| dc.description.abstract | Despite the increasing recognition of Environmental, Social, and Governance (ESG) factors in public market investments, little is known about their impact on value creation in the private equity (PE) industry. This study aims to fill this gap by exploring the integration of ESG factors throughout the PE investment life cycle and examine its potential to enhance value creation. Utilizing a mixed-methods approach, we conduct in-depth interviews with industry experts in four PE firms based in Norway and survey 22 PE firms in the Scandinavian region. Although Norwegian firms are overrepresented, the findings offer insights into the broader Scandinavian PE industry. The thesis addresses five research questions related to ESG integration in the pre- investment phase and the ownership period, defining characteristics of firms that are leading on ESG, the role of ESG factors in value creation in PE investments, and emerging ESG trends.
Our findings indicate that the Scandinavian PE industry demonstrates a strong focus on ESG, although the degree of ESG integration is mixed. Value creation and compliance are identified as primary drivers of ESG integration, followed by LP expectations. The main challenges to ESG integration include limited data in the pre-investment phase and difficulties in data collection during the ownership period. We find that ESG leading PE firms demonstrate organization-wide knowledge and shared responsibility for ESG integration, supported by a clear expectation from the top. They proactively adopt ESG best practices, including embracing standards and regulations, and consistently gather and analyze ESG data throughout the investment life cycle. Our research findings indicate a potential positive relationship between the ESG initiatives of PE firms and the value of their portfolio companies, supported by case studies and analysis of post-IPO financial performance. Finally, we emphasize the growing importance of regulatory developments and data utilization, climate change and environmental risks, and investor expectations in shaping the industries investment processes going forward.
Our findings contribute to the ongoing conversation about responsible and sustainable investing practices in the PE industry. The diverse representation of PE strategies and firm sizes in our study makes the results relevant to a wide range of stakeholders, including PE firms, investors, and other interested parties seeking insights on ESG integration within the PE industry. | |
