Sustainable Investing in Danish Private Equity: Exploring Value Creation Through ESG

Abstract

This thesis critically evaluates the integration of Environmental, Social, and Governance principles within Danish private equity firms, navigating through the progressive framework of Private Equity 4.0. Employing a mixed-methods approach, this study synthesizes comprehensive desktop research with semi-structured interviews of industry experts to investigate the realities and challenges of ESG integration. Through the lens of both Porter and Kramer’s Creating Shared Value framework and Berg & Gottschalg’s framework for Value Creation, the research scrutinizes the extent and depth of ESG adoption and its impact on value creation across the investment cycle. The findings reveal that while there is a growing trend among Danish PE firms to adopt ESG principles as part of their investment strategies, the application is inconsistent and faces numerous challenges. Some firms demonstrate a strategic approach to ESG integration, aligning it with broader sustainability goals and enhancing operational efficiencies and market differentiation. However, the adoption and effectiveness of these ESG measures vary significantly, influenced by a complex interplay of factors including varying levels of expertise, regulatory frameworks, and market conditions. This inconsistency points to a broader issue within the industry: the potential for ESG frameworks to serve as superficial compliance tools rather than as drivers of genuine value creation. Thus, this study finds that, despite the promise of ESG to enhance financial performance and meet ethical standards, the implementation within Danish PE firms often lacks the depth needed to achieve long-term sustainability goals. Thus, this thesis contributes to the discourse on sustainable finance by offering nuanced insights into the integration challenges and potential of ESG principles within the Danish PE sector. It advocates for the development of robust, transparent frameworks that embed ESG deeply into the strategic objectives of firms, thereby ensuring that ESG integration can lead to genuine and sustainable value creation for all stakeholders.