Responsible business in private capital
May 2025 | TALKINGPOINT | FINANCE & INVESTMENT
Financier Worldwide Magazine
May 2025 Issue
FW discusses responsible business in private capital with Beth Balkham, India Benjamin, Sophie Giblin and Simon Ward at Farrer & Co.
FW: To what extent is private capital increasingly focused on responsible business?
Balkham: Responsible business considerations are a mainstream concern in private markets, driven by investor demand, regulatory pressures, long-term value creation, market trends and impact measurement. This is demonstrated by the increasing number of private equity (PE) firms and venture capital funds integrating responsible business criteria into their decision making, the growth in green and social bonds, and the rising number of funds targeting responsible and sustainable companies, particularly in sectors such as renewable energy, clean technology, healthcare and education. The introduction of global greenwashing rules, including by the Financial Conduct Authority, has nevertheless significantly reduced the use of responsible business terminology by imposing stricter standards on the accuracy and verifiability of such claims. The anti-environmental, social and governance (ESG) sentiment in the US has, however, increased caution among UK businesses, leading some investors to be more selective about responsible business investments. Some private capital firms have consequently adjusted their strategies to mitigate risks associated with the anti-ESG backlash by diversifying portfolios and enhancing due diligence processes. We can nonetheless expect consumer and investor demand in responsible businesses to continue, particularly considering the UK’s regulatory environment.
“While challenges remain, advances in technology and data analytics are improving energy and environmental integration.”
FW: How would you characterise the impact that regulatory developments around the globe are having on responsible business initiatives and investor expectations?
Balkham: Global regulatory developments are promoting greater transparency, standardisation and accountability. Mandatory ESG reporting and climate-related disclosures – such as the European Union’s (EU’s) Sustainable Finance Disclosure Regulation – and stricter social and governance standards, particularly those focusing on diversity and employment rights, are driving companies to enhance their sustainability efforts and adopt more responsible business practices. The recent EU Omnibus Directive, introduced as part of the European Commission’s efforts to streamline sustainability reporting, has, however, been viewed by some as ‘watering down’ corporate reporting requirements. While this could affect investor confidence in the robustness of responsible business commitments, the directive has been welcomed by others for encouraging companies to prioritise impactful responsible business practices rather than just ticking boxes. It is nonetheless clear that investors are generally expecting companies to comply with such regulations and align their strategies with global sustainability goals, such as the Paris Agreement and the United Nation’s Sustainable Development Goals, including increasingly expecting reliable and comparable data to make clear and informed responsible investment decisions.
FW: What benefits can be gained from embracing responsible business principles and strategies? What factors make it a potential driver of value and a key investment consideration?
Benjamin: Properly implemented responsible business strategies that cascade throughout an organisation can have significant benefits. These include enhancing the governance of private businesses, and thereby stakeholder trust and confidence, as well as playing a key role in the recruitment and retention of both employees and high-quality non-executive board members, who can be hard to recruit given the relatively small pool of suitable qualified candidates in the UK. A top-down approach is necessary to ensure that principles are reflected in practice and to demonstrate to potential investors that leadership takes accountability for enforcing responsible business strategies and are transparent about how developed the business actually is against metrics and targets, and where improvements can be made. No business is perfect in this regard and it is important not to look to exaggerate successes, or equally to cover up shortcomings, when discussing performance in this area with potential investors and other stakeholders. Responsible business principles can, over the long term, help create a resilient business that can better adapt to rapidly changing conditions in an increasingly volatile world.
“Integrating responsible business into the decision-making process means firms are better positioned to achieve sustainable returns.”
FW: Are you seeing an increase in firms carrying out responsible business assessments as part of pre-investment screening and active ownership strategies, to improve sustainability outcomes?
Giblin: We have seen an increase in firms evaluating responsible business standards as part of pre-investment screening processes and subsequently using active ownership strategies to enhance sustainability outcomes. Investors, particularly PE firms and family offices, are placing greater emphasis on responsible business due diligence. This helps them understand a company’s exposure to underlying environmental and social risks, assess regulatory compliance and examine existing governance structures to identify opportunities to further develop responsible business practices. This approach ensures long-term value creation will continue to align with sustainability goals. Post-investment, active ownership strategies – such as engaging with portfolio companies to improve responsible business performance – are increasingly common, focusing on operational efficiencies and enhancing reputational resilience. Investors expect decision makers to consider a wide range of factors, with responsible business objectives high on the agenda. Integrating responsible business into the decision-making process means firms are better positioned to achieve sustainable returns.
