The Alpha In ESG

How can ESG create value in a given investment?

From the very beginning of the ESG movement, about fifteen years ago, asset managers have asked themselves if and how ESG can create value. In our view, trillion-dollar questions are always worthy of our attention, particularly if answering them may help to save the planet.

In order to show whether improvements in ESG can drive value, we will concentrate on the three key levers which investors (Private Equity investors specifically) typically operate in order to add value:

FIGURE 1: PRIVATE EQUITY VALUE CREATION LEVERS

Source: MJ Hudson Spring

Understanding how each of these levers can be influenced by ESG will help us better understand where, and how we might expect to deliver increased value.