. Sustainable development for private equity: Integrating environment, social, and governance factors into partnership valuation. Bus. Strategy Environ. 32, 3359–3370 (2023) doi:10.1002/bse.3304.
62
Cerqueti, R., Ciciretti, R., Dalò, A. & Nicolosi, M. ESG investing: A chance to reduce systemic risk. J. Financ. Stab. 54, 100887 (2021) doi:10.1016/j.jfs.2021.100887.
63
Friede, G., Busch, T. & Bassen, A. ESG and financial performance: aggregated evidence from more than 2000 empirical studies. J. Sustain. Finance Invest. 5, 210–233 (2015) doi:10.1080/20430795.2015.1118917.
64
Thrasher, M. Do ESG Factors Help or Hurt Private Fund Returns? A New Report Has an Answer | Institutional Investor. https://www.institutionalinvestor.com/article/2dg6dknwu3c8joq6uez9c/portfolio/do-esg-factors-help-or-hurt-private-fund-returns-a-new-report-has-an-answer (accessed 12 September 2025).
65
Bani-Harouni, N., Hommel, U. & Paetzold, F. ESG Footprints in Private Equity Portfolios: Unpacking Management Instruments and Financial Performance. Preprint at doi:10.2139/ssrn.4627273 (2023).
66
Zara, C. Does Sustainability Affect Private Equity Asset Class? SSRN Electron. J. doi:10.2139/ssrn.3152973 (2019) doi:10.2139/ssrn.3152973.
67
Summa Equity Fund III. Summa Equity https://summaequity.com/funds/summa-equity-fund-iii/ (2024) (accessed 10 January 2025).
68
Noh, J.-H. & Park, H. Does the disclosure of ESG information by private equity firms impact the success of their fundraising efforts? J. Deriv. Quant. Stud. 선물연구 32, 323–343 (2024) doi:10.1108/JDQS-03-2024-0010.
69
Lino, M. et al. Limited Partners and Private Equity Firms Embrace ESG. https://www.ilpa.org/resource/limited-partners-and-private-equity-firms-embrace-esg/ (2022) (accessed 18 August 2025).
70
Institutional Limited Partners Association (ILPA). ESG Assessment Framework. https://go.ilpa.org/l/224412/2021-07-22/mnmcw (2021) (accessed 27 September 2025).
71
Principles for Responsible Investment (PRI). Limited Partners’ Private Equity Responsible Investment Due Diligence Questionnaire. (2023) (accessed 18 August 2025).
72
Recommendations. Task Force on Climate-Related Financial Disclosures https://www.fsb-tcfd.org/recommendations/ (accessed 19 September 2025).
73
Data Convergence Initiative. Institutional Limited Partners Association https://ilpa.org/industry-guidance/environmental-social-governance/data-convergence-initiative/ (accessed 19 September 2025).
74
Investindustrial – B CorporationTM. Investindustrial https://www.investindustrial.com/who-we-are/B-Corporation.html (accessed 22 September 2025).
75
Wells Fargo Corporate & Investment Banking. Sustainability Integration for Fund-Level Financings. https://www.wellsfargo.com/assets/pdf/cib/insights/sustainable-fund-finance.pdf#:~:text=Sustainability%20Influences%20Asset%20Selection%20In,house (2024) (accessed 29 September 2025).
76
Weddrien, O., Fotteler, T. & Bönning, M. Aus einem Guss: Wie sich ESG Due Diligence und ESG Value Creation miteinander verknüpfen lassen. in ESG als Treiber von M&A (eds Niggemann, K. A., Dahlhausen, U., Hofer, M. B., Schmitz, R. & Everling, O.) 647–664 (Springer Fachmedien Wiesbaden, Wiesbaden, 2024). doi:10.1007/978-3-658-45406-7_37.
77
Bornhauser, F. & Vasadi, J. Global ESG Due Diligence+ Study 2024. https://kpmg.com/esg-dd-2024 (2024) (accessed 10 January 2025).
