Investing in environmental sustainability can target sustainability-themed investments across a range of transaction types, from the early-stage opportunities in venture capital to growth equity & buyouts (traditional “private equity”). The landscape is broader than that depending on an investor’s mandate and can also include a range of real assets and infrastructure. Investment themes across this space are diverse and can range from power generation and distribution to food & agriculture, water, the circular economy, and broad resource efficiency. Sustainability-focused private investing offers a broad range of opportunities and supports diverse execution strategies, allowing investors to tailor their approach based on specific goals and risk-reward considerations.
A common misconception of this type of investing is that it equates to a concessionary investment approach where environmental and social impact is prioritized over financial outcomes. While a small number of market participants may take this approach, the vast majority of investors approach sustainability investing as fiduciaries, prioritizing financial performance and outcomes while integrating impact goals in ways that add strategic value. In private markets, where investors often have longer time horizons and may exercise greater control over management and governance, sustainability-themed investment opportunities can be particularly attractive as they can synergistically align financial and operational goals alongside sustainability impact and measurement.
In addition to a focus on financial outcomes consistent with other forms of private equity investing, investors in sustainability-themed private markets may incorporate environmental and social impact and risk measurement, which can serve to bolster the investment process. Such improvements can include an enhanced focus on operational execution and efficiency, which can serve to enhance initial due diligence and subsequent operational oversight. Concretely, this could mean assessing energy usage, labor conditions, cybersecurity, or governance structures during diligence and throughout ownership. This integration is viewed as both a risk management and value creation tool. Incorporating such frameworks into the investment process ensures material environmental and social risk factors are evaluated.
On the whole, sustainably-themed private investing enables investors to establish thematic priorities, integrate risk factors, and align financial and impact goals. Sustainability-focused investors must define clear objectives, apply a disciplined investment process, and measure both financial and non-financial outcomes in a consistent and transparent manner. By aligning capital with sustainability-themed investing, investors can reduce risk, unlock new value, and help shape a more sustainable future.
