Private Equity and Venture Capital’s Role in Catalyzing Sustainable Investment
This paper focuses on key aspects of sustainable PE/VC market development and deployment.3 It discusses (1) why sustainable PE/VC is a useful tool to catalyze other types of capital to achieve sustainability objectives, (2) best practices and lessons learned from the experiences of knowledge partners, (3) the main barriers to further developing the sustainable PE/VC market, and (4) options for countries to voluntarily consider or adopt to overcome these barriers.
PE/VC equity financing is particularly catalytic as the cornerstone of the capital structure and is better suited to withstanding economic shocks than many other bank-dominated financial products. Many start-ups and SMEs, including those with disruptive sustainable business models and technologies, are unable to secure financing from banks or bond markets and are therefore reliant on PE/VC funds for financing as well as other needs such as strategic, managerial, human resources, and marketing value added.
Local PE/VC funds are well placed to identify SMEs and support them through their growth phase. Often seen as an engine for jobs and innovation,29 SMEs, including start-ups, are difficult to reach and scale through traditional sources of equity finance, listed markets, or dedicated green bonds or lending programs.