From obligation to opportunity: closing the investment insight gap

Private equity’s mission to deliver exceptional value remains constant but the landscape where that value is created is being fundamentally reshaped by the impacts of climate change. Angela Brown, Chief Product Officer at Risilience, sets out the critical challenge for investors.

The financial realities of climate change and the energy transition are now core drivers of risk and value creation. The figures are compelling; potential damage to equity valuation from physical climate risk is reported to be up to 40% globally, while energy transition investment reached record $2.3 trillion in 2025.

These realities are changing investment conversations and decision-making around sustainability. The debate has moved beyond if sustainability is impactful – the focus now is on how to execute the most effective actions for the greatest impact.

Climate risk is influencing investment decisions

This shift in focus is timely. Morgan Stanley’s 2025 Sustainable Signals survey found that 86% of global institutional investors expect to increase their allocations to sustainable strategies in the next two years, citing strong financial performance as a key motivator. Similarly, a recent Private Equity International study noted that nearly half of LPs now claim climate risk significantly or moderately influences their investment decisions. The conversation is maturing beyond simple exclusions of carbon-intensive assets to the more nuanced and complex world of transition finance – strategically investing to guide companies on their decarbonisation journey.

Mind the gap between effort and insight

Interestingly, this growing commitment has exposed a critical challenge for investors: the gap between effort and insight.

In some cases, firms are dedicating immense resources to sustainability, including hiring experts, engaging consultants, and subscribing to data services. However, despite best efforts, this flurry of activity often fails to produce insights that meet the threshold of being both credible and actionable enough for deal teams to confidently integrate them into their financial models and decision-making processes. The disparity between intention and result is not without its repercussions – when the effort to implement sustainability initiatives outweighs the value they create, momentum will be lost.

Overcoming the data challenge

Investors themselves point to the main culprit behind this gap: data. Disconnected, inconsistent, or low-quality data can make it difficult to distinguish signal from noise, especially when making financial quantifications. This challenge is sparking a dual response. On the one hand, it is fuelling the drive towards harmonisation, with initiatives like the ESG Data Convergence Initiative (EDCI) bringing together private equity firms to establish a common reporting baseline.

On the other hand, a growing number of investors are adopting guidance frameworks, such as the Net Zero Investment Framework (NZIF), Climate Risilience Investment Framework (CRIF) and Private Markets Decarbonization Roadmap (PMDR), to structure their decarbonisation efforts and meet reporting obligations.

This convergence of data standardisation and framework adoption is paving the way for a new generation of sophisticated software. As new sustainability-driven workflows are tailored to these emerging standards, a surge of tools built specifically to master this data-driven challenge will surely follow.

Analytics and modelling will support next generation value creation

While a crucial step, standardised data and framework alignment is not a panacea – the end goal is to unlock opportunity. The leaders in this space will be defined by their ability to master the data lifecycle, translating raw sustainability data into credible, financially material insights at every stage of an investment.

As they become more sophisticated, these firms are adopting advanced analytics to move beyond simple measurement. This empowers them to shift from passively tracking their environmental impact to actively pricing climate risk and opportunity into valuations. By doing so, they can identify concrete sources of value, such as decarbonisation pathways, enhanced resilience and new market access.

Ultimately, the firms that succeed will be those that embed this intelligence seamlessly into their core workflows, finally closing the gap between effort and insight. The market leaders will be those who deliver exceptional value, not despite the climate transition, but because of it.

• Get in touch to learn how Risilience supports financial institutions to bridge the investment insight gap. Risilience provides the analytical engine and workflow tools that enables PE firms to treat climate as a core financial and strategic discipline, integrated into the way it invests, manages, and exits, essentially turning the “obligation” of ESG into a tangible “opportunity” for alpha.