Stability has become a value driver for PE companies: BCG

“Climate and sustainability is a major trend in the private equity industry. Previously it was more about compliance and reporting, but we are now seeing the conversation turn to ‘how can we make climate and sustainability a value creation lever for our portfolio company’ ?’ And today, LPs are increasingly demanding this front. In this context, we see a level of discussion in GPs that was not present even two or three years ago,” said Benjamin Entregues, Managing Director and Senior Partner; Global leader, leading investor and private equity practice, BCG said.

He noted that an increasing number of discussions are taking place around the energy transition and climate and sustainability, whether it is a gray-to-green transition or sustainability as an advantage.

“Let’s just take a simple example: If you are a B2B supplier to a large corporation, and if you manage to transform your operations and reduce your CO2 emissions, you can save some of their pain for your large corporate customers. are a powerful lever to do. point and its scope three Reduce carbon emissions. By doing so, you add value to your customer. And by adding value, you can increase your share of business with the customer, and you can also translate into the economic equation, because at some point, there is a value to it. So you can create value through change,” he said.

Entregues believes that private capital will be a powerhouse in the transition to net zero and have a positive impact on the climate.

Even India-based private equity funds are increasingly focusing on climate and sustainability.

“In India, I would say that the emphasis on “green” in dealmaking is definitely taking off, but it is not yet at the inflection point. If I take energy as an example, in the last 18-24 months In India, easily 40- 50% of the deals will have a component of transition to clean or renewables, said Kanchan Samtani, managing director and senior partner at BCG.

“The deals that are happening today are asking questions about whether or not it has a net positive effect. I wouldn’t say that dealers aren’t actively scouting for exclusively green deals yet; However, as Benjamin mentioned, we expect the gray-to-green transition and sustainability to become more and more relevant in India and Asia as well. Private Capital has the potential to make a significant impact on ESG initiatives in India.”

Talking about the current global macro-environment with rising interest rates, high inflation and geopolitical conflict, which has led to lower deal volumes, BCG senior partners pointed out that while most geographies have been impacted Pockets in Asia like India have been affected. Showed flexibility.

“In Asia, it is quite different. Of course, China has been affected the most. Other geographies such as India and the SEA have also been affected to some extent. Some large LPs are going into wait-and-watch mode; however, higher Good faith deals are being done,” Samtani said.

Entraygues noted that while dealmaking faces several barriers, the amount of dry powder available for investment remains high, and Asia, in particular, has seen a sharp increase in the availability of capital.

“Assets under management in private equity have consistently grown above 10% per annum over the past decade. So we see a huge amount of capital being pumped into this sector. And if you look at dry powder it’s in the same range . It has never been this high. And if we look at Asia, in particular, it has grown at 20% per annum in the last years,” he said.