Quantifying the impact of sustainability in value creation
The last 12 months have seen a shifting focus towards sustainability as a driver of value creation. At Danesmead, we’re seeing growing LP interest in understanding how sustainability initiatives translate into financial performance. Yet many managers still struggle to quantify that link in a robust and defensible way.
Recent research from the PRI and the NYU Stern Center for Sustainable Business – including the Sustainability Value Creation Guide and the Return on Sustainability Investment tool – has sought to address these challenges. Their findings underscore both the clear financial upside of sustainability and the persistent difficulty asset managers face in measuring its impact, while also providing tools to help managers get started.
The latest analysis from Stanford Long Term Investing and the British Columbia Investment Management Corporation (BCI) builds on this foundation. They find that private equity firms can enhance returns when ESG is integrated as a core commercial lever while offering tangible case studies demonstrating how this can be achieved in practice. Analysis of BCI’s $25 billion private equity portfolio shows that disciplined ESG integration leads to operational improvements, EBITDA growth and enterprise value creation. Yet in many organisations, ESG is seen as a trade-off or standalone corporate function, making it difficult to evidence its operational impact and long-term value.
The research makes the financial case clear: from pre-investment through to exit, investors can generate stronger and more resilient returns when ESG is connected to commercial success through a value creation lens.
As an investor, BCI assess ESG risks throughout the investment cycle and incorporate the findings into financial metrics, providing a quantitative and comparative view of the impact of different ESG factors. During the hold period, for example, ESG initiatives are assessed and prioritised when they support core value drivers, placing ESG on equal footing with other operational functions. BCI highlights several examples where this approach has delivered tangible impact that traditional analysis might overlook:
In logistics, a driver first model reduced turnover, improved safety and strengthened commercial differentiation, contributing an estimated $144 million in enterprise value.
In manufacturing, strengthening Environmental, Health and Safety systems cut disruption risk and opened a pathway into clean‑tech adjacencies, supporting a projected $159 million uplift.
In specialty insurance, ESG enabled product and market expansion in climate-aligned segments, adding an estimated $63 million in value.
The research identifies with five guiding principles to embed ESG into private equity value creation:
Define ESG in actionable terms: Focus on societal issues that directly influence markets and financial outcomes. Prioritise areas where shifting expectations, regulation, or behaviour create real risk or opportunity, and replace broad “sustainability” statements with specific, measurable actions tied to performance.
Tailor ESG by context: Recognise that material issues differ by sector, region, and business model.
Quantify impact: Connect ESG efforts to EBITDA, risk reduction, valuation gains, or all three to assess and prioritise.
Integrate across the investment lifecycle: Embed ESG alongside other aspects in diligence through ownership and exit. It should shape deal selection, due‑diligence focus, value‑creation plans and exit positioning rather than treated separately.
Build conviction through results: Use data, case studies, and measurable outcomes to evidence results. Keep the focus on value creation rather than ESG terminology, helping companies present a stronger story at exit.
At Danesmead, we believe investors can generate stronger and more resilient returns through ESG integration. We work with over 25 private equity clients across the investment lifecycle to build ESG into strategic value creation processes, working directly with GPs and engaging with portfolio companies to drive performance through sustainability while also mitigating risk.
To find out more about value creation and how Danesmead can support you, read our case studies and get in touch.
Further Reading
