ARTICLES

Summary

Despite their reputation in the 1980s as corporate raiders, most private equity firms attempt to improve the performance of their portfolio companies through better corporate governance. But while the G in ESG (environmental, social, and governance) has always been important in the industry, the E and the S have been virtually nonexistent. Private equity has been comfortable seeking returns with little concern for the long-term sustainability of portfolio companies or their wider impact on society. That needs to change, the authors write, because PE has grown so large that society’s most urgent challenges can’t be addressed without the industry’s active participation in the sustainability movement. Having interviewed a large sample of executives who run PE firms and the asset owners that fund them, the authors offer recommendations for how private equity can emerge as a leader in the ESG field—to benefit the wider world as well as its own long-term performance.

Despite their reputation in the 1980s as corporate raiders, most private-equity firms attempt to improve the performance of their portfolio companies through better corporate governance. Historically their business model has been to create value by sharpening the focus and oversight of largely ignored business units inside conglomerates or poorly managed private companies, such as dysfunctional family-run businesses. But although the G in “environmental, social, and governance” has been important in the PE industry from the outset, the E and the S have been virtually nonexistent. The industry has been content to seek returns with little concern for the long-term sustainability of portfolio companies or their wider impact on society.

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Robert G. Eccles

author

Robert G. Eccles of Saïd Business School, University of Oxford is the author of a number of books on integrated reporting, sustainability and the role of business in society. His focus is on sustainability from both a company and investor perspective. Professor Eccles is also involved in a variety of initiatives to embed environmental, social, and governance (ESG) issues in real world decision making. One of these is the Sustainability Accounting Standards Board (SASB), of which he was the founding chairman. In 2018, Professor Eccles was selected by Barron’s as one of the top 20 influencers on ESG investing.

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