NOVEMBER 21 2023
For the Private Equity (PE) industry in Sweden, ESG considerations have transitioned from simply being ancillary to becoming strategic imperatives that stimulate competition and foster value creation, according to a recent study by PwC and SVCA. At the report's unveiling, Elin Ljung, Head of Communication & Sustainability at Nordic Capital Advisors, participated as a panellist, reflecting on ESG drivers and future objectives.
In November, PwC, in partnership with the Swedish Private Equity and Venture Capital Association (SVCA), published their most recent study on sustainability practices within the PE industry. It draws data from interviews with SVCA members about their portfolio holdings headquartered in Sweden.
"The report reveals that significant progress has been made with regards to younger employees, where equality has almost been achieved. However, there is still work to be done in terms of change for senior positions," said Monalotte Theorell Christofferson, Chairman of SVCA.
Here, a concise summary of the 2023 report is presented.
The Paradox of Success: Potential hurdles for companies with robust sustainability profiles
The Swedish PE industry has witnessed a significant transformation in the past few years, clearly pivoting towards the incorporation of sustainability and ESG factors into strategic business blueprints. A solid sustainability agenda has emerged as crucial for firms seeking growth and scalability, both domestically and internationally.
The report finds that robust ESG performance is intrinsically linked with company valuation and that effective ESG management could potentially unlock access to sustainable finance tools and opportunities. Despite the difficulty in quantifying this and the necessity to consider other factors, a prevalent belief suggests a correlation between ESG performance, sustainable value creation, and increased corporate valuation.
While the report acknowledges considerable improvements and an increased willingness to measure KPIs, it also indicates that the results fall short of expectations. A comparative analysis between the 2020 and the most recent report reveals a rise in whistleblower functions and anti-corruption policies from 66 to 87 per cent and 57 to 81 per cent among portfolio companies, respectively. However, progress in board diversity is yet to gain momentum, underlining the need for an industry-wide initiative to address this.
Interestingly, the report suggests that firms with robust sustainability profiles may encounter difficulties securing funding from PE firms seeking a premium for facilitating this transformation, as these PE firms may encounter fewer incentives to drive the company's transformation.
Value creation, expectations and legislations push the boundaries of ESG implementation
Amid this largely positive trajectory, the report identifies several notable ESG drivers. Value creation is one, as a prudent approach can help position a company and strengthen its brand. Rising expectations from investors is another, as sustainability is now considered a prerequisite, thus intensifying competition and pressure. Lastly, regulatory and legislative changes play a significant role, too.
Main findings:
- The Swedish ESG landscape is gradually improving but could benefit from expeditious action.
- PE/VC firms can attain an ESG premium, strengthening competitiveness, valuation and increasing access to finance.
- Climate is a complex and expandable area where many PE/VC firms struggle, particularly with scope 3 greenhouse gas emissions in complex value chains.
- The PE/VC industry bears a large responsibility for the overall gender balance in the Swedish private sector.
- VC firms initiate ESG priorities, while PE firms drive transformation through strict requirements.
Download the full report here
Read more about Our Impact at Nordic Capital
This report, conducted by PwC in partnership with SVCA, draws upon data collected from and interviews held with Swedish private equity and venture capital firms with regards to the ESG related status of their portfolio holdings based in Sweden. The participating firms are members of SVCA, and the study was carried out between May and October 2023. The 14 SVCA members selected for interviews submitted ESG data for a total of 139 portfolio companies headquartered in Sweden.