• Private market investors play a vital role in the transition to a low-carbon economy, combining long-term capital with commercial and business expertise that is immune to short-term fluctuations.
• By removing financing constraints and optimizing and redefining business models, private equity firms can drive growth faster and more efficiently, enabling portfolio companies to grow for a faster energy transition.
• Successful private equity firms are incorporating sustainability into the core value proposition of their portfolio companies, increasing their value for future investment opportunities.

The transition to a net-zero economy may be one of the greatest investment opportunities in modern history.

With an expected $275 trillion opportunity by 2050 , private markets have emerged as a vital catalyst for this transformation.

Its unique governance model, combined with its long-term investment stance, operational expertise, and strategic vision, creates an ideal environment for companies to accelerate their sustainability efforts while seizing new market opportunities.

This powerful trend, combining business know-how with the growing need for profitable, climate-smart businesses, is reshaping the industry and creating a competitive advantage for forward-thinking investors and companies.

Accelerating the energy transition through business transformation

Private markets are responding to the energy transition through a multiple-investment approach focused on mature technologies and emerging innovations across the value chain.

Francesco Starace, partner at Nordic private equity fund EQT and former Enel CEO, highlights the opportunities presented by technology-driven efficiency and the need to transform legacy systems:

“About two-thirds of the primary energy consumed globally is wasted, so shifting investments from operational costs to building the infrastructure of the future would be a very wise move.”

This perspective is in line with that of other leading investors, as outlined in a 2024 white paper by the World Economic Forum, Bridging the Divide: Private Markets and the New Drivers of Value Creation.

According to the book “Private Markets and New Drivers of Value Creation,” when the US investment fund TPG established the “TPG Rise Climate” fund, the company’s management team systematically built up its unique value creation know-how to support the growth of its portfolio companies.

These strategies include strengthening go-to-market strategies, optimizing pricing models and increasing operational efficiencies – all of which are essential to achieving profitable growth, creating a more commercially successful company and delivering results such as promoting environmentally friendly practices and reducing greenhouse gas emissions.

Transforming business models with sustainability at their core

Private equity’s approach, which combines financial discipline with active management involvement, enables companies to achieve both sustainability and profitability.

“After an acquisition, we work together to maximize a company’s potential by removing constraints such as capital restrictions and short-term pressures. It’s important to ask, ‘What could the business achieve if we removed these constraints?'”

Similarly, the white paper highlights how UK private equity fund Permira has placed profit-generating impact at the heart of its strategic objectives. With nearly 40 years of experience supporting secular growth trends, the fund has expanded its climate investment activities while building a team to invest in transitions across the value chain.

The firm also leverages the resources and expertise of its senior advisors, operating partners, and dedicated value creation team to support portfolio company management teams in their growth initiatives, positioning itself as a partner to many companies transitioning to address climate change.

These strategies include strengthening go-to-market strategies, optimizing pricing models, and implementing efficiency improvements, all of which are essential to achieving financial growth while driving sustainability outcomes.

Capitalize on the sustainability premium with operational excellence

At EQT, the term “active ownership” refers to rethinking business models, accelerating progress toward goals, and creating long-term value. Commenting on the transformative potential of such partnerships, Starace said:

“We sit down at the table and imagine what this company could do if we removed its constraints. The process builds incredible stories that accelerate both economic performance and sustainability.”

This approach resonates with how other fund managers are incorporating sustainability into their portfolio operations, specifically:

• Introduce a subscription-based revenue model to expand scale.
• Branding so that customers and prospective buyers understand your value proposition.
• Develop marketing and sales strategies that target more profitable customer segments in line with market trends toward sustainability.

Leveraging sustainability positions to capture market value.

Demand-side changes are accelerating the energy transition, with industrial and commercial sectors adopting decarbonization solutions at scale. He highlights the role of electrification in shaping investment direction:

“Evolution of technology is driving the shift to electricity as the end-use form of energy. This is a significant change that is happening like a major tide.”

“

This is a liberating moment for companies: an opportunity to envision big things and put them into action.

”

—Francesco Starace, Partner at EQT

Integrating sustainability into your company’s value story

By incorporating sustainability into the core business values of their portfolio companies, private equity firms are focused on strategically positioning them for a future exit. The Forum’s white paper outlines a process in which private equity firms work with portfolio management teams 12 to 18 months before a sale to build commercial, brand and operational evidence of sustainability.

If this preparation is implemented effectively, private equity firms can attract a wider range of potential buyers, including sustainability-focused investors, strategic acquirers looking to strengthen their sustainability practices, and public market investors with specific sustainability goals.

UBS’s Therese Rennehaag points out in the paper: “Companies that can present to investment banks commercial insight, a quantified business case, revenue and EBITDA growth plans, and a compelling use of proceeds explanation that excites acquirer investors, can command a market premium for credible sustainability.”

Urgent action needed for net-zero transition

Solving the climate change challenge requires an unprecedented mobilization of capital and expertise, and private markets are uniquely positioned to direct resources toward effective solutions and generate attractive returns.

Now is the time when it is more important than ever for management teams to understand the strategic value of sustainability and to forge partnerships with investors who will support business model transformation.

Starace said of his partnership with investors:

“Private equity firms work alongside their portfolio companies to help them succeed. This is a liberating moment for companies; it’s an opportunity to envision big things and put them into action.”

For wealthy individuals, the challenge is not whether to invest in the energy transition, but how to identify the right managers with the right capabilities to manage this complex transformation. Those who manage this transition successfully will not only enjoy superior financial returns but will also make a significant contribution to building a sustainable economic system.

The energy transition is both an environmental imperative and a generational investment opportunity. By combining available capital with operational excellence and commercial innovation, private markets create a powerful engine of change.

Those who embrace the potential of change towards sustainable business models and are at the forefront of a net-zero economy will be the winners of tomorrow.