Welcome to the second part of our two-part blog series exploring ESG as an evolving paradigm in private equity. In case you missed it, the first part delved into best practices for measuring and reporting on ESG performance in private equity, as well as the role of sustainability consulting and the importance of ESG considerations in the industry. If you haven't read the first part yet, we highly recommend ESG: AN EVOLVING PARADIGM IN PRIVATE EQUITY
In this edition, we will explore how ESG can drive efficiency in private equity firms, the potential of green technology investments, and Tech Mahindra's digital solutions for private equity firms.
Implementing environmental, social, and governance (ESG) solutions can significantly reduce both capex and opex while promoting sustainability and minimizing environmental impact. One way to achieve this is by adopting sustainable practices, such as energy-efficient technologies, waste reduction and recycling programs, and water conservation practices. These initiatives can reduce energy and utility bills, waste disposal costs, and associated business expenses. Incorporating green building practices, like using renewable energy sources and sustainable materials, can further reduce building maintenance costs and improve energy efficiency. The integration of ESG and technology solutions can drive enterprise efficiency, cost savings, and reputational benefits.
In addition to these strategies, technology can play a significant role in reducing energy consumption and promoting sustainability. By adopting sustainable practices and leveraging technology, businesses can promote sustainability and corporate responsibility while also enhancing their bottom line.
From Cost Center to Cost Saver
Smart building automation systems and internet of things (IoT) devices can monitor and optimize energy usage and waste production, while machine learning algorithms can analyse energy usage patterns and identify opportunities for optimization. Blockchain technology can also enable transparent tracking and management of supply chain sustainability. By leveraging technology alongside ESG solutions, businesses can achieve even greater efficiency and cost savings while promoting sustainability.
Investing in employee engagement and well-being programs can also have financial benefits, such as reducing turnover rates and associated hiring costs, as well as improving productivity and overall business performance. By implementing these and other ESG solutions, businesses can reduce their capex and opex spend, making ESG initiatives more cost-effective and attractive to investors.
The Potential of Green Technology Investments
Private equity firms are in a unique position to capitalize on the growing interest in green technology and its potential for responsible, impactful investments. As governments worldwide commit to decarbonisation targets and the urgency of addressing environmental challenges continues to grow, private equity firms can support the growth of green technology companies and help accelerate the development and commercialization of innovative products and services.
Not only does investing in green tech offer significant potential for strong returns, but it also presents an opportunity for private equity firms to improve their ESG performance and enhance their reputations as responsible investors. In fact, incorporating green tech into private equity operations can lead to cost savings through increased energy efficiency and reduced waste, ultimately improving financial performance for both portfolio companies and investors.
Furthermore, private equity firms that integrate green tech and other ESG considerations into their operations can better manage ESG risks and opportunities, mitigate risks associated with climate change and other environmental factors, and identify new investment opportunities in emerging green sectors. As demand for responsible and sustainable investment practices continues to rise, private equity firms that demonstrate a commitment to sustainability through green tech investments are likely to attract more investors who prioritize sustainability.
In the coming years, cleantech companies are expected to see their valuations rise as environmental concerns increase and the shift towards a low-carbon economy accelerates. It makes sense for private equity firms to invest in cleantech and capitalize on this trend, both for financial returns and to demonstrate their commitment to responsible investing. The potential for cleantech companies to see their valuations rise in the coming years adds further incentive for private equity firms to invest in this sector.
Tech Mahindra's Digital Solutions for Private Equity Firms
Tech Mahindra offers an integrated suite of capabilities to boost performance across every step of the investing value chain, from strategy and fund-raising to deal generation, due diligence, portfolio management, and exit. The company has a strong focus on ESG considerations, including decarbonisation, waste reduction, sustainable sourcing, diversity, and inclusion, and more.
Environmental: Tech Mahindra has set a target to reduce its absolute Scope 1 and 2 greenhouse gas emissions by 22% by 2030. It has implemented several energy efficiency initiatives and invested in renewable energy sources. Tech Mahindra has been recognized for its environmental initiatives, including being ranked as one of the world's most sustainable companies by Corporate Knights. The company has developed a Sustainability Dashboard to track and report its sustainability performance, enabling investors to monitor its progress.