78
PwC Luxembourg, S. Unlocking the Green Premium in Private Equity: How Private Equity Firms Can Create Value by Integrating ESG. 13 https://www.pwc.lu/en/sustainable-finance/unlocking-green-premium-private-equity.html (2023) (accessed 13 September 2025).
79
Loumioti, M. & Serafeim, G. The Issuance and Design of Sustainability-linked Loans. SSRN Electron. J. doi:10.2139/ssrn.4287295 (2022) doi:10.2139/ssrn.4287295.
80
Janson, E., Pozza, M., Schreve, L. & Caudle, D. Global Private Equity Responsible Investment Survey 2023. 16 https://www.pwc.com/PERIS (2023) (accessed 23 September 2025).
81
Koole Normann, P. & Hansen Moller, M. How ESG due diligence lowers risk and boosts value for private equity. https://www.ey.com/en_dk/insights/climate-change-sustainability-services/how-esg-due-diligence-lowers-risk-and-boosts-value-for-private-equity (2024) (accessed 24 September 2025).
82
EDCI. EDCI Metrics Guidance. ESGDC https://www.esgdc.org/metrics/ (2025) (accessed 25 September 2025).
83
Global Impact Investing Network (GIIN). Lasting Impact: The Need for Responsible Exits. https://thegiin.org/research/publication/responsible-exits (2018).

1
Gangi, F. & Daniele, L. M. Sustainable private equity: Leveraging ESG integration. in Sustainable Finance and Society 101–110 (Routledge, 2025).
2
Sharma, S., Malik, K., Kaur, M. & Saini, N. Mapping research in the field of private equity: a bibliometric analysis. Manag. Rev. Q. 73, 61–89 (2023) doi:10.1007/s11301-021-00231-y.
3
Indahl, R. & Jacobsen, H. G. Private Equity 4.0: Using ESG to Create More Value with Less Risk. J. Appl. Corp. Finance 31, 34–41 (2019) doi:10.1111/jacf.12344.
4
21 Private Equity Should Take the Lead in Sustainability. in Sustainable Business Model Innovation 203–212 (De Gruyter, 2023). doi:10.1515/9783111295268-022.
5
Balume, F. S., Gajewski, J.-F. & King, T.-H. D. LBO and firm ESG commitment. Manag. Finance 51, 1601–1627 (2025).
6
Lin, L. Venture Capital in the Rise of Sustainable Investment. Eur. Bus. Organ. Law Rev. 23, 187–216 (2022) doi:10.1007/s40804-021-00238-8.
7
Zaccone, M. C. & Pedrini, M. ESG Factor Integration into Private Equity. Sustainability 12, 5725 (2020) doi:10.3390/su12145725.
8
Block, J. et al. Climate issues in portfolio investment decisions: a comparison of Private equity and venture capital. Venture Cap. 1–31 (2024) doi:10.1080/13691066.2024.2351218.
9
Crifo, P. & Forget, V. D. Think Global, Invest Responsible: Why the Private Equity Industry Goes Green. J. Bus. Ethics 116, 21–48 (2013) doi:10.1007/s10551-012-1443-y.
10
Abraham, J., Olbert, M. & Vasvari, F. ESG Disclosures in the Private Equity Industry. J. Account. Res. 62, 1611–1660 (2024) doi:10.1111/1475-679x.12570.
11
Dittrich, M. Sustainable private equity and venture capital. in Sustainable Innovation and Impact 107–115 (Routledge, 2018).
12
Cumming, D. & Johan, S. Socially Responsible Institutional Investment in Private Equity. J. Bus. Ethics 75, 395–416 (2007) doi:10.1007/s10551-006-9261-8.
13
Ljungqvist, A. The Economics of Private Equity: A Critical Review. https://rpc.cfainstitute.org/en/research/foundation/2024/economics-of-private-equity (2024) (accessed 30 July 2025) doi:10.56227/24.1.10.
