ESG and Private Equity Performance: An Empirical Study of North American Private Equity Firms

Abstract

This study aims to explore the relationship between North American private equity firms’ financial performance and their ESG performance. We use a panel dataset that covers the years 2000 to 2021 and consists of two main variables: financial performance data gathered from Preqin and ESG performance data (as publicly disclosed) originated from historical web-site archives of private equity firms. The analysis examines two hypotheses: (1) a positive relationship between ESG performance and financial performance, and (2) the varying corre-lations between ESG sub-components and financial performance, with a stronger association found for environmental factors. The study employs a correlational approach to identify the relationship between financial performance and ESG performance and tests the strength of this relationship using fixed effects panel analysis techniques. The findings of this study show quantitative evidence supporting the positive relationship between ESG performance and fi-nancial performance of North American private equity firms. In particular, environmental performance has a stronger positive association with financial performance than social and governance performance. Overall, this study addresses the lack of research on the relationship between private equity firms’ ESG performance and their financial performance, which has important implications for both firms and investors seeking to consider ESG performance in their decision-making.