Tying sustainability to value creation comes to the fore

Sustainability and impact investing found themselves in the political crosshairs in 2025 as the return of US President Donald Trump to the White House stirred an “anti-woke” backlash that had been brewing for years.

Rather than just take it lying down, however, private markets sustainability professionals endeavoured to prove to demonstrate how sustainability contributes quantifiably to better risk-adjusted returns.

After the Responsible Investment Forum: Europe in November 2024, New Private Markets reported that fund managers were making progress in proving the link between sustainability and value creation. Those efforts were put to the test in 2025.

General Atlantic, one of the mainstays in affiliate title Private Equity International‘s annual list of top private equity firms, said in December 2024 that it would continue to take a “pragmatic approach” to show the links between ESG efforts and value creation.

But the New York-based firm and other fund managers had to navigate a minefield of vastly different attitudes towards ESG on the fundraising trail this year. Close to half of the state governments in the US, including Texas and Florida, had enacted legislation to place limits on ESG investments by state-backed investors. Other states, such as California and New York, went the other direction and passed pro-ESG legislation. Pension funds in pro-ESG states pressed ahead with their climate investment plans, undeterred by Trump’s orders to withdraw the US from the Paris climate agreement and increase oil and gas production.

For Ruth Knox, head of the ESG and sustainable finance practice at law firm Paul Hastings, GPs were not going far enough in showing how sustainability created value, leaving themselves open to lawsuits in Republican-run states, she told NPM in July.

If fund managers had lacked the tools to produce the evidence, help was forthcoming from various organisations in the field, including the UN’s Principles for Responsible Investment (PRI), the Global Impact Investing Network (GIIN) and Boston Consulting Group (BCG), among others.

PRI collaborated with Bain & Company and the NYU Stern Centre for Sustainable Business to draft a framework for sustainability value creation in July, drawing on case studies from Apollo Global Management, CVC Capital Partners and Warburg Pincus. PRI, Bain and NYU Stern also determined that sustainability produced a 6 percent increase in revenues and a 6-7 percent increase in exit multiples for investors.

NYU Stern, which had developed its “ROSI” (return on sustainability investment) methodology, turned its attention to limited partners with advice on how they can determine if GPs approach sustainability with a focus on financial results.

Also in October, BCG and the ESG Data Convergence Initiative (EDCI) released the results of a survey that estimated that sustainability can increase EBITDA by roughly 4-7 percent over the hold period of a portfolio company, while GIIN said in its State of the Market report that investors had targeted higher average returns for impact than traditional investments.

Bain partnered with the Initiative Climat International (iCI) and the Sustainable Markets Initiative to release research on the adoption and usage of its Private Markets Decarbonisation Roadmap (PMDR). It found that 71 percent of GPs had identified decarbonisation as a creator of long-term value and 68 percent reported that decarbonisation makes their funds more attractive to potential investors.

When sustainabilty professionals gathered at this year’s Responsible Investment Forum: Europe in November, value creation was unavoidably part of every conversation. As noted by Angela Jhanji, a managing director at EQT Partners and an adjunct professor at Columbia University, the days of “abstract” sustainability were over, with GPs taking a “de-averaged” approach across their portfolios focusing only on areas that matter. She also raised the issue that, with all GPs claiming that their ESG work has always been squarely focused on value creation, how do LPs “get under the hood” and test it?

As summed up in October by Polina Sims, head of investment strategy, sustainability and asset management at the Investment Management Corporation of Ontario (IMCO), sustainable investments have become an essential component of a profitable and resilient portfolio. They are not made simply for the “accolades”.