The Hidden Asset of Tomorrow. Sustainability in Swedish Private Equity and How it can be Levered to Increase Returns

Sammanfattning: The present thesis aims to illustrate how various stakeholders within the Nordic private equity setting consider and incorporate sustainability into their investment processes. In order to understand the rise of sustainability and the investment theme's momentum, underlying drivers have been identified through a qualitative analysis, based on interviews with general partners, limited partners, regulators and other relevant stakeholders. The analysis concludes that an increased awareness for ESG-related risks and opportunities, shifting personal convictions and regulatory demands drive the current momentum. The interviewees have found common ground in the belief that sustainability is to have a long-term material impact on the private equity industry, given the industry's unique position to drive change within their portfolio companies through financial-, governance-, operational- and ESG-engineering. A case-study of private equity firm Alder's investment into Nordic Water, a global water treatment company, demonstrates that the implementation of a sustainability-anchored strategy builds the foundation to achieving an attractive return. Hence, an investment process rooted in sustainability can be used as a value creation lever, and there does not need to be return trade-off between sustainable initiatives and the investment's financial return at exit. Over the holding period of some nine years, Alder has realized a money-on-money multiple in the top quartile of that commonly seen in the private equity industry.