Just how important are environmental, social and governance factors in driving value? Very, suggests ERM’s latest survey of worldwide investors.

Seventy percent of respondents told us that ESG opportunities and risks have a material impact on their investments. Interestingly, over 95 percent of the 60 general partners (GPs) and limited partners (LPs) interviewed believe there is significant untapped value from ESG within their portfolio companies. The respondents from 17 countries represent $1.3 trillion in private equity assets under management.

The survey comes as pressure on private equity firms continues to grow as the expectations of LPs advance beyond simply looking for ESG policies as part of a compliance-oriented data gathering exercise. Many LPs are now looking for real evidence of how ESG management is being implemented and ‘hard wired’ into processes to deliver as well as to protect value. We are also aware of LPs consolidating their capital to fewer firms because they require a greater degree of confidence in their GPs. ESG is one of the key factors driving this change.

In addition, LP expectations of private equity firms are changing rapidly spurred on by initiatives such as the UN Guiding Principles on Business and Human Rights, the UK Modern Slavery Act and rankings that show ESG efforts in supply chains. The Montreal Carbon Pledge, the UN Sustainable Development Goals and the OECD Guidelines for Multinational Enterprises to the financial sector are also helping change attitudes.

In conversations with private equity clients after publishing the survey results, we found that many deal teams and ESG practitioners want to hear more about how environmental, social and governance factors are being used to realise value.

Our survey revealed five ingredients contributed to ESG success within investor firms. Read more about these five ingredients, case studies and recommendations for success in this article.