Integrating Impact and ESG Value Creation in Private Equity: A Qualitative Study on Extending Financial, Governance, and Operational Engineering

Sammanfattning

Private equity (PE) is undergoing a structural shift as sustainability considerations move from peripheral concerns to core components of value creation. PE investors now face mounting regulatory expectations, shifting limited partner demands, and heightened public scrutiny. Building on a classical PE value creation framework centered on financial, governance, and operational engineering, this thesis examines how PE, venture capital (VC), and impact-oriented investment professionals conceptualize and operationalize impact and environmental, social, and governance (ESG) strategies and expectations. Using 16 semi-structured interviews with practitioners across Europe and the United States, the study applied the Gioia methodology to generate an inductive understanding of emerging practices. Findings revealed that impact and ESG are increasingly integrated, rather than siloed from, the three classical engineering levers that enhance PE value creation. Specifically, investor practitioners used sustainability-linked, green, and blended financing instruments, and credible impact and ESG narratives to support capital access and augment financial engineering in their portfolio companies. They applied theory of change frameworks, materiality assessments, and benchmarking to inform key performance indicator selection and incentivize alignment, thus supporting exit readiness, strategic steering, and governance engineering. They also relied on ESG-enabled operational improvements, capacity building, and regulatory alignment to enhance operational engineering. Practices varied by portfolio company size and maturity, with VC investors employing more adaptive, pragmatic methods. Regulation emerged as both a catalyst and constraint, with increased reporting enhancing transparency and urgency while simultaneously creating compliance burdens perceived as detracting from ESG-related value creation. These findings underscore the growing role of impact and ESG as integrative engineering capabilities within PE value creation and offer a revised, practitioner-oriented framework for advancing both theory and practice by linking sustainability integration to disciplined, multi-capital, strategically grounded outcomes.