A recent FT article about private equity supporting a backlash against ESG flags up important issues concerning the role of private and public markets in expanding the pool of ESG-ready investments and promoting the next generation of ESG leaders. The article proposes that publicly listed companies bear the brunt of demanding and expensive ESG disclosures and that by returning to private ownership they can reduce investor ESG scrutiny and generate higher returns. It is true that disclosure requirements are increasing and that companies face closer scrutiny for ESG credentials, but this is caused by a huge surge in asset owners (and LPs) demanding higher standards of ESG transparency: according to Morningstar, European sustainable fund assets hit €1.3tr in 1Q’21. This is rapidly becoming a case of too much money chasing too few liquid ESG leaders. On that basis, it makes no sense as a CEO to shrink away from this vast pool of capital and hide in private equity. On the contrary, doing good can potentially attract a scarcity premium as dedicated funds scramble to own shares in the best businesses.
The ESG investment trend is set to continue so the market priority is to address the supply-demand imbalance, making more companies investable, not fewer.
Enter Gen Z – where ESG is ‘always on’:
Private equity is not an ESG avoidance vehicle it is actually an enabler, helping to grow the next generation of high-value ESG-native businesses who will graduate shovel-ready into the corporate mainstream: the ESG Gen Z are the first generation of startups to be fully ESG enabled, and able to demonstrate their progeny from Seed to Series A, to pubic listing by means of periodic assessments and benchmarking. As traditional businesses rapidly increase their awareness of ESG as an aspiration and a condition of investment capital, sustainability will be embedded in the DNA of Gen Z.
The Disruption House is ready for Gen Z, firmly believing that the ESG journey begins with the start-up and grows with the business and its supply chain over time, providing periodic and proportionate assessments for smaller companies and their investors to benchmark and record the integration progress. There are 5.9m small businesses out there in the UK alone, providing 3/5ths of the country’s employment – let’s get started.
To find out more – click here.
Written by Marcus Gunn, Head of ESG Research.