Unlocking value in ESG-enabled sectors for Private Equity investors

As governments and regulators actively promote ESG integration in business operations, this sector offers a still highly fragmented but maturing landscape for investors. Initially emerged to support companies in enabling their sustainability journey, the sector now encompasses a range of sustainability-enabled technology solutions, including ESG alternative data provision; ESG rating and testing, inspection, and certification (TIC); sustainability and ESG consulting; ESG SaaS; and ESG education and training. Currently, the sector includes 107 maturing targets in Europe, with sustainability and ESG consulting and ESG SaaS emerging as the largest sub-sectors, representing more than 90% of the identified companies.

The ESG services and SaaS sector presents an attractive investment opportunity for Private Equity firms due to several compelling factors. First, governments, regulators, and stakeholders are actively supporting initiatives aimed at promoting ESG integration into business operations (e.g., UN SDGS and CSRD). This includes the adoption of policies that incentivize ESG reporting and disclosure, as well as the enforcement of stricter environmental and social regulations. As a result, companies are increasingly seeking ESG expertise and advisory services to navigate these complex regulatory landscapes. Second, corporate demand for ESG integration is on the rise as businesses prioritize sustainability and aim to meet stakeholder expectations. Third, technological advances further enhance the sector’s appeal, with innovative data analytics and software solutions facilitating better ESG reporting and management. This specific software sub-sector is strongly growing with CAGR 12-14%. Given its low penetration level of ~35%, the overall fragmented but more maturing provider landscape provides opportunities for consolidation and growth through strategic acquisitions.

Clean technology has a longer investment horizon than some other areas, but it offers promising prospects driven by regulatory support and ongoing technological progress. This sector includes a variety of equipment and services aimed at eliminating or reducing waste and pollutants to avoid environmental damage at the source. Its main sub-sectors are carbon capturing, water management and treatment, waste management, and recycling. We have identified more than 179 targets in this sector, of which ~90% are in three sub-sectors: (1) waste management, (2) recycling and (3) water management and treatment, all three of which have experienced an uptick in deal activity.⁵ Carbon capturing is also steadily attracting investments to increase its technology maturity and economic feasibility.

In general, clean technology is highly attractive to investors for a variety of reasons. To start, regulators and governments around the world are actively investing in clean technologies (e.g., the enhancement of recycling infrastructure), while adopting policies promoting clean tech adoption (e.g., tax incentives and grants for manufacturing companies building out their recycling capabilities). In addition, high consumer awareness is driving the market – with demands for net zero neutrality and the reduction of virgin material inputs leading businesses to invest in carbon capture and circular value chains. Technological progress is also a key market driver, continuously enhancing efficiency, performance, and affordability. For example, smart/ Internet of Things applications are becoming increasingly common in waste management (e.g., smart bins that monitor their fill level and alert waste collection companies automatically) or recycling automation (e.g., material sorting robots).

Green mobility stands out because of its potential to address climate change through transformative technologies like electric vehicles (EVs) and charging infrastructure. The sector encompasses a range of transformative technologies aimed at reducing carbon emissions and promoting sustainable transportation solutions. Key sub-sectors within this sector include – next to the aforementioned EVs and charging infrastructure – EV batteries, connected vehicles, or shared mobility. With more than 97 identified targets in green mobility, this sector represents a significant investment opportunity. Notably, EVs and charging infrastructure account for approximately 70% of the sector, which demonstrates their increasingly important role in shaping the future of transportation. Overall, the green mobility sector stands out as an attractive investment opportunity for Private Equity firms, shaped by the combination of a few compelling forces.

First, the global push toward sustainability and the urgent need to mitigate climate change create a conducive environment for investments in clean transportation solutions. Governments worldwide are implementing ambitious targets and regulations to reduce carbon emissions, providing a supportive regulatory landscape for green mobility initiatives. Second, the rapid advances in technology – particularly in EVs, battery storage, and connectivity – offer promising opportunities for innovation and growth. Investments in research and development within the green mobility sector can yield breakthroughs in efficiency, performance, and cost-effectiveness, further driving market expansion. Moreover, shifting consumer preferences toward environmentally friendly transportation options are contributing to the growing demand for green mobility solutions. As individuals become increasingly conscious of their carbon footprint, they have a rising inclination toward sustainable modes of transportation like EVs, fostering market growth and investment potential.