Responsible Investment in Private Equity: Driving Value

While Private Equity has historically been seen as a latecomer in terms of Environmental, Social, and Governance (ESG) integration, our analysis shows that the industry is undergoing an in-depth transformation. This evolution is driven by an increasing pressure from investors, shifting regulatory environments, and a growing awareness among GPs that ESG considerations can generate value creation and improve risk management.

A Natural Convergence between Private Equity and Responsible Investment

PE, by nature, is well-positioned to embrace responsible investing. Its longer investment term enables a greater influence on the strategic direction of portfolio companies. PE offers a holding pattern where governance is a key component. GPs often hold board positions, enabling them to bring significant ESG transformations from within. This tight involvement facilitates the incorporation of sustainability objectives and improvements into strategic roadmaps.
Moreover, ESG integration is increasingly recognised not only as a reputational tool but also as a fundamental lever for value creation. Responsible governance, environmental efficiency, and social practices are seen as enhancing long-term resilience and financial performance. PE plays a major role in catalysing innovation and addressing societal challenges.

Drivers of Change: From Values to Mandates

One major driver of RI adoption in PE is investor demand. Institutional LPs particularly in Europe are increasingly incorporating ESG in their due diligence processes and expecting GPs to do the same. In contrast, North American and Asian markets exhibit more fragmented or cautious approaches. Regulatory frameworks, notably the SFDR(2) and CSRD(3) in the European Union (EU), are accelerating this transition by providing greater transparency and standardisation.

Cultural factors also influence ESG integration. European investors, especially in Nordic countries tend to view ESG as an intrinsic part of their fiduciary duty. Nevertheless, even in markets with limited regulatory pressure, competitive dynamics are encouraging firms to integrate RI as a way of differentiation and talent attraction.

Implementation in Practice

The implementation of responsible investment components varies widely across the industry. Common strategies include:

• exclusion policies: Avoiding sectors such as tobacco, coal, or controversial weapons is now mainstream,

• thematic investing: Many GPs have launched funds aligned with specific ESG goals, such as decarbonisation or transition or health innovation,

• engagement: PE enables proactive and continuous engagement policies. ESG priorities are onboarded in action plans, tracked with tailored Key Performance Indicators (KPIs), and monitored throughout the investment lifecycle,

• measurement and reporting: Standardised KPIs such as board diversity, Greenhouse gas (GHG) emissions, and work-related injuries are becoming more common.

However, implementation challenges persist. Data quality and access remain major obstacles, particularly for small and mid-sized companies. Defining materiality, ensuring comparability across portfolios, and verifying ESG data require significant human and technical resources. Moreover, the lack of harmonised frameworks within the PE industry complicates both internal management and LP reporting obligations.

Organisational Adaptation and Governance

Effective ESG integration in PE requires structural alignment. ESG must be sponsored at the highest level of the company and embedded throughout all levels of the organisation. Some leading GPs have granted ESG teams with veto power on deals. Success also depends on internal collaboration: investment professionals must be trained and empowered to take ownership of ESG performance, not just delegate it to specialists.

Balancing ESG with Financial Objectives

A central concern remains the perceived trade-off between ESG integration and performance. ESG strategies offer dedicated investment themes over all real assets investments. Each real asset class (private equity, infrastructure, real estate,..) constitutes in its own an ESG strategy. It has now become for investors a necessary condition for the long-term performance of all investments. ESG criteria enhance long-term returns by improving risk-adjusted performance, diversifying exposures, and preventing reputational or operational risks.

Still, challenges exist. Top-performing GPs, often based in the US, resist ESG demands due to their strong market positioning. This forces LPs to balance fiduciary responsibilities with ESG expectations - a tension that reflects the industry’s transitional phase.

The Road Ahead: Convergence, Accountability, and Maturity

PE’s journey toward sustainability is complex and diverse. The industry is at different state of maturity ESG champions, latecomers, and a middle segment that integrates ESG reactively or selectively. To fully realise its potential, the PE sector must address structural challenges in reporting, align remuneration schemes with sustainability, and bridge the data gap. Regulation will continue to be a catalyst, but voluntary leadership and innovation remain essential.

In conclusion, responsible investment in Private Equity is no longer a question of “if” but “how fast” and “how deep”. The industry has powerful levers to effect change and must now mobilise them systematically to meet rising expectations from regulators, investors, and society.

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of April 2025. Diversification does not guarantee a profit or protect against a loss. The views expresses regarding market and economic trends are those of the authors and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

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(1) This article is a summary of a larger study carried out on the RI and PE by Amundi Alternatives & Real Assets and Amundi Institute. This study can be consulted at the following address: “https://research-center.amundi.com/article/responsible-investing-private-equity”
(2) Sustainable Finance Disclosure Regulation.
(3) Corporate Sustainability Reporting Directive.

Sandrine Lafon-Ceyral, Chief Responsible Officer, Amundi Alternatives & Real Assets