Sustainability revolution sweeps the world of private equity
Premium- Anjali Bansal, founder of Avaana Capital, said the wave of sustainability is due to increasing importance of the three Cs—consumer, community and capital
The private equity ecosystem is reinventing itself to positively impact the world, and investors are no more the ruthless businesspeople, ravaging dealmakers and cost-cutters, who prioritized profits over everything else, industry executives said.
In fact, the world of private equity is witnessing a sustainability revolution and responsible investing with institutional investors taking the lead. But how can the new crop of investors become key influencers to deal with pressing sustainability challenges in a multistakeholder environment?
Anjali Bansal, founder of Avaana Capital, Ruchit Mehta, head of research, SBI Funds Management Ltd, Dhanpal Jhaveri, vice chairperson, Everstone Group, and chief executive, EverSource Capital, and Kunal Gupta, partner, Trilegal, shed light on the new-age portfolio that incorporates sustainability.
Bansal said the wave of sustainability is due to increasing importance of the three Cs—consumer, community and capital. Consumers have more choice, have become more conscious of their purchases decisions and would rather consume responsibly, she said. While capital is gradually moving to businesses demonstrating 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, thus, reducing one’s carbon footprint, Bansal said, adding that smart capital recognizes that long-term returns come on the back of responsible and smart decisions by enterprises.
Jhaveri said there’s another C: country, as the role of the government is critical for sustainability. The four Ps—profit, people, planet and prosperity—are playing a meaningful role, he said. Investing in businesses also has a cause or conscience attached to it with sustainable capital having a more measurable and determinable metrics. It is not about reducing carbon emission, but about figuring out how not to generate it.
Gupta said when it comes to governance diligence, well-run firms look at how they can be long-term and sustainable. During reviews, it’s important to know whether enterprises have a delegation of authority and a robust vetting process.
It’s not just new-age tech startups that are ESG front-runners, but traditional large companies are compliant with ESG.
From a public market perspective Mehta said there’s greater appreciation for sustainability. The cost of doing business is a key element and companies have slowly realized that not being sustainable has its own cost, be it revenue or operating costs.
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On both private and public front, higher cost of capital will be demanded, if people realize the company isn’t sustainable. The debate on ESG tends to centre around compliance, which defeats the purpose of ESG. From a retail investor perspective, the focus has to be engagement-oriented and a bigger role has to be played in the private equity space to push the sustainability agenda.
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