As much of Europe swelters under another heatwave it seems investors are now keen to turn the heat up on private equity (PE) firms and their climate credentials.

New data has found PE firms are under increasing pressure from Limited Partners (LPs) to demonstrate how climate considerations shape investment decisions, create portfolio value and improve exit outcomes, but they are still not doing so effectively.

In a week when the world’s cities were told they need to reexamine their net zero strategies a new report from climate and nature analytics firm Risilience, found that, despite climate becoming an increasingly important investment consideration, fewer than half (42%) of LPs believe equity firms effectively quantify climate opportunities within their investment decisions. Meanwhile, only just over a third of LPs (35%) believe climate risks are being adequately quantified financially by PEs.

The findings are based on a survey of 526 senior LP decision-makers across North America, the UK and Europe, and point to a structural shift in investor expectations. Rather than viewing climate as a compliance or ESG reporting exercise, LPs increasingly expect it to become a core component of underwriting, portfolio management and value creation.

The report argues that the market has reached an inflection point. While climate reporting has become commonplace, LPs are now asking a fundamentally different question: not what PEs are measuring, but how those insights are being used to improve investment performance and protect returns.

The research showed investors are looking for evidence that climate analysis is embedded throughout the investment lifecycle. This includes informing acquisition decisions, identifying operational value creation opportunities during ownership and demonstrating how climate-related improvements contribute to stronger exit valuations.

“The private equity market has moved beyond treating climate as a reporting obligation,” said Angela Brown, CEO at Risilience. ”LPs increasingly want to understand how climate analysis is influencing investment decisions, creating value across portfolios and ultimately contributing to financial performance.

” Static, retrospective sustainability reports are no longer enough; investors increasingly expect climate insights to be integrated into the same financial decision-making processes that determine investment quality and long-term returns.”

The findings suggest many equity firms are still adapting to this shift. While 97% of LPs say climate engagement is driving measurable behavioural change among PEs, investors are simultaneously raising expectations around the sophistication, consistency and financial relevance of climate analysis.

Increasingly, LPs also expect greater transparency and verification. Eight in ten respondents said they now undertake some form of verification of climate-related claims made by PEs, reflecting a broader move away from relying solely on self-reported ESG disclosures.

The weather patterns are one thing, but the equity firms will come under greater scrutiny on their green credentials.

Jon Guy, Editor,

Emerging Risks