Unwritten, the climate risk platform for private markets, hosted Climate Value in Private Markets: What Does the Data Say? with Professor Alex Edmans (Professor of Finance, London Business School). Professor Edmans presented to Unwritten clients, climate finance leaders from banking, ESG leaders from public and private markets, standard setters and regulators. The session asked whether the widely held belief that robust ESG policies improve long-term returns in private markets is supported by the data.

Key takeaways

1. Climate is now a leading priority for private markets LPs. Three quarters of limited partners (LPs) rank climate change and sustainability as the most influential mega-trend when deciding where to invest over the next five years.
2. Many LPs believe ESG improves returns, but that belief needs testing against evidence. Nearly half of LPs believe that general partners (GPs) with a robust ESG policy will deliver better long-term returns. Professor Edmans set out to examine whether the evidence supports this assertion.
3. Private equity may be uniquely positioned to lead on sustainability. The discussion was framed by a 2022 Harvard Business Review study that argued private equity could lead on sustainability. Professor Edmans shared his reactions on how private equity could take the lead in that direction.
4. Investment-grade ESG data on private companies is scarce. Professor Edmans examined how much reliable ESG data exists, and the challenges researchers face in accessing information on private companies and transactions.
5. Climate value creation depends on integration across the investment cycle. Participants discussed how to build climate into each stage of the private equity investment cycle and apply a 'Rational Sustainability' approach to value creation.

How can private equity investors evidence the value of climate and ESG?

The session focused on three questions that private markets investors face when making the financial case for climate.

Applying Rational Sustainability

Professor Edmans’s Rational Sustainability approach treats ESG like any other investment decision: an activity is worth pursuing when it creates long-term value, and should be assessed with the same rigour as any other business case. This shifts the question from whether ESG is good in general to which specific actions are material for a given company.

Closing the private markets data gap

Private companies disclose far less than listed ones, which limits the evidence available to researchers and investors. Reliable, investment-grade data is a prerequisite for showing where climate and ESG create value.

Quantifying value at exit

The event closed with a second study that attempted to quantify the uplift in exit multiples private equity firms could achieve by incorporating ESG into their investment processes. The discussion concluded that studies like this help express sustainability in the financial terms investment committees (ICs) use.

About Unwritten

Unwritten is a London-based climate risk platform for private markets. Its platform, Unwritten AI, helps private equity and infrastructure investors assess physical, transition and nature risk at fund, portfolio company and site level.

The platform uses artificial intelligence to automate complex climate risk data workflows and drive value-creation opportunities for private markets investors, asset managers and corporate risk leaders. Unwritten helps leaders move beyond minimum compliance to actively manage risk and build operational resilience that creates value at the PortCo level.