ESG Value Creation in Private Equity

How ESG enhances traditional strategic growth levers

Claire Richards

Principal Consultant

Transparent performance reporting for exit readiness
Operational strategies for margin expansion
Revenue growth amplification
Supply chain optimisation
Capital structure optimisation
Beyond the investment team

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The new PRI Sustainability Value Creation framework is designed to support investors in embedding and leveraging sustainability to drive financial outcomes.

Building on this, we believe that investment teams (deal teams) shouldn’t view ESG value creation levers differently from traditional PE strategic growth levers such as operational efficiencies, performance reporting, capital structure optimisation, talent management, and digital transformation. ESG should be viewed as an integrated strategy that enhances mainstream PE growth drivers and supports long-term growth.

Why?

Not all management teams respond to levers and initiatives associated with ‘sustainability’. Unfortunately, it can be the case that key stakeholders disassociate at the mention of ESG.

This article explores how sustainability directly enhances value generation strategies, creating a powerful synergy between sustainability and financial performance. Rather than being separate considerations, ESG factors serve as operational enablers that amplify conventional PE value creation levers.

Transparent performance reporting for exit readiness

Communicating strong performance and business value to the market and potential investors is high on the agenda of all management and sell-side teams. PE firms are increasingly using ESG reporting frameworks to showcase sustainability performance, demonstrate compliance with ESG investing criteria, and quantify value creation during exit readiness.

Well communicated ESG indicates value creation, with portfolio companies demonstrating 6-7% multiple uplift at exit from sustainability efforts, according to the PRI. These sustainability-linked uplifts would not be recognised without communicating and demonstrating clear sustainable outcomes to investors in investment memoranda and reports. This quantifiable impact directly supports exit valuations by providing evidence of systematic value creation beyond traditional metrics.

Anthesis can support your portfolio companies with exit readiness and strengthen their position through vendor due diligence services. We’ve published our recommendations on positioning Private Equity assets to maximise exit value through ESG.

We have experience in supporting private equity firms in reporting on ESG and sustainability. We support reporting on a firm or fund level, highlighting responsible investment practices, case studies, and reporting on portfolio data.

Read our recommendations on best practices for Private Equity ESG reporting.

Operational strategies for margin expansion

Sustainability initiatives can deliver direct cost savings that enhance traditional margin expansion efforts. For investors, driving the integration of sustainability operational levers such as energy efficiency, waste reduction, and supply chain resilience can accelerate margin expansion and reduce volatility in returns.

The PRI has estimated that sustainability-linked value creation, such as operational strategies, can lead to 6% cost optimisation.

Key sustainability-linked operational levers should be integrated into margin expansion thinking and result in reduced energy costs of production, reduced transportation costs, and reduced waste disposal costs. These environmental improvements create immediate bottom-line impact without requiring trade-offs with financial performance.

Our global team of experts is continuously supporting companies to identify operational cost-saving opportunities. We apply robust engineering solutions to drive cost optimisation and solve climate problems within the industrial/manufacturing and built environments.

Learn about our Decarbonisation & Energy Transition and Environmental Management Services.

Revenue growth amplification: value-based pricing & market expansion

Credible and well-substantiated sustainability claims boost traditional revenue growth strategies, such as value-based pricing and market expansion. Product certification or product development creates substantial competitive advantages, with sustainable consumer goods commanding a 28% price premium and achieving 55% higher market share growth compared to conventional alternatives. This directly supports PE firms’ organic growth objectives while expanding addressable markets.

Enhanced customer trust through robust ESG practices reduces reputational risk while building long-term customer loyalty. In B2B contexts, companies increasingly prioritise sustainability criteria in product and supplier selection, making ESG credentials essential for winning new business and retaining existing clients.

Making a green claim?

Anthesis has a number of LCA specialists and Green Claims experts supporting clients across global markets to achieve price premiums for sustainable products and services while navigating any reputational and legal risks by demonstrating accurate claims.

Explore our Sustainable Products & Circularity services and read our Green Claims Whitepaper.

Supply chain optimisation

As indicated in a recent article on accelerating your journey towards a sustainable supply chain, cost pressures remain a top concern for many organisations, with 83% of procurement professionals identifying inflationary pressures and rising commodity prices as their primary external challenge.

Typical supply chain management programmes aim to reduce sourcing costs and volatility while mitigating operational risks that could impact cash flows. Sustainable supply chain interventions are no different and should be considered an integral part of supply chain optimisation for any business. Initiatives such as improved transparency, knowing your baseline, risk management, and supplier engagement are all sustainability value levers that create more predictable cost structures and reduce volatility in financial performance.

Capital structure optimisation

Reducing the cost of debt and improving access to funding are core components of capital structure optimisation. Sustainability-linked finance (such as SSLs, or debt financing with sustainability ratchets baked in) is becoming a critical tool for investors to funnel capital towards the transition to net zero by influencing more sustainable practices, such as emissions reduction or target setting.

PE firms should consider and support portfolio companies to unlock access to capital while lowering debt costs through sustainability-linked financing mechanisms.

Anthesis helps lenders and borrowers seeking to offer or raise funds through ESG or sustainability-linked loans and bonds. We assist with baselining the borrower’s current ESG performance, KPI (Sustainable Performance Targets) selection, and annual performance verification in line with LMA, LSTA, APLMA ,and related guidance. Find details of our ESG Credit & Debt Services.

Explore how Anthesis supported Tesco in Developing the UK retail’s first sustainability-linked supply chain finance product.

Beyond the investment team

According to research by the PRI, the integration of ESG with traditional PE levers varies significantly by geography, reflecting different market conditions and stakeholder expectations.

Europe: European investors emphasise customer-focused ESG initiatives that drive revenue growth, particularly sustainable product offerings responding to strong consumer demand for environmental responsibility.
North America: North American investors prioritise risk management and cost-linked ESG drivers, focusing on operational efficiency and trust-building initiatives while facing challenges in demonstrating clear financial linkages.
Asia-Pacific: APAC investors concentrate on social initiatives, particularly employee engagement and health and safety programs that drive both revenue and cost benefits.
Africa: African investors emphasise community engagement and environmental cost-efficiency measures that support local economic development while reducing operational costs.

This integrated thinking helps frame ESG considerations as enhancing rather than existing alongside, or as a competing priority, to mainstream strategic growth drivers and value creation activities. ESG creates compound value through operational excellence, strategic positioning, and financial optimisation, working in concert with ambitious leadership teams.