Beyond the bottom line: ESG as a strategic imperative in private markets

Environmental, Social, and Governance (ESG) factors have been reshaping private markets—not with great fanfare but through a quiet, deliberate transformation. While once treated as a compliance obligation, ESG has evolved into a strategic framework influencing investment decisions, asset valuations, and stakeholder expectations across private equity, infrastructure, real estate, and real assets. This quiet revolution is perhaps most visible in the infrastructure and real estate sectors, where sustainability and resilience are becoming embedded into the core of asset strategies. Investors are not only scrutinising financial returns but are also examining carbon footprints, climate risk exposure, and social impact. This integrated approach is about more than meeting regulatory requirements; it’s a proactive strategy to future-proof portfolios and unlock long-term value.

Infrastructure is at the frontline of ESG implementation due to its scale and societal impact. The push toward climate-resilient infrastructure and the energy transition has catalysed a surge in investment in renewables, green transport, and digital infrastructure. Some funds are demonstrating that integrating ESG considerations across infrastructure and logistics investments not only supports alignment with the energy and emissions targets but also contributes to stronger financial performance. More focus is being placed on increasing the number of portfolio assets that meet high sustainability standards, recognising strong environmental performance and design to enhance sustainability efforts and support long term asset value. Infrastructure assets of all types can be exposed to climate risk, so an ESG strategy is not just about reputational signalling—it provides measurable resilience. In climate-vulnerable locations like Paris, developing proactive risk analysis has helped mitigation strategies for assets, where flood risk from heavy rainfall has been assessed and response protocols are being implemented. Additionally, for assets in heat-prone regions like Madrid, some firms incorporate thermal insulation and high-efficiency systems to mitigate heat stress, such as improved thermal insulation and energy systems that remain efficient in high-temperature conditions. These adaptations enhance asset resilience while supporting tenant continuity and safety. This level of due diligence provides both insurance and operational clarity, increasingly demanded by institutional investors.

Furthermore, regulatory incentives across Europe are pushing infrastructure investors to align with evolving EU taxonomy requirements, which defines activities that are environmentally sustainable to guide investment and policy decisions. Projects that embrace ESG principles from the ground up can often access favourable financing, subsidies, and public-private partnership opportunities. Sub-sector insights reveal that transportation infrastructure is being evaluated for emissions and lifecycle impacts, digital infrastructure for its energy efficiency and data sovereignty, and utility assets for decarbonisation potential.

ESG metrics have for many years been one driver of real estate asset performance. Tenant requirements for better-quality buildings and lower energy bills mean that ESG analysis is inseparable from financial analysis, and asset owners recognise that good positioning commands a premium. The focus has shifted from individual certifications to a more holistic integration of sustainability, resilience, and community impact. We are seeing asset managers implement a wide range of overlapping sustainability initiatives across their portfolios, including:

• Installation of solar panels on the rooftops and occasionally the facades of logistics, warehousing, office and big-box retail properties, with the ability to either sell this power back into the grid or provide it directly to the tenant.
• Reducing carbon intensity of construction activities – for example, by choosing to retain carbon-heavy components of original structures, net-zero redevelopment is achievable. Additionally, developers of new assets have an increased range of options in the use of natural materials (specifically timber) in preference to concrete. Impressive examples of timber-framed logistics and office assets are increasing interest in this space.
• Portfolio biodiversity assessments across portfolios - applying urban greening and habitat classification standards to increase the ecological value of assets, and attract tenants, improve public spaces, and build reputational capital.

Occupier demand is increasingly shaped by ESG factors. Tenant engagement plays a central role in operational energy reduction—some firms have achieved a 35% drop in energy use intensity by collaborating with occupiers on efficient usage strategies and smart monitoring. These initiatives not only support regulatory alignment but also future-proof asset performance. Firm’s tenant engagement strategies now include energy consumption clauses in lease agreements and collaborative initiatives to lower out-of-hours energy use. Many funds have also demonstrated that ESG integration improves asset performance and tenant retention. ESG enhancements such as energy-efficient retrofits and sustainable certifications support income stability and resilience against obsolescence. While ESG’s influence on built environments is well documented, it’s also gaining ground in natural real assets—sectors like agriculture and forestry where sustainability directly correlates with long-term viability. Firms are undertaking afforestation initiatives locally offsetting carbon, supporting company’s net-zero ambition, and aligning with growing investor demand.

ESG considerations differ significantly between commercial and residential real estate. Commercial tenants are often institutional, ESG-savvy, and value amenities that support employee well-being and environmental performance. This is evident in the amenities being provided, such as wellness facilities, a rooftop terrace, and collaborative spaces—all aimed at enhancing tenant satisfaction and retention from a commercial perspective. In contrast, residential ESG integration tends to focus on affordability, energy efficiency, and liveability, where the value of integrating high EPC (Energy Performance Certificate) standards into residential and mixed-use developments comes into play. The shift toward ESG-ready assets is also influencing capital flows. There is emerging evidence of a “brown discount” on properties that fail to meet ESG expectations and a corresponding “green premium” for those that do.

As ESG continues to mature from a values-driven concept to a value-generating imperative, private market investors are adapting quickly. What we’re witnessing is not just compliance, but conviction. Firms are setting a new standard for what ESG integration can look like—grounded in data, delivered through strategy, and rewarded in long-term performance.