Author – Nigel McKeverne

According to Pitchbook’s recent report 2021 was the last of several record years of successful fundraising, which, together with several years of decline in deal activity, has meant that dry powder has been building. As a consequence, if GPs are to avert returning committed capital, PE firms will be entering a new investment era, when sustainability is not a secondary screen, but a driver of value creation. As the competition for premium assets escalates, institutional investors (LPs) are requiring fund managers (GP’s) to meet higher standards for measuring and demonstrating sustainability performance (in the UK, see proposed amendment to the Pensions Bill NC17). In this high-stakes environment, data-driven sustainability intelligence has become an essential input for identifying and unlocking long-term value. In a recent report, Pitchbook suggests investors can gain between 35 and 64 basis points annualised return (on average) when choosing a better manager or avoiding a bad one (buyouts).

For institutional investors, sustainability performance has decisively become a proxy for business resilience. Regulatory, environmental, and societal shifts are fundamentally redefining what makes a company valuable in the long term. Firms that manage sustainability risks tend to proactively exhibit core traits that drive superior financial outcomes: operational efficiency (achieved through targeted energy management and waste reduction), reduced volatility (via strong governance and supply-chain controls), and higher exit multiples (as buyers increasingly assess ESG performance as part of due diligence).
Market examples illustrate this trend. KKR’s investment in C.H.I. Overhead Doors, for instance, integrated energy efficiency and workplace safety initiatives that contributed to margin expansion. Upon exiting to Nucor in 2022, the business commanded a valuation multiple above industrial peers. Similarly, EQT leveraged digital monitoring and non-toxic solutions in their investment in Anticimex, aligning with sustainability innovations that drove significant global growth and a successful partial exit. These cases confirm a broader pattern: sustainability-aligned operational improvements directly enhance enterprise value.

Pressure from Above

The shift is being powerfully driven by institutional investors, including major European pension funds and sovereign wealth funds, who are now requiring fund managers to prove how sustainability data shapes their deal pipeline. Under frameworks like the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD), LPs must disclose sustainability risks and principal adverse impacts at both the portfolio and underlying asset levels. This regulatory cascade is pushing General Partners (GPs) to integrate ESG intelligence much earlier, at the crucial deal origination and pre-screening stages.

Leading firms are responding by building investment theses around sustainability megatrends. For example, Nordic PE firms routinely assess carbon intensity and transition exposure as a mandatory part of deal sourcing in energy-intensive sectors, while TPG Rise Climate has focused entirely on themes like electrification, circularity, and resource efficiency. This demonstrates that sustainability data is no longer just a filter; it’s a powerful engine for uncovering high-growth investment themes.

Consequently, forward-looking GPs are systematically layering sustainability intelligence onto their traditional deal sourcing frameworks. This strategic integration involves combining three core research pillars: Sector-Level Transition Analysis (assessing the macro impact of major policy shifts), Peer Benchmarking (objectively comparing portfolio targets against best-in-class sustainability performers), and Policy Horizon Scanning (anticipating new regulations, subsidies, and incentives that will inevitably affect asset valuation and risk exposure). This intelligence transforms sustainability from a compliance screen into a strategic lens for value identification. For example, a mid-market PE firm exploring packaging investments can use sustainability data to identify companies shifting early toward biodegradable or recycled-content materials, anticipating tightening EU packaging waste directives.

Embedding sustainability intelligence early in the deal process doesn’t just prevent risk; it amplifies value creation potential. Market illustrations confirm the direct financial benefit:

Prior to ICG completing its financing commitment in April 2024, ICG’s screening and evaluation process determined that Bartley Junction’s development targets would result in the highest ESG performance level under the RE GLF –the sponsor has a strong focus on ESG and was proactive in setting ambitious sustainability targets for the development, including: an EPC Rating of EPC A+, an ‘Excellent’ BREEAM rating, water efficiency criteria, sustainable energy generation and consumption, and the provision of ample sustainable travel infrastructure. The loan was structured with covenants in place, and financial penalties for breach of these covenants, to promote the achievement of these targets “.

Sustainability as a measure of performance

As the sustainability data landscape matures, the ability to connect sustainability performance with financial outcomes will increasingly define market leaders. LPs are signaling clear expectations: they want to see the consistent application of sustainability data in sourcing and selection, evidence-based ownership demonstrating active stewardship, and clear links between sustainability metrics and portfolio performance. Leading GPs are already responding by building dedicated sustainability intelligence capabilities—combining analytics, sector research, and policy tracking to enhance every stage of the investment decision.

Ultimately, deal sourcing informed by sustainability intelligence allows investors to identify assets aligned with long-term structural and regulatory trends; anticipate and price in sustainability-related risks more accurately; strengthen LP relationships through transparent, data-driven decision-making; and build portfolios that are more resilient, future-ready, and attractive at exit. Because sustainability is now integral to value creation, data-driven intelligence is emerging as the next competitive advantage in private equity.

References:

^[1] Q3 2025 Global Private Market Fundraising Report – PitchBook

²https://nucor.com/news-release/nucor-to-acquire-chi-overhead-doors-from-kkr-122657

³https://nucor.com/news-release/nucor-to-acquire-chi-overhead-doors-from-kkr-122657

⁴https://eqtgroup.com/thinq/case-study/how-eqt-took-anticimex-from-nordic-player-to-global-pest-control-giant

⁵ https://www.icgam.com/wp-content/uploads/2025/06/ICG-Sustainability-and-People-Report-2025.pdf

“First published in Finextra, 12 January 2026.”