Who wields the greatest influence— legislators, businesses, or consumers?
As part of a joint research project, FuturePlus and Relative Insights have published an exploration into the forces that propel societal change.
With a focus on the finance industry’s relationship to sustainability, we delve into the escalating interest exhibited by venture capital (VC) and private equity (PE) firms. The question at hand: Are these entities pioneering the path toward sustainability, or are they simply responding and adapting to the challenges set by established standards and frameworks?
PE and VC firms are pivotal in shaping the global business landscape, fostering innovation, and driving economic growth. In the UK alone, PE and VC-backed businesses directly generated £137 billion in 2023, equivalent to 6% of the UK’s total GDP. This power extends across a range of practices, and investors are placing greater emphasis on environmental, social and governance (ESG) considerations.
Companies’ sustainability has emerged as a fundamental criterion in the decision-making process for PE and VC firms. In today’s investment climate, companies seeking financial backing are being scrutinised not only for their profit potential but also for their commitment to ethical conduct, environmental stewardship, and social impact.
Embedding ESG within investment conditions and mandating sustainability targets ensures that this aspect remains a primary focus in businesses’ plans, rather than secondary to financial imperatives.
This trend is only set to grow. EY notes that 57% of PE firms have embedded ESG considerations within their decision-making. In 2022, 26% of firms decided against investing in a business or fund due to inadequate ESG policies.
While it’s clear sustainability considerations are growing among PE and VC investors, the reason why is still up for debate. Have firms seen the value of investing in organisations that prioritise sustainability? Or are they simply reacting to new legislation and public sentiment? Put simply, is this focus reactive or proactive?
Understanding this not only helps to identify who truly drives change in society – legislators, businesses and investors, or consumers – but also offers essential insights to businesses seeking investment, instructing them on how best to keep up with emerging trends.
Determining how these factors intersect requires a considered analysis incorporating both numerical and qualitative data. To do this, sustainability specialists FuturePlus and text analysis software Relative Insight have pooled their resources to pinpoint the trends behind investors’ pivot towards ESG — and what this means for businesses.
Examining a breadth of sources, from PE and VC firms’ own websites and reports through to public discourse on sustainable investment, this report pieces together which elements are most critical to shaping the current environment around investment and ESG, as well as identifying the trends that are set to influence sustainable finance in the future.
Key insights include:
- A noticeable relationship between legislative action and increased ESG reporting reveals the government’s role in reshaping industry norms.
- PE and VC firms increasingly prioritise sustainability, as evidenced by a surge in reports discussing zero emissions, ESG integration, and climate-related risks in 2021.
- A case study on Vala Capital showcases intentional and strategic sustainable finance and illustrates the power of aligning investments with societal and environmental interests.
- Conflicting viewpoints on VC and PE firms’ role in sustainability underline the need for transparency, measurable improvements, and genuine action.
Click here to download the full report.