Private Equity ESG Value Creation
Improve EBITDA Multiples
Engagement with portfolio companies on ESG issues is a critical part of the value creation process for our Private Equity and Venture Capital clients.
A study by Deloitte found that portfolio companies that have a 10 point higher ESG score are associated with approximately 1.2x higher EV/EBITDA multiple.
It also found that companies that improve their ESG score by 10 points, on average increase their EV/EBIDTA multiple by 1.8x.
This is because ESG factors can positively impact portfolio company operating costs, productivity, reputation, access to markets, and business growth.
Danesmead ESG support ESG Value Creation in two main ways:
Working with GPs to define an ESG strategy. Developing frameworks and action plans to ensure alignment with recognised frameworks across the portfolio. Produce strategy-specific ESG playbooks and guidance.
Engaging directly with portfolio companies to implement and monitor the progress of the GP action plan and meet ESG objectives.
Working With GPs
Strategy
Review portfolio companies’ regulatory and reporting obligations.
Establish ESG objectives and targets for portfolio companies.
Develop an ESG action plan, setting out timeframes and responsibilities.
Metrics & Monitoring
Identify sustainability metrics from frameworks such as EDCI or PAIs for portfolio companies to collect and report on.
Data collection and monitoring processes to track progress.
Guidance
Support, guidance, resources and training for GPs, so that the portfolio of companies can be supported centrally.
Provide resources such as ESG Playbooks.
Portfolio Company Support
Implementation
Support portfolio companies to develop ESG polices, collect and manage ESG data, establish ESG monitoring processes, and report to regulatory bodies.
Training
Specialised guidance materials and training to help boost ESG knowledge within portfolio companies.
Transaction Readiness
Support portfolio companies to prepare for an exit by ensuring ESG commitments, policies, and processes are in place.
Projects are targeted to meet the expectations of likely acquirers.
Important Regulation: CSRD
The Corporate Sustainability Reporting Directive (CSRD), enforced by the EU will have a dramatic effect on the reporting requirements for many companies in, or doing business with, the European Union.
Find out more about CSRD and how it will affect your portfolio companies, in our CSRD explainer here.