ESG can increase the valuation of companies financed by private equity funds
22:06
Investors attach greater importance to environmental, social, and corporate governance (ESG) factors, according to Deloitte's Central Europe Private Equity Confidence Survey.
Private equity (PE) is a type of equity investment involving involvement in unlisted companies. It is anticipated that companies using PE fund financing that incorporate ESG factors in their business models can effectively increase their valuation after an investor exits.
Shortly, in the financial sector, ESG factors will be more often and more commonly used in the processes of assessing the profitability of potential investments, according to Deloitte experts. The importance of this area is evidenced by the growing pressure in this regard from shareholders (limited partners).
More than half (56 percent) of Deloitte's respondents confirmed that their fund has implemented an investment policy that addresses these issues. Interestingly, in the previous edition of the survey, as many as 76 percent of participants said this.
“This year's responses clearly show the return in the declarations and specific actions taken by the funds. Compared to the previous edition, the percentage of respondents who indicated that they have already implemented policies taking into account ESG factors has decreased. However, the share of respondents stating that they have not yet applied a policy in this area, but intend to do so increased significantly from 4 percent to almost 30 percent. This does not mean that the issue of including ESG factors in decision-making processes loses its importance, on the contrary, perhaps later declarations take into account the importance of ESG factors in the process of creating added value during the investment period," Agnieszka Zielińska, from Deloitte's financial advisory department, said.
