Environmental, Social, and Governance (ESG) strategies can greatly enhance value for private equity funds when implemented effectively. A recent study has found that shares of private equity funds publicly listed on exchanges tend to perform better if the companies had low ESG risk scores, underscoring the financial benefits of strong ESG management.
The study, conducted by A&M, analyzed data obtained on 16 listed firms, which collectively managed about 1,800 portfolio investments and held roughly $6.3 trillion in assets under management.
Among these firms were some of the largest private market companies in the world, including BlackRock, Apollo, Ares, KKR, and Blackstone, all of which are publicly listed on the New York Stock Exchange. Additionally, EQT, listed in Stockholm, Carlyle and TPG traded on the NASDAQ, were also included.
One of the key findings of the study was that private equity firms with strong ESG credentials outperformed their peers by over 70% in stock market performance.
This suggests that investors increasingly recognize the value of responsible and sustainable business practices, leading to greater market confidence in companies that proactively manage ESG risks.
However, the study also found a disparity in ESG reporting. Only 21% of portfolio companies were publishing their ESG reports, highlighting a gap in transparency. Reporting also varied significantly across portfolios, with just 4% of firms that had poor ESG ratings disclosing their reports.
In contrast, more than 50% of firms with strong ESG credentials made their data publicly available. This discrepancy suggests that companies with better ESG practices are more likely to be transparent about their sustainability efforts, reinforcing investor trust.
The study’s results highlight an association between the overall ESG risk rating of a company and the level of attentiveness paid to ESG at the portfolio level.
Will Rhode, managing director at A&M, also revealed that their findings were well received by private equity clients. Many firms noted that the insights would help them integrate ESG into their value creation strategies.
The report also identified some areas where ESG considerations could drive value, including waste management, logistics and transportation, energy management and decarbonization, procurement, and incorporating ESG principles into supply chain management.
Overall, the study highlights a clear link between ESG risk management and improved financial performance, reinforcing the growing importance of sustainability in investment strategies. As more private equity firms recognize the benefits of ESG integration, those that prioritize and transparently report their sustainability efforts may continue to gain a competitive edge in the market.
The data is out. Addressing ESG risks is linked to better stock market performance. It is therefore no longer surprising why enterprises like Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) are going all out in integrating these principles in every aspect of the company.
NOTE TO INVESTORS: The latest news and updates relating to Aston Bay Holdings Ltd. (TSX.V: BAY) (OTCQB: ATBHF) are available in the company’s newsroom at https://ibn.fm/ATBHF
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