In the UK, the British Venture Capital Association estimates that more than 11,000 firms employing close to 20 per cent of all private sector workers are now owned by private equity and venture capital funds. It is a huge and increasingly influential player in the financial markets. But how do its activities contribute towards sustainability?

The private equity industry is already well-positioned to seize opportunities from, and contribute to, sustainable development, for a number of reasons:

(a) Medium to long-term focus – private equity firms can encourage investee companies to take a relatively long-term view of the strategic advantages to be gained through a focus on sustainable development.

(b) Capacity for risk-taking on innovation – with a higher risk-reward profile than quoted equity investments, private equity may have greater freedom to back innovation and untested technologies which promote sustainability.

(c) Extensive due diligence - environmental audits are often carried out as part of due diligence and can be expanded beyond compliance to look at sustainable development activities more strategically.

(d) Emphasis on the need for strong corporate governance – private equity firms can improve the capacity of the company’s board to assess the risks and opportunities facing the business, including sustainability.

(e) Active engagement – private equity firms influence strategic decision-making processes and can actively monitor the company’s sustainability strategy.

(f) Focus on growth and added value – valuations are enhanced and exits facilitated if the companies are “clean” and have a clear strategy in place for responding to global trends.

Forum has worked with the European Venture Capital Association and with individual private equity companies to develop ways of embedding sustainable development thinking into decision-making on investments.

• Contact us for a summary of Private equity and Sustainable Development; for a report prepared for the EVCA; and for a toolkit produced for CDC

For more information please contact Alice Chapple at a.chapple@forumforthefuture.org.uk