The private equity ecosystem is reinventing itself to have a positive impact on the world, and investors are no longer the ruthless businessmen, devastating negotiators and cost cutters, who prioritize profits over everything. the rest, industry executives said.
In fact, the private equity world is witnessing a revolution in sustainability and responsible investing with institutional investors leading the way. But how can the next generation of investors become key influencers in addressing pressing sustainability challenges in a multi-stakeholder environment?
Anjali Bansal, Founder of Avaana Capital, Ruchit Mehta, Head of Research, SBI Funds Management Ltd, Dhanpal Jhaveri, Vice Chairman, Everstone Group, and Managing Director, EverSource Capital, and Kunal Gupta, Partner, Trilegal, made the light on the new-age portfolio that incorporates sustainability.
Bansal said the wave of sustainability is driven by the growing importance of the three Cs – consumer, community and capital. Consumers have more choice, have become more aware of their buying decisions and prefer to consume responsibly, she said. As capital gradually shifts to companies that demonstrate responsibility, communities, including all stakeholders, employees and suppliers, want to be part of something meaningful. She said digitization has also been a catalyst, teaching people how to work remotely, thereby reducing their carbon footprint, Bansal said, adding that smart capital recognizes that long-term returns depend on responsible and smart business decisions. .
Jhaveri said there is another C: country because the role of government is essential for sustainability. The four Ps – profit, people, planet and prosperity – play a significant role, he said. Investing in businesses also has a cause or consciousness attached to it, with sustainable capital having more measurable and determinable parameters. It’s not about reducing carbon emissions, it’s about figuring out how not to generate them.
Gupta said when it comes to governance due diligence, well-run companies look at how they can be sustainable and long-term. When conducting reviews, it is important to know whether companies have delegation of authority and a robust verification process.
It’s not just new-age tech startups that are at the forefront of ESG, but large traditional companies are ESG compliant.
From a public market perspective, Mehta said there is a greater appreciation for sustainability. The cost of doing business is key and companies have slowly realized that being unsustainable has its own cost, whether in revenue or operating costs.
Both on the private and public front, a higher cost of capital will be demanded if people realize that the business is not sustainable. The ESG debate tends to focus on compliance, which defeats the purpose of ESG. From the perspective of retail investors, the focus needs to be on engagement and a greater role must be played in the area of private equity to drive the sustainability agenda forward.
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