ESG considerations for investment exit strategies
ESG performance听has become a听significant measure of business health, value, and longevity, so communicating听successful ESG management is听vital.听
It demonstrates the value of portfolio businesses, the success of investments on exit and maintains a positive perception of both portfolio businesses and investment firms.听
Prioritising ESG
Getting ahead of ESG issues and expectations is important in maximising value, increasing returns, and establishing a firm鈥檚 reputation as high-quality and sustainable investors.听As both strategic advisors and technical consultants, we provide听complete support for private equity firms on exit, from maximising value at sale to demonstrating returns to investors.听
Sell-side due diligence
Beyond good management, maximising the value of a business means understanding what a听potential听buyer values and demonstrating that your business reflects their values.听Comprehensive sell-side due diligence is听therefore听vital and听should be conducted with a听thorough听understanding of the听market and听potential buyers鈥� priorities.听Whether the target buyer is a leader in听their听industry, expanding into it, or another private equity firm, it鈥檚 important to speak to their priorities and听be fully prepared to answer听their questions.听听
ESG听considerations听influence every corner of a business, from supply chain and product stewardship policies,听to direct environmental and social business impacts,听labour听practices, and employee culture.听As effective ESG management听has been shown听to reduce inefficiency and unnecessary losses, ESG considerations听have become听more significant among听these听market听priorities.听听
Value protection
From inefficiency to liability, ESG failures are expensive.听With possible legal, reputational, and financial costs to ESG mismanagement,听understanding the ESG landscape of a potential acquisition is increasingly important in value protection.
Value protection is a priority for buyers and sellers and poor ESG management can impact the value of a business at sale. Identifying weaknesses in ESG management gives private equity firms the chance to identify any failings before they become a problem.
For firms exiting an investment, it is vital to be prepared to respond to any questions or challenges a potential buyer may identify during their due diligence process. With increasing value placed on good management and low ESG risk, this means conducting a听comprehensive sell-side review.
Value creation
Sell-side due diligence is also an opportunity to demonstrate and build upon ESG successes. It gives firms the chance to emphasize improvements made, highlight opportunities available, and demonstrate听where effective management structures are in place.听Preparing a comprehensive听report for prospective buyers gives firms the ability to present a complete picture of an asset and its value.
More than a chance to protect value, sell-side due diligence allows firms to demonstrate the value they have added to an investment. Exit is the opportunity to reap the rewards of effective ESG integration and demonstrate the progress made throughout asset ownership. Goals and KPIs used to measure ESG performance can be compared on exit to their earliest implementation, and to industry benchmarks to quantitively communicate the impact of your ownership on business value. The impacts of any firm-level policies can also be identified and highlighted for investors.
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ESG management reporting
While听exit may signal the end of an investment, it听is听not an end to the private equity lifecycle. The performance here can significantly impact how firms perform when fundraising for subsequent investments 鈥� the next stage of the cycle.听Maintaining investor satisfaction is the key to ongoing success throughout the private equity lifecycle.听听
With investors expecting听increased听transparency from firms and prioritising corporate and social responsibility and sustainability, good communication of ESG management is vital to the maintenance of investor confidence and to securing capital for future investment cycles. Firms can use the information gathered during sell-side due diligence to produce ESG management reports for current and potential investors. They can present evidence of their responsible investment practices to reassure current and potential investors.听
Good ESG at exit
At听exit, good ESG听management听is about good communication.听Producing a combination of reports from sell-side ESG due diligence听to highlight growth opportunities听and maximise brand value, to comprehensive ESG disclosure听to meet public market investor expectations, ESG management on听exit is vital in securing the reputational health of a firm.听
Oriented towards听both buyers and investors,听intentionally听managing ESG听at听exit听can help听establish a competitive advantage at sale and听demonstrate the听high value听of both your business and your firm as an investment.听
Our approach to investment exit strategies
As your strategic partner, our ESG and transaction advisory expertise听can help you identify听the听ESG听issues听key to听your firm and听maximise the听impact听of diligence and communication听at听exit.听From听sell-side diligence reporting to investor听relations, we help clients听find the best way to communicate their ESG management decisions and successes.听Acknowledging that each firm and its portfolio is unique, we听can help you create short and long-term value across your portfolio and strengthen your firm鈥檚 reputation during exit.听
Effectively communicating ESG accomplishments can help:听
- Highlight growth听opportunities
- Increase brand听value
- Establish competitive听advantage
- Meet investor expectations.听听
Get in touch
Contact us to discuss your ESG strategy and framework questions.
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