Empirical Study on the Impact of ESG Factors on Private Equity Investment Performance: An Analysis Based on Clean Energy Industry

Abstract

This study investigates the relationship between Environmental, Social, and Governance (ESG) factors and private equity investment performance within the clean energy sector. Using a comprehensive dataset of 286 private equity investments from 2015-2023, we examine how ESG ratings influence financial returns, risk-adjusted performance, and exit valuations. Our methodology employs multiple regression analysis, propensity score matching, and robustness testing to establish causal relationships. The research reveals that higher ESG scores correlate with superior investment performance, with environmental factors showing the strongest predictive power for returns. Clean energy investments with top-quartile ESG ratings demonstrate 23% higher IRR compared to bottom-quartile performers. Social governance metrics exhibit significant impact on portfolio company operational efficiency, while governance factors primarily influence exit timing and valuation multiples. The study contributes to sustainable finance literature by providing empirical evidence for ESG value creation in private markets. Findings suggest that ESG integration enhances due diligence processes and generates sustainable competitive advantages. The research offers practical insights for private equity practitioners seeking to optimize investment strategies through ESG-focused approaches.