ESG Integration in the Nordic private equity industry

2016

After the financial crisis, the private equity industry is increasingly regulated. Macroeconomic

developments are changing the business landscape, and firms are finding that they have to work harder

to create returns. The private equity industry has been lagging behind when it comes to embracing

sustainability, but in recent years, the industry is increasingly expected pay attention to

Environmental, Social and Governance (ESG) issues in their investments.

In this thesis, I shed light on developments concerning ESG integration in private equity, an area that

is scarcely researched. Narrowing my scope, I aim to give an extensive exposition of the extent of

ESG integration by firms’ operating out of the Nordic Countries. Research objectives are formulated

on five themes, including industry insiders understanding of ESG, the extent and strategic drivers for

integration, as well as organizational characteristics and future beliefs relating to ESG in private

equity. I surveyed a unique set of General Partners representing 60 private equity firms headquartered

in the Nordic region in 2016, and conducted interviews with five assertive firms for additional

qualitative depth.

My findings show that governance issues are most important among ESG issues for Nordic GPs, and

they are increasingly making efforts to measure financial impacts of ESG initiatives. Investor pressure

and the possibility to create additional financial returns are reported as the main strategic drivers of

ESG integration. Nordic PE is showing signs of having integrated ESG into the DNA of their

operations – not just as an add-on activity in their investments. They are moving beyond a

compliance- and value protecting attitude toward ESG management, and are applying it as a value

creating strategy and a means for obtaining competitive advantage. Furthermore, my findings indicate

that a company culture embracing ESG and the adoption of an “ESG mindset” is important for

successfully extracting added value from ESG efforts. Finally, I find that PE show signs of

acknowledging their role as active managers in creating the sustainable companies of the future.

By researching the Nordic area, often perceived as a forerunner on sustainability, I am able to map

cutting edge industry developments. Thus, my thesis is a contribution to the emerging field of research

on ESG integration in the private equity industry, and particularly opens up for further research on the

financial rationales for pursuing ESG. With this research, I will give a comprehensive exposition of

the state of affairs and trends on the integration of ESG issues in the Nordic private equity industry.

Further, my work will provide private equity agents with insights into the strategic rationales for

pursuing ESG as well as knowledge on the activities of their peers.