What are the conclusions of the Deloitte Central Europe Private Equity Confidence Survey?
Investors pay more and more attention to ESG factors (E – Environment, S – Social Responsibility, G – Corporate Governance), according to Deloitte’s Central Europe Private Equity Confidence Survey. According to the experts of the consulting company, however, much remains to be done for the funds to realistically incorporate these aspects into their investment strategies and business decisions. It is anticipated that companies benefiting from PE fund financing that incorporate these factors in their business models can effectively increase their valuation after an investor exits.
The 37th edition of the Deloitte regional survey „Central Europe Private Equity Confidence Survey” presents the conclusions of a survey addressed to private equity investors operating in Central Europe. In addition to the issues of sustainable development and climate, it also shows the mood and expectations of EP funds regarding, inter alia, to: economic situation, transaction market, expected transaction parameters and planned activities in the next six months.
According to Deloitte experts, in the near future in the financial sector, ESG factors will be used more and more often in the processes of assessing the profitability of potential investments. A reflection of how the importance of this area is perceived is the growing pressure from limited partners in this regard. As a result, more than half (56%) of Deloitte’s respondents confirmed that their fund has implemented an investment policy that addresses these issues. However, what is quite surprising, in the previous edition of the survey, as many as 76 percent said so. participants.
– This year’s responses clearly show the return in the declarations and specific actions taken by the funds. Compared to the previous edition, the percentage of respondents who indicated that they have already implemented policies taking into account ESG factors has decreased. However, it increased significantly from 4 percent. to almost 30%, the share of respondents stating that they have not yet applied a policy in this area, but intend to do so. This does not mean that the issue of including ESG factors in decision-making processes is losing importance, on the contrary – companies treat them more and more seriously. Perhaps later declarations take into account the importance of ESG factors in the process of creating added value during the investment period, which may be the reason for such a significant increase in the number of enterprises declaring their willingness to implement appropriate strategies – says Agnieszka Zielińska, Partner in the Deloitte financial advisory department.
According to the survey, only about a tenth (11 percent) have not implemented such an approach or plan to do so, and 6 percent. stated that their fund’s investment policy does not take ESG factors into account at all.
When we look at specific ESG solutions related to the climate, only 11 percent. Deloitte respondents have implemented formal decarbonisation commitments, despite the fact that almost half of the respondents are aware of the problem and confirmed that they will move in this direction. Surprisingly, over 30 percent. of respondents declared that they are not currently focusing on the climate impact of their portfolio and are unlikely to do so in the future.
– Climate change can be perceived as a challenge that, at least for some private equity funds, is not important, if only due to the relatively short period of investing in individual companies. However, environmental threats and opportunities will, in fact, have a significant impact on their day-to-day activities. That is why we observe that more and more funds are aware of the challenges related to the pursuit of climate neutrality, and some are already taking active steps to reduce their carbon footprint – says Agnieszka Zielińska.
The strength of private equity funds is their ability to influence those sectors of the economy that need to change their approach to mitigating climate change. According to Deloitte experts, in the face of more common and more restrictive regulations, as well as external pressure, they will be obliged to actively act in the area of sustainable development and reduce the emission intensity of their investments.
– ESG factors, the pursuit of climate neutrality and actions aimed at reducing the carbon footprint are and will be in the future more and more taken into account in business and investment decisions made by organizations, not only as a result of increasing regulatory and social pressure. Rooting sustainability in business – at company, fund and portfolio levels – offers new opportunities and promising partnerships. The fast-growing private equity industry is in many respects well prepared to use its strengths, market position and opportunities to have a positive impact on society, while generating returns for investors and contributing to the development of resilient and successful companies – emphasizes Irena Pichola, partner, leader of the sustainable development team in Poland and Central Europe, Deloitte.
Projekt otrzymał dofinansowanie z Norwegii poprzez Fundusze Norweskie 2014-2021, w ramach programu „Dialog społeczny – godna praca”.
