The critical role of private capital in transforming industries for a sustainable future

The transition to a net zero economy represents perhaps one of the greatest investment opportunities in modern history.

With estimates suggesting a $275 trillion opportunity by 2050, private markets are emerging as essential catalysts for this transformation.

Their unique governance model – combining long-term investment horizons with operational expertise and strategic vision – creates an ideal environment for businesses to accelerate sustainability initiatives while capturing new market opportunities.

This powerful convergence of business know-how and the need to scale profitable climate champions is reshaping industries and creating competitive advantages for forward-thinking investors and companies.

Private markets are addressing the energy transition through multiple investment approaches, focusing on mature technologies and emerging innovations across the value chain.

Francesco Starace, partner at EQT and former CEO of Enel, highlights the opportunities created by technology-driven efficiencies and the need to transform outdated systems:

“About two-thirds of the primary energy the world consumes is wasted. Moving money from operational costs to investments that build infrastructure for the future is a much better bet.”

This perspective aligns with what other leading investors are seeing. According to the World Economic Forum’s 2024 white paper Bridging the Divide: Private Markets and New Drivers of Value Creation. When TPG launched its TPG Rise Climate fund, the leadership deliberately structured a suite of value-creation capabilities that would uniquely support Rise Climate companies.

These strategies include enhancing go-to-market approaches, optimizing pricing models and implementing greater operational efficiencies. These are all critical to achieving profitable growth, more commercially successful companies and unlocking greater sustainability and decarbonization outcomes.

Private equity’s ability to combine financial discipline with hands-on ownership enables companies to align sustainability with profitability. Starace emphasizes EQT’s focus on unlocking value by removing constraints:

“After acquisition, we work together to unfold the full potential of the company by removing constraints like capital limitations and short-term pressures. It’s about asking: ‘What could this business achieve if we remove those limits?”

Similarly, the Forum’s white paper highlights how Permira has placed profitable impact at the heart of its strategic ambitions. The firm has a circa 40-year history of backing secular growth trends and has increased its climate investing activities while building a team to invest throughout the climate transition value chain.

Its history of making the most of its resources and the expertise of its senior advisers, operating partners and dedicated value creation team to help portfolio companies’ management teams drive growth positions the firm well to be a partner of choice for many climate transition businesses.

These strategies include enhancing go-to-market approaches, optimizing pricing models and implementing efficiency improvements – all critical to achieving financial growth while driving sustainability outcomes.

At EQT, active ownership is about reimagining business models, accelerating ambition and building long-term value. Starace reflects on the transformative potential of these partnerships:

“We sit together and imagine what this company could do if we eliminated constraints. That process builds an incredible story and accelerates both economic and sustainability performance.”

This approach resonates with how other GPs are integrating sustainability into portfolio operations. It involves:

Demand-side shifts increasingly drive the energy transition as industrial and commercial sectors adopt decarbonization solutions at scale. Starace emphasizes the role of electrification in shaping investments:

“Electrification of final energy use driven by technology evolution is happening and it’s a major drift – like a big current in the ocean.”

Private equity firms are increasingly focused on positioning portfolio companies for successful exits by embedding sustainability into their core value proposition. The Forum white paper highlights how firms work proactively with management teams 12-18 months before exit to develop commercial, brand and operational proof points around sustainability.

When done effectively, this preparation allows companies to attract a wider pool of potential buyers, including specialized sustainability-focused investors, strategic acquirers looking to enhance their sustainability profile and public market investors with specific sustainability mandates.

As UBS’ Therése Lennehag notes in the report, “If companies can come to their [investment] bankers with the commercial insights, quantified business case and revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] growth plans paired with compelling use of proceeds to make that connection for buy-side investors to get them excited, they can more credibly earn that sustainability market premium.”

The climate challenge demands unprecedented mobilization of capital and expertise. Private markets stand uniquely positioned to channel resources toward effective solutions while generating attractive returns.

For executives, there has never been a more important time to partner with investors who understand the strategic value of sustainability and can help transform business models accordingly.

As Starace notes on that partnership:

“We are going to stand by you, we’re going to work with you and we’re going to make it happen. It’s a liberating moment for companies – an opportunity to dream big and execute on it.”

For asset owners, the question is not whether to invest in the energy transition but how to identify managers with the right capabilities to execute this complex transformation. Those who successfully navigate this shift will not only generate superior financial returns but also contribute meaningfully to building a more sustainable economic system.

The energy transition represents an environmental necessity and a generational investment opportunity. By combining available capital with operational excellence and commercial innovation, private markets create a powerful engine for change.

The winners of tomorrow will be those who act decisively today, embracing the transformative potential of sustainable business models and positioning themselves at the forefront of the net zero economy.