Simone Borsetti, Research Associate

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As private markets continue their rapid expansion, the pressure to align them with Sustainability goals is intensifying.

By the end of 2024, global private capital assets under management reached approximately $19 trillion, with projections from PitchBook estimating $24.1 trillion by 2029. Longer-term forecasts by Bain & Company suggest private markets could surpass $60 trillion by 2032—more than double the expected growth rate of public assets.

This exponential growth in capital has sharpened the focus of institutional investors on ESG and Sustainability integration. A recent EY survey found that 88% of institutions have either somewhat or substantially increased their use of ESG information in the past year.

However, despite the growing emphasis on sustainability, private markets remain less transparent, less standardised, and less regulated than their public counterparts.

This duality has created a paradox: private markets are viewed both as powerful engines for transformation, thanks to their influence and agility, and as potential “blind spots” where sustainability risks may go unchecked.

Sustainability Leverage in Private Markets

Private markets offer several structural advantages when it comes to sustainability implementation.

General Partners often hold board seats and wield significant influence over portfolio companies, allowing them to shape strategy, governance, and operations in ways public investors rarely can.

Furthermore, the long investment horizons typical of private equity and infrastructure funds align naturally with sustainability objectives, from climate resilience to inclusive growth. Asset owners such as pension funds and insurers are increasingly using their leverage to demand greater transparency, stronger frameworks, and demonstrable ESG progress from General Partners.

The Blind Spots

Despite these advantages, major obstacles remain. ESG and Sustainability data from private markets is still patchy, inconsistent, and largely reliant on voluntary disclosure. Without the mandatory disclosure requirements that apply to listed companies, investors can rely on voluntary reporting, self-assessments, or fragmented third-party data. This makes it difficult to compare funds, evaluate sustainability risks, or identify instances of greenwashing—an especially acute risk in a lightly regulated environment, which can erode investor trust and mask long-term vulnerabilities.

Another growing concern is the risk of “ESG arbitrage.” Companies with poor ESG credentials may increasingly seek capital from private sources to avoid the scrutiny they would face in public markets. This trend threatens to undermine broader sustainability efforts and casts doubt on the credibility of ESG strategies in the private space.

Emerging Solutions

Despite these challenges, efforts to bridge the gap are gaining momentum.

New ESG assessment tools tailored to alternative assets are emerging, alongside standardisation initiatives from bodies such as the Institutional Limited Partners Association (ILPA), GRESB (formerly known as the Global Real Estate Sustainability Benchmark), and the European Union’s SFDR framework.

At the same time, asset owners are playing a more active role, pressing General Partners for clearer disclosures, impact measurement, and integration of sustainability into core investment processes.

Laboratory or Liability?

Private markets are uniquely positioned to become a proving ground, acting as a laboratory for sustainability innovation, where investor influence, capital flexibility, and longer horizons converge to deliver measurable impact.

But this potential will remain untapped unless asset managers seize this opportunity to go beyond declarations and embed sustainability into every layer of the investment decision-making process.

Aligning private markets with ESG principles presents both tremendous opportunity and meaningful challenges. But it is not enough to simply adopt new reporting tools or frameworks. What’s required is a fundamental shift in governance, incentive structures, and investment culture – one that prioritises long-term value creation over short-term gains.

Whether private markets evolve into ESG and Sustainability leaders or remain regulatory blind spots will depend on the choices made today. For General Partners or Limited Partners, and their advisers, the question is no longer whether sustainability matters in private markets, but: Are we setting the bar high enough?