Published December 31, 2025 | Version v1
Journal article Open

Examine the role of Environmental, social, and Governance (ESG) criteria in investment decision-making and long-term financial performance in private equity firm

  • 1. Columbia Business School, Faculty of Business, New York City, USA.
  • 2. University of Virginia, Darden School of Business, Charlottesville, Virginia, USA.
  • 3. Department of Management, College of Business, New Mexico State University.
  • 4. McCombs School Of business, University Of Texas at Dallas.

Description

This review examines the evolving role of environmental, social and governance (ESG) criteria in private equity (PE) investment decision-making and evidence on long-term financial performance. We synthesize theoretical mechanisms linking ESG integration to value creation (risk management, operational improvements, demand signals, and access to capital), review empirical cross-sectional and private-market studies, and evaluate measurement, disclosure, and methodological challenges that complicate inference. The review draws on academic meta-analyses, industry benchmark reports, and recent private-market research to provide a balanced assessment: ESG integration in private equity increasingly appears to be associated with non-inferior and in a number of settings superior long-term performance, though results vary by strategy, measurement, time horizon, and ESG implementation intensity. We identify gaps (causal identification, heterogeneous effects across strategies/geographies, standardization of ESG metrics in PE) and propose a research agenda and practical recommendations for limited partners (LPs), general partners (GPs), and regulators.

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