Sustainability in the PE sector

Environmental, social & governance (ESG)

In the investment world, ESG (environmental, social and governance) is widely used as a broad lens for sustainability. It encompasses themes such as energy use, climate impact, access to resources, health, safety and good governance. For companies, these areas present significant opportunities. Private equity is particularly well placed to add value here. By helping businesses improve their performance, investors generate not only financial returns but also societal value. Sustainability can be a source of growth and impact at every stage of the investment cycle, from selection through to exit.

ESG is about finding the right balance between financial performance, transparency, social interests and environmental considerations—without losing sight of any of them. Contrary to what is often assumed, this balance tends to produce better outcomes for both the company and society. There is broad consensus that ESG objectives ultimately create added value for portfolio companies, both through risk reduction and through value creation.

Private Equity and CSRD

In order to comply with the Corporate Sustainability Reporting Directive (CSRD) of the EU, many private equity firms and portfolio companies will need to report extensively on their sustainability performance.

The EU's CSRD is the most comprehensive sustainability reporting obligation that private equity firms and their portfolio companies in the Netherlands have faced so far. The directive, which came into effect in January 2023, requires PE firms and other companies to provide detailed information on a wide range of environmental, social, and governance topics related to their European activities. It is also specified that the provided information will ultimately be subject to external assurance.

Meeting these requirements poses a significant challenge. Few companies have already implemented the necessary systems and processes. Much of the required information is not readily available to them. Furthermore, the regulatory landscape in the Netherlands is evolving rapidly. Dutch legislation still needs to incorporate the CSRD into local law before July 2024. As it is likely that additional requirements will be added on top of the CSRD requirements themselves, companies in the Netherlands with entities in multiple EU jurisdictions can expect an increased level of complexity. Companies must also monitor the new reporting requirements outside the EU, such as the recently approved rules by the U.S. Securities and Exchange Commission (SEC) regarding climate-related reporting for listed companies.

Furthermore, the deadline for CSRD compliance is approaching rapidly. Companies in the Netherlands currently providing information under the EU's Non-Financial Reporting Directive (NFRD) are expected to report for the first time according to the CSRD in 2025, covering their 2024 data. Companies in the Netherlands that meet certain size criteria are required to report on their 2025 data in 2026.

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