“Responsible business principles can, over the long term, help create a resilient business that can better adapt to rapidly changing conditions in an increasingly volatile world.”
FW: What criteria is being used by private capital to determine which companies have the most significant potential – or otherwise – for a responsible business uplift?
Benjamin: The criteria being used by private capital will vary depending on the sector and location of the business and the nature of the potential investment or acquisition. Environmental criteria such as energy consumption, waste management, resource use, carbon emissions and climate change impacts will be key for some, whereas others will focus more on ‘S’ and ‘G’ criteria such as supply chain risks, modern slavery, diversity and inclusion, community and stakeholder engagement. Investors will want to examine the quality of data available and may also conduct more intensive interviews with management and key personnel before making an investment decision – with a view to understanding a business’ culture and whether there is potential to drive improvement in performance.
FW: What risks and challenges surround data-collection and reporting on responsible business? What can be done to make responsible business-related disclosures more efficient and useful to all private capital stakeholders?
Giblin: The risks and challenges facing the private capital market around data collection and reporting on responsible business practices primarily relate to consistency and reliability. Public and very large private company disclosure obligations are the focus of most legislative efforts which aim to set universal benchmarks. However, smaller private company reporting obligations remain relatively undeveloped with companies voluntarily reporting on their responsible business efforts without reference to any standardised responsible business frameworks or metrics. The results make it difficult for private capital stakeholders to compare data across investments as many companies present incomplete or inconsistent data. To improve efficiency and usefulness, disclosures should be standardised, leveraging widely accepted frameworks such as the Task Force on Climate-related Financial Disclosures. Technology, including artificial intelligence-driven analytics, may also enhance data accuracy. Clearer guidance, regulatory alignment and independent audits would build trust and accountability in responsible business reporting. How quickly these solutions will be developed, however, will be influenced by the global political landscape.
“The recent EU Omnibus Directive has been viewed by some as ‘watering down’ corporate reporting requirements.”
FW: With private capital increasingly allocating funds to ESG-themed investments, such as climate tech, renewable energy and social impact ventures, do you expect this trend to continue in the years ahead?
Ward: Overall, the trend for private capital funding will continue. It may not be linear but given the pressure the public markets are under both politically and regulatory from the US to withdraw from ESG connected strategies and initiatives, private capital is in a strong place to step in and invest – either to provide support at venture level or to acquire the assets that the public energy companies are divesting. So we are expecting increased investment allocation within energy transition and renewable energy as the UK and European economies move toward more sustainable and, importantly, secure sources of energy. In addition, next-generation investors and family offices are integrating sustainable and impact investment into their long-term wealth strategies. While challenges remain, such as standardising impact measurement and managing regulatory complexities, advances in technology and data analytics are improving energy and environmental integration, Alongside this, private capital is likely to continue funding innovation in sustainability-focused sectors, recognising their potential for strong financial returns and positive global impact.
Beth Balkham is a corporate lawyer and acts for private businesses, family businesses, established entrepreneurs and high net worth and institutional investors. She advises on M&A, fundraising, group reorganisations and corporate governance matters across a variety of sectors including technology, retail, education, property and financial services. She is particularly interested in her clients' commitments to responsible and sustainable business, in relation to both good corporate governance practices and sustainability-focused transactions. She can be contacted on +44 (0)20 3375 7710 or by email: beth.balkham@farrer.co.uk.
India Benjamin is a specialist corporate lawyer with significant experience advising on M&A, investments, joint ventures, complex structuring and restructuring projects, and corporate governance. She has particular expertise working with a range of private businesses and corporates on ESG matters, and advising families and family businesses on transactional, structuring and governance issues. She can be contacted on +44 (0)20 3375 7659 or by email: india.benjamin@farrer.co.uk.
Sophie Giblin is the knowledge lawyer for Farrer & Co’s corporate practice providing technical legal support and training. Leading the training and knowledge management for the corporate team, she supports the team by keeping them up to speed with the latest developments in both law and practice and providing the team with the resources required to undertake client work efficiently and accurately. She can be contacted on +44 (0)20 3375 7489 or by email: sophie.giblin@farrer.co.uk.
Simon Ward is a corporate lawyer. His focus is on private capital and providing advice to clients in private company M&A, private equity and venture capital. As a leading adviser in private capital he acts on private company M&A, co-investment and direct investment for family offices, private equity buy outs and venture capital investments representing founders, senior executives and management teams, and inbound investments and acquisitions for international investors and acquirers. He can be contacted on +44 (0)20 3375 7242 or by email: simon.ward@farrer.co.uk.
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