14
Kaplan, S. N. & Strömberg, P. Leveraged Buyouts and Private Equity. J. Econ. Perspect. 23, 121–146 (2009) doi:10.1257/jep.23.1.121.
15
Sorensen, M. & Yasuda, A. IMPACT OF PRIVATE EQUITY.
16
Süsi, V. & Jaakson, K. Corporate governance and corporate social responsibility interface: a case study of private equity. Corp. Gov. Int. J. Bus. Soc. 20, 703–717 (2020) doi:10.1108/cg-11-2019-0348.
17
Sorensen, M., Wang, N. & Yang, J. Valuing Private Equity. Rev. Financ. Stud. 27, 1977–2021 (2014) doi:10.1093/rfs/hhu013.
18
Eccles, R. G., Lennehag, T. & Nornholm, N. EQT: Private Equity with a Purpose. J. Appl. Corp. Finance 32, 73–86 (2020) doi:10.1111/jacf.12419.
19
Barber, B. M., Morse, A. & Yasuda, A. Impact investing. J. Financ. Econ. 139, 162–185 (2021) doi:10.1016/j.jfineco.2020.07.008.
20
Daley, B., Geelen, T. & Green, B. Due Diligence. J. Finance 79, 2115–2161 (2024) doi:10.1111/jofi.13322.
21
Gompers, P., Kaplan, S. N. & Mukharlyamov, V. What do private equity firms say they do? J. Financ. Econ. 121, 449–476 (2016) doi:10.1016/j.jfineco.2016.06.003.
22
Reis, G. T., Fontes-Filho, J. R. & Bandeira, M. L. ESG practices and investment decisions in private equity funds: recovering debates on business sustainability. Soc. Responsib. J. 21, 597–614 (2025) doi:10.1108/SRJ-04-2024-0246.
23
Long, F. J. & Johnstone, S. Applying ‘Deep ESG’ to Asian private equity. J. Sustain. Finance Invest. 13, 943–961 (2023) doi:10.1080/20430795.2021.1879562.
24
Gigante, G., Sironi, E. & Tridenti, C. At the Frontier of Sustainable Finance: Impact Investing and the Financial Tradeoff; Evidence from Private Portfolio Companies in the United Kingdom. Sustainability 15, 3956 (2023) doi:10.3390/su15053956.
25
Junkus, J. & Berry, T. D. Socially responsible investing: a review of the critical issues. Manag. Finance 41, 1176–1201 (2015) doi:10.1108/mf-12-2014-0307.
26
Principles for Responsible Investment (PRI). PRI Annual Report 2024. https://www.unpri.org/about-us/about-the-pri/annual-report#storytext-end (2024).
27
Lange, E. M. & Banadaki, N. G. ESG consideration in venture capital: drivers, strategies and barriers. Stud. Econ. Finance 41, 724–739 (2024) doi:10.1108/SEF-06-2023-0380.
28
What you need to know about impact investing. The GIIN https://thegiin.org/publication/post/about-impact-investing/ (accessed 27 July 2025).
29
EMPEA. How Private Equity Models and Practitioners Can Advance Impact Investing in Emerging Markets. in Responsible Investment Banking: Risk Management Frameworks, Sustainable Financial Innovation and Softlaw Standards 563–574 (Springer International Publishing, Cham, 2015).
30
Duke, G. Sustainable Private Equity Investments and ESG Due Diligence Frameworks. in Responsible Investment Banking (ed. Wendt, K.) 349–358 (Springer International Publishing, Cham, 2015). doi:10.1007/978-3-319-10311-2_22.
31
Islam, S. M. & Akroyd, C. Control strategies for impactful exits in impact private equity firms. Account. Finance 64, 3419–3442 (2024) doi:10.1111/acfi.13258.
32
BVK. Private Equity: Investitionen in Europa nach Branchen 2023. Statista https://de.statista.com/statistik/daten/studie/232968/umfrage/private-equity-investitionen-in-europa-nach-branchen/ (2024) (accessed 18 August 2025).
