Investors across the landscape of private and public markets are facing ratcheting pressure to allocate their capital in ways that create progress on environmental and social issues, in addition to delivering returns. In private equity, general partners (GPs) and limited partners (LPs) are increasingly being held to account by their respective stakeholders.

However, taking action to address environmental and social imperatives, often referred to as “sustainable finance”, does not have to be simply a compliance consideration for private equity – there is an opportunity for the industry to create real financial value; in fact, private equity is uniquely positioned to lead the way in capturing value through sustainability.

Yet there is significant variation in both the starting point and the aspirations of private-equity GPs and LPs regarding sustainability. Some are primarily focused on best-effort navigation of stakeholder pressures. Others are starting to build a case for value by beginning to create proofs of concept to encourage a broader internal conversation about sustainability. There are also those who are differentiating themselves in the market by incorporating sustainability into their investment processes and actively working to expand their involvement in the space. It is tempting to think of the three groups as being on a continuum from laggards to leaders – however, each firm’s aspirations will vary based on its stakeholder priorities, market context and core competencies.

Sustainable finance is not one-size-fits-all.