financial returns

Good jobs correlate with financial value in PE, EDCI shows

Boston Consulting Group's analysis of EDCI data provides one of the earliest pieces of statistical evidence of the ESG/material value relationship in private equity.

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Social sustainability indicators are linked to material value in private equity portfolio companies, the ESG Data Convergence Initiative’s latest data shows. It is one of the earliest pieces of statistical evidence of this relationship specifically for private equity.

A report by the Boston Consulting Group, EDCI’s benchmarking and advisory partner, has found a positive correlation between lower workplace injury rates and higher revenue growth. Private equity-owned companies with high workplace injury rates see a median of 10 percent revenue growth year-on-year, while companies with low workplace injury rates see a median of 17 percent revenue growth year-on-year.

This correlation may be because private equity owners acquire “businesses that have not necessarily been managed as sophisticatedly and bring that sophistication and focus to help drive down work-related injuries: identifying opportunities to improve safety protocols or investing in better equipment,” said Ben Morley, a partner with BCG and co-author of the report. “That will reduce the costs of time taken out due to the injuries, and improve the employee experience which will make for more productive employees. And there are really profound social impacts with that.”

More employee engagement, another social KPI collected by EDCI, is correlated with lower staff turnover. Companies with the lowest response rates to employee surveys had a median turnover rate of 24 percent, while companies with the highest response rates had a median turnover rate of 20 percent, BCG found.

“The causal link could be that employees are much more likely to fill in those surveys if they believe management teams are actually going to listen and act on their feedback and improve their experiences,” said Morley. “When you have management teams that do that, we see employee attrition rates come down and there are less costs associated with replacing those employees. And employees are more experienced in their jobs and more effective at work.”