Private Equity Firms Find Environmental Shift In India’s Mid-Market

Last Updated:June 07, 2025, 11:30 IST

How mid-market private equity firms drive environmental transformation in India’s industrial sector.

News18

Authored by Abhik Mitra, Managing Director, Operations Group, Samara Capital: As World Environment Day focuses attention on environmental stewardship, an often-overlooked transformation is quietly reshaping India’s industrial landscape. Mid-market private equity firms, through their active ownership approach, are becoming unexpected champions of environmental change. This is driven by systematic operational transformation of companies that have upped the priority on sustainability.

The opportunity is both vast and urgent. Mid-size companies across India represent a largely untapped frontier for environmental transformation. These businesses, typically valued between $50 million and $500 million, have historically focused on core operations and growth, often viewing environmental initiatives as investments beyond their immediate reach.

This creates a unique value creation opportunity for buyout firms that understand both the operational transformation required and the business case for environmental stewardship. Companies with robust environmental management practices outperform industry peers on EBITDA margins by up to 21% [1], yet most mid-size businesses lack the knowledge, resources, or strategic focus to capture these gains independently.

The Knowledge and Capability Gap

The fundamental challenge facing mid-size companies in India is less about intent and more of access. These businesses operate with limited exposure to best practices in environmental management, sustainable technologies, or evolving regulatory landscapes that increasingly demand environmental accountability.

Family-owned businesses, regional service providers, and local industrial companies often rely on decades-old processes and technologies. They lack dedicated sustainability professionals and have minimal awareness of the business case for environmental transformation. This knowledge gap becomes particularly acute as export customers increasingly mandate sustainability certifications, domestic regulatory requirements tighten, and competitive pressures mount from environmentally progressive competitors.

The Private Equity Solution: Active Ownership in Action

Buyout firms bring a fundamentally different approach to environmental transformation. Through active ownership models that emphasize operational improvement and strategic repositioning, private equity creates the framework for systematic environmental change.

The transformation typically begins within the first 100 days of ownership, following established and replicable playbooks for business transition and operational enhancement. Environmental audits become standard components of broader operational assessments, identifying efficiency opportunities that often translate into immediate cost savings alongside longer-term strategic positioning.

The real value lies in the expertise and network that buyout firms bring to portfolio companies. Most established private equity firms have in-house subject matter experts focused specifically on environmental, social, and governance factors. These professionals understand both the technical requirements of environmental transformation and the business case for sustainable operations.

Equally important is access to networks of specialized consultants and independent experts who can accelerate implementation. Where companies might struggle to identify qualified environmental consultants or navigate complex technology decisions, private equity firms leverage existing relationships and proven implementation partners. This network effect creates rapid progress examples include solar installations, water management systems, and energy efficiency upgrades implemented within 12-18 months.

Beyond Compliance: Building Environmental Resilience

The most sophisticated buyout firms approach environmental transformation not as compliance exercise but as competitive positioning. With India needing $10.1 trillion in investments to achieve net-zero emissions by 2070 [2], and clean energy investment surging to $68 billion in 2023 [3], environmental leadership represents a fundamental market shift rather than regulatory burden.

Portfolio companies that achieve environmental excellence during private equity ownership emerge better positioned to identify and manage environmental risks long after the ownership transition. They develop internal capabilities, possess established processes, and achieve cultural awareness that creates lasting competitive advantages.

This preparation becomes increasingly valuable as environmental considerations influence customer relationships, supplier partnerships, talent acquisition, and access to capital. Companies with verified environmental credentials access premium market segments unavailable to environmentally underperforming competitors.

The Broader Market Transformation

The impact extends beyond individual portfolio companies to influence broader market behaviour. As private equity-backed companies demonstrate the financial viability of environmental investments, market standards evolve across entire industrial sectors.

The growth trajectory is compelling. ESG fund assets under management in India surged from $331.4 million in January 2020 to $1,176.6 million by March 2024, representing more than three-fold growth in four years [4]. Industry forecasts suggest ESG could represent approximately 34% of total domestic assets under management by 2051, driven by sectors focused on renewable energy, electric vehicles, green hydrogen, and climate technology. These investments seek superior risk-adjusted returns while recognizing environmental stewardship as value creation strategy.

The demonstration effect becomes particularly powerful in India’s relationship-driven business environment. When companies observe competitors achieving operational improvements and margin expansion through environmental initiatives, adoption accelerates across supply chains and regional business networks. Moreover, the talent market increasingly reflects these priorities, with engineering and management professionals demonstrating clear preferences for environmentally