33
A Year of Sustainability Progress in the Private Markets. BCG Global https://www.bcg.com/publications/2024/sustainability-progress-in-private-markets (2024) (accessed 6 October 2025).
34
Böni, P., Hendrikse, J. & Joos, Philip. ESG Transparency of Private Equity and Debt Firms. (2023).
35
Geczy, C., Jeffers, J. S., Musto, D. K. & Tucker, A. M. Contracts with (Social) benefits: The implementation of impact investing. J. Financ. Econ. 142, 697–718 (2021) doi:10.1016/j.jfineco.2021.01.006.
36
Ben Noamene, T. Do private equity investors value ESG and SDGs? Evidence from Tunisia. Soc. Bus. Rev. 20, 455–469 (2025) doi:10.1108/SBR-09-2024-0303.
37
Fenn, G. W., Liang, N. & Prowse, S. The Private Equity Market: An Overveiw. Financ. Mark. Inst. Instrum. 6, 1–106 (1997) doi:10.1111/1468-0416.00012.
38
Barber, F. & Goold, M. The Strategic Secret of Private Equity. Harvard Business Review.
39
Bracking, S. How do Investors Value Environmental Harm/Care? Private Equity Funds, Development Finance Institutions and the Partial Financialization of Nature‐based Industries. Dev. Change 43, 271–293 (2012) doi:10.1111/j.1467-7660.2011.01756.x.
40
Eccles, R. G., Kastrapeli, M. D. & Potter, S. J. How to Integrate ESG into Investment Decision‐Making: Results of a Global Survey of Institutional Investors. J. Appl. Corp. Finance 29, 125–133 (2017) doi:10.1111/jacf.12267.
41
Drobetz, W., El Ghoul, S., Guedhami, O., Hackmann, J. P. & Momtaz, P. P. Entrepreneurial finance and sustainability: Do institutional investors impact the ESG performance of SMEs? J. Bus. Ventur. Insights 22, e00498 (2024) doi:10.1016/j.jbvi.2024.e00498.
42
Duevski, T., Rastogi, C. & Yao, T. ESG Incidents and Fundraising in Private Equity. (2024).
43
PwC. Global: top-ranked ESG benefits among PE firms 2023. Statista https://www.statista.com/statistics/1500063/top-ranked-esg-benefits-among-pe-firms-worldwide/ (accessed 20 August 2025).
44
Crifo, P., Forget, V. D. & Teyssier, S. The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors. J. Corp. Finance 30, 168–194 (2015) doi:10.1016/j.jcorpfin.2014.12.006.
45
Johnsen, C. G. & Lenhard, J. Navigating the Ambiguity of Impact Investing: How Impact Venture Capitalists Access New Markets, Founders, and Capital. J. Bus. Ethics doi:10.1007/s10551-025-06053-2 (2025) doi:10.1007/s10551-025-06053-2.
46
Boni, L. & Scheitza, L. Analyzing the role of regulation in shaping private finance for sustainability in the European Union. Finance Res. Lett. 71, 106435 (2025) doi:10.1016/j.frl.2024.106435.
47
Thelen, M. Von CSRD über Prozess-Synergien bis zu Impact Investing: Wie Private Equity nachhaltige Werte schaffen kann. in ESG als Treiber von M&A (eds Niggemann, K. A., Dahlhausen, U., Hofer, M. B., Schmitz, R. & Everling, O.) 201–214 (Springer Fachmedien Wiesbaden, Wiesbaden, 2024). doi:10.1007/978-3-658-45406-7_12.
48
Jensen, M. C. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. Am. Econ. Rev. 76, 323–329 (1986).
49
Hart, O. & Zingales, L. Companies Should Maximize Shareholder Welfare Not Market Value. J. Law Finance Account. 2, 247–275 (2017) doi:10.1561/108.00000022.