Social: Tech Mahindra has implemented several diversity and inclusion programs, including the ‘Women in Leadership’ program to increase gender diversity at the leadership level. It also has various community development and social impact initiatives, including the Tech Mahindra Foundation, which provides education and healthcare support to underserved communities. Tech Mahindra has been recognized for its social initiatives, including being named one of the World's Most Ethical Companies by Ethisphere for six consecutive years.
Governance: Tech Mahindra has established a robust governance framework, including a code of conduct, whistle blower policy, and anti-corruption policy. The company has a strong focus on risk management and accountability. Tech Mahindra has been recognized for its governance initiatives, including being ranked as one of the world's most ethical companies by Ethisphere for six consecutive years.
Technology Capabilities: Tech Mahindra has developed several digital solutions that help companies manage their ESG initiatives. One such solution is the Tech Mahindra Sustainability Dashboard, which provides real-time monitoring and reporting of a company's sustainability performance. Additionally, Tech Mahindra has developed an ESG Analytics Platform that leverages AI and machine learning to help companies analyse their ESG data and make data-driven decisions.
Case Studies: Tech Mahindra has partnered with several companies to develop and implement ESG initiatives. One such partnership was with the US-based sustainability consulting firm, GreenBiz Group, to develop the annual State of Green Business report. Tech Mahindra provided the technology and analytics support for the report, which analysed the ESG performance of over 1,600 companies. Another partnership was with the Australian mining company, South32, to develop a digital solution to track its ESG performance. Tech Mahindra developed a Sustainability Dashboard that enabled South32 to monitor and report its sustainability performance in real-time.
Looking ahead a few years, it's clear that private equity firms which incorporate ESG factors into their investment strategies will be in a stronger position to generate lasting value for both their investors and society at large. The rising significance of sustainability and fair practices, coupled with the escalating expectations for transparency and responsibility in ESG matters, will further fuel this movement.
Private equity firms can achieve favourable results for their portfolio companies and the environment by prioritizing ESG governance and investment. Enhancing ESG performance can lead to improved reputation, reduced capital and operational expenditures, and risk mitigation while uncovering new prospects. Adopting standardized frameworks, clear goals and metrics, materiality assessments, stakeholder engagement, and data verification and assurance can enable private equity firms to provide reliable and comprehensive ESG reporting that investors increasingly demand.
In a world that is increasingly focused on sustainability and equitable practices, private equity firms can only remain competitive and relevant by prioritizing ESG. Tech Mahindra's expertise in ESG reflects its steadfast commitment to sustainability, social responsibility, and good governance. Our technology solutions and collaborative partnerships enable organizations to manage their ESG initiatives effectively and make well-informed decisions based on data-driven insights, resulting in positive outcomes across all aspects of ESG considerations.
In conclusion, the private equity industry is in the midst of an evolution, with ESG considerations emerging as a significant paradigm shift. The integration of ESG factors into investment decisions has become increasingly critical in managing risks, driving long-term value creation, and meeting the demands of stakeholders. Private equity firms that are proactively adopting ESG practices are not only better positioned to navigate regulatory changes and reputational risks, but also to capitalize on opportunities that arise from the transition to a more sustainable economy. As such, private equity firms that embrace ESG principles can not only enhance their financial performance but also generate positive social and environmental impact.
Read the first part of our blog series: ESG: AN EVOLVING PARADIGM IN PRIVATE EQUITY
About the Author
Engagement and Channel Lead, Private Equity
Mrigank works as an Engagement and Channel Lead at Tech Mahindra, where he explores technology led value creation interventions in the Asia markets and beyond. Mrigank is a technologist at heart and believes that a data driven, consultative approach to solving business problems is the key to unlocking value for private equity firms and portfolio companies. Over his career, he has played many roles, including executive management, marketing and business development. Mrigank holds a BSc. in Economics from the University of Iowa and a PGDM-C from MICA Ahmedabad.