Can private equity build profitable businesses with sustainable outcomes for people and planet?
Business Ethics Debates | read time: 6 min
Published: 5 November 2025
GoodCorporation’s latest business ethics debate at the House of Lords explored whether private equity can build profitable businesses that also deliver meaningful, sustainable outcomes for people and the planet.
The debate was opened by Monica Collings OBE, who outlined three key dimensions to the question: the economic imperative, the human capital driver, and the operational reality of private equity.
Drawing on these themes, Collings observed that climate action and sustainable investment are now core business necessities, not ethical add-ons, and that diversity and strong governance drive higher performance and long-term resilience. She argued that private equity, with its (comparatively) more hands-on model and operational influence, is well placed to embed sustainability across the investment cycle.
Collings highlighted that the carbon transition represents a significant growth opportunity which can be used to mitigate risk, enhance productivity and deliver lasting economic savings. She further noted that strong governance and diverse leadership not only support resilience but also attract and retain talent, strengthen decision-making and contribute directly to sustainable value creation.
Monica concluded her remarks by encouraging participants to explore how these principles translate into practice, what barriers remain, and to consider any practical steps still needed to really embed sustainability as a core driver of value creation.
Leo Martin, co-founder and managing director of GoodCorporation, then opened the floor to participants by posing the question of whether private equity really is well placed to build profitable businesses with sustainable outcomes for people and planet.
A wide range of perspectives was shared, with participants broadly split on whether private equity can realistically achieve this goal.
The challenge
Participants began by acknowledging the complex trade-offs involved in reconciling financial returns with environmental and social impact. Private equity operates in a high-pressure, short-term environment, yet many of today’s most urgent global challenges, such as climate change, biodiversity loss and social challenges, demand long-term solutions.
While private equity possesses the financial strength and strategic discipline to fund the innovation and new technologies needed to tackle these issues, it faces structural and temporal constraints. For instance, fund timelines don’t always align with the longer timeframes required to deliver meaningful and measurable sustainability outcomes.
There was broad consensus that assessing impact remains especially difficult on the ‘S’ side of environmental, social, governance (ESG), as it has proved challenging to determine a set of standardised metrics, which has limited effective target setting and measurement. As such, success can be harder to demonstrate which, can discourage investment. Nonetheless, participants agreed that private equity has a critical role to play in bridging the financing gap for sustainable technologies and business models and that overcoming these constraints is crucial.
The importance of shareholders and investors
A recurring theme was the importance of shareholder, investor and management support for ESG commitments. Here, private equity has a particularly constructive role to play in holding senior leaders to account for the management and implementation of sustainability initiatives. Without this level of oversight and backing from both investors and leadership, sustainability efforts can too easily be sidelined.
Scrutinising ESG performance in detail was also considered potentially problematic, as it may expose issues that could be regarded as weaknesses in sustainability programmes. A change of attitude is therefore needed to show that increased scrutiny helps identify areas for improvement, which, in turn, helps to strengthen risk management systems, demonstrate transparency and enhance sustainability. By addressing what is uncovered, firms can build resilience and consequently increase investor confidence and long-term business value.
The discussion also touched on the cultural impact of ownership. Private equity firms were encouraged to view investment as a cultural exchange rather than a cultural overhaul. Maintaining and building on the strengths of an existing company culture can support the effective integration of ESG principles. Examples were shared of how good management and governance can drive real value creation. One firm’s proactive approach to water management, for instance, helped it avoid costly temporary legislation, which was implemented in response to a water shortage, demonstrating how planning and environmental awareness can reduce both risk and cost.
At the same time, participants observed that ESG successes are not communicated enough. Too often, attention focuses on failure or criticism rather than progress and achievement. Celebrating examples of success can help build momentum and reinforce the commercial case for sustainable investment.
The continuing difficulty of making the business case for ESG within the current financial system was also raised. Climate and credit risk are closely intertwined, yet markets have not fully recognised or priced that connection. Participants called for a more coordinated market push to align financial incentives with sustainable outcomes and to ensure that responsible investment is rewarded rather than penalised.
It was also noted that sustainability initiatives are often in competition with other business priorities that contribute to value creation and profitability. To gain management and investor support, therefore, the business case for sustainability strategies and long-term value creation and resilience needs to be made more strongly. This will be critical to embedding sustainability as a core driver of performance rather than an optional add-on.
Regulation and market forces
Regulation and market incentives also have a role to play in driving more sustainable investment behaviour. A recurring question was whether “being bad is expensive enough.” Examples such as landfill taxes were cited to illustrate how effective regulation can make unsustainable practices financially unviable and, in doing so, stimulate innovation.
Many argued that placing a clear economic value on nature through stronger reporting standards, pricing mechanisms and fiscal measures would help embed sustainability into the financial system rather than treat it as an external issue. This, it was suggested, would provide the consistent market signals needed to align profitability with environmental and social outcomes.
The discussion also acknowledged the influence of political and market dynamics where PE firms, and corporates more broadly, have faced funding pressures after downplaying their ESG positions (“green hushing”). This underlines the need for robust and consistent policy frameworks that can withstand political cycles and provide investors with the confidence to maintain long-term commitments to sustainability.
Some felt that creating a level playing field, where investors and companies are subject to the same expectations, obligations, standards and enforcement would be critical to driving the sustainability agenda forward.
Timeframes and investment horizons
Timeframes and investment cycles were seen as another significant challenge. Private equity’s typical five-to seven-year holding period was viewed by some as too short to deliver meaningful sustainability outcomes. Others countered that this compressed timeframe can act as a catalyst for innovation, pushing companies to find and implement practical solutions more quickly.
Several participants noted that while political cycles may operate on four-year terms, fund mandates often extend much longer. This can allow certain PE firms to weather the political turmoil and maintain strategic consistency even amid short-term turbulence. Taking a longer-term investment perspective would also allow private equity to embed sustainability into its value creation model and demonstrate that responsible business is good business.
Operational and strategic considerations
There was consensus that ESG must be embedded at every stage of the investment process, from due diligence to exit planning.
Sustainability should not be seen as a separate agenda but as integral to commercial value creation. Participants suggested incorporating ESG criteria directly into sale and exit agreements, ensuring that sustainability commitments endure beyond ownership transitions.
Location and industry also have a bearing on the approach needed and what can be achieved; what works for infrastructure projects in the UK may not apply to investments in emerging markets. An agile approach is therefore required to analyse and devise the right sustainability strategy for different situations, a strategy that private equity is well placed to deliver.
The GoodCorporation view
At GoodCorporation, we are seeing increased engagement from private equity firms seeking assurances that responsible and sustainable management practices are embedded in their investee companies, regarding this as critical to their value creation models. This growing engagement reflects a broader recognition that responsible investment is fundamental to long-term performance and the development of resilient, profitable businesses
Our experience shows that with the right governance structures, clear leadership commitment and accurate data, ESG integration can drive both resilience and profitability.
The debate showed that when private equity embeds sustainability at the heart of its investment strategies, it can be a powerful progressive force, creating meaningful outcomes for people and planet.
Acknowledgement: With thanks to our sister company Xynteo for their support in hosting this event.
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