50
Bellon, A. Does Private Equity Ownership Make Firms Cleaner? The Role of Environmental Liability Risks. Rev. Financ. Stud. 38, 2517–2556 (2025) doi:10.1093/rfs/hhaf035.
51
Sunzenauer, P. S. How Sustainable Is Private Equity? Unlocking the Impact of Private Equity on Asset-Level Sustainability: An Empirical Investigation. Jr. Manag. Sci. 9, 1100–1122 (2024) doi:10.5282/JUMS/V9I1PP1100-1122.
52
Malik, K. & Sharma, S. Role of ESG and private equity on environmental degradation: a nexus of opportunity and responsibility for developing and developed countries. J. Econ. Stud. 52, 532–548 (2025) doi:10.1108/JES-11-2023-0672.
53
Philippot, A. A Moral Evaluation of LBOs. J. Bus. Ethics 196, 695–709 (2025) doi:10.1007/s10551-024-05656-5.
54
Whelan, T. & Balakumar, U. Stakeholders at the Gate: Driving Financial Value Through Sustainability in Private Equity. in Sustainable Investing 61–107 (WORLD SCIENTIFIC, 2024). doi:10.1142/9789811297786_0003.
55
Shive, S. A. & Forster, M. M. Corporate Governance and Pollution Externalities of Public and Private Firms*. Rev. Financ. Stud. 33, 1296–1330 (2020) doi:10.1093/rfs/hhz079.
56
Cohn, J., Nestoriak, N. & Wardlaw, M. Private Equity Buyouts and Workplace Safety. Rev. Financ. Stud. 34, 4832–4875 (2021) doi:10.1093/rfs/hhab001.
57
Buck, L. et al. How Private Equity Can Converge on ESG Data. https://mkt-bcg-com-public-pdfs.s3.amazonaws.com/prod/private-equity-convergence-on-esg-data.pdf (2021) (accessed 22 August 2025).
58
Davis, S. J. et al. Private Equity, Jobs, and Productivity. Am. Econ. Rev. 104, 3956–3990 (2014) doi:10.1257/aer.104.12.3956.
59
Eaton, C., Howell, S. T. & Yannelis, C. When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education. Rev. Financ. Stud. 33, 4024–4060 (2020) doi:10.1093/rfs/hhz129.
60
Gupta, A., Howell, S. T., Yannelis, C. & Gupta, A. Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes. Rev. Financ. Stud. 37, 1029–1077 (2024) doi:10.1093/rfs/hhad082.
61
Bian, Y., Gao, H., Wang, R. & Xiong, X. Sustainable development for private equity: Integrating environment, social, and governance factors into partnership valuation. Bus. Strategy Environ. 32, 3359–3370 (2023) doi:10.1002/bse.3304.
62
Cerqueti, R., Ciciretti, R., Dalò, A. & Nicolosi, M. ESG investing: A chance to reduce systemic risk. J. Financ. Stab. 54, 100887 (2021) doi:10.1016/j.jfs.2021.100887.
63
Friede, G., Busch, T. & Bassen, A. ESG and financial performance: aggregated evidence from more than 2000 empirical studies. J. Sustain. Finance Invest. 5, 210–233 (2015) doi:10.1080/20430795.2015.1118917.
64
Thrasher, M. Do ESG Factors Help or Hurt Private Fund Returns? A New Report Has an Answer | Institutional Investor. https://www.institutionalinvestor.com/article/2dg6dknwu3c8joq6uez9c/portfolio/do-esg-factors-help-or-hurt-private-fund-returns-a-new-report-has-an-answer (accessed 12 September 2025).
65
Bani-Harouni, N., Hommel, U. & Paetzold, F. ESG Footprints in Private Equity Portfolios: Unpacking Management Instruments and Financial Performance. Preprint at doi:10.2139/ssrn.4627273 (2023).
66
Zara, C. Does Sustainability Affect Private Equity Asset Class? SSRN Electron. J. doi:10.2139/ssrn.3152973 (2019) doi:10.2139/ssrn.3152973.
67
Summa Equity Fund III. Summa Equity https://summaequity.com/funds/summa-equity-fund-iii/ (2024) (accessed 10 January 2025).
68
Noh, J.-H. & Park, H. Does the disclosure of ESG information by private equity firms impact the success of their fundraising efforts? J. Deriv. Quant. Stud. 선물연구 32, 323–343 (2024) doi:10.1108/JDQS-03-2024-0010.
69
Lino, M. et al. Limited Partners and Private Equity Firms Embrace ESG. https://www.ilpa.org/resource/limited-partners-and-private-equity-firms-embrace-esg/ (2022) (accessed 18 August 2025).
70
Institutional Limited Partners Association (ILPA). ESG Assessment Framework. https://go.ilpa.org/l/224412/2021-07-22/mnmcw (2021) (accessed 27 September 2025).
71
Principles for Responsible Investment (PRI). Limited Partners’ Private Equity Responsible Investment Due Diligence Questionnaire. (2023) (accessed 18 August 2025).
72
Recommendations. Task Force on Climate-Related Financial Disclosures https://www.fsb-tcfd.org/recommendations/ (accessed 19 September 2025).
73
Data Convergence Initiative. Institutional Limited Partners Association https://ilpa.org/industry-guidance/environmental-social-governance/data-convergence-initiative/ (accessed 19 September 2025).
74
Investindustrial – B CorporationTM. Investindustrial https://www.investindustrial.com/who-we-are/B-Corporation.html (accessed 22 September 2025).
75
Wells Fargo Corporate & Investment Banking. Sustainability Integration for Fund-Level Financings. https://www.wellsfargo.com/assets/pdf/cib/insights/sustainable-fund-finance.pdf#:~:text=Sustainability%20Influences%20Asset%20Selection%20In,house (2024) (accessed 29 September 2025).
76
Weddrien, O., Fotteler, T. & Bönning, M. Aus einem Guss: Wie sich ESG Due Diligence und ESG Value Creation miteinander verknüpfen lassen. in ESG als Treiber von M&A (eds Niggemann, K. A., Dahlhausen, U., Hofer, M. B., Schmitz, R. & Everling, O.) 647–664 (Springer Fachmedien Wiesbaden, Wiesbaden, 2024). doi:10.1007/978-3-658-45406-7_37.
77
Bornhauser, F. & Vasadi, J. Global ESG Due Diligence+ Study 2024. https://kpmg.com/esg-dd-2024 (2024) (accessed 10 January 2025).
78
PwC Luxembourg, S. Unlocking the Green Premium in Private Equity: How Private Equity Firms Can Create Value by Integrating ESG. 13 https://www.pwc.lu/en/sustainable-finance/unlocking-green-premium-private-equity.html (2023) (accessed 13 September 2025).
79
Loumioti, M. & Serafeim, G. The Issuance and Design of Sustainability-linked Loans. SSRN Electron. J. doi:10.2139/ssrn.4287295 (2022) doi:10.2139/ssrn.4287295.
80
Janson, E., Pozza, M., Schreve, L. & Caudle, D. Global Private Equity Responsible Investment Survey 2023. 16 https://www.pwc.com/PERIS (2023) (accessed 23 September 2025).
81
Koole Normann, P. & Hansen Moller, M. How ESG due diligence lowers risk and boosts value for private equity. https://www.ey.com/en_dk/insights/climate-change-sustainability-services/how-esg-due-diligence-lowers-risk-and-boosts-value-for-private-equity (2024) (accessed 24 September 2025).
82
EDCI. EDCI Metrics Guidance. ESGDC https://www.esgdc.org/metrics/ (2025) (accessed 25 September 2025).
83
Global Impact Investing Network (GIIN). Lasting Impact: The Need for Responsible Exits. https://thegiin.org/research/publication/responsible-exits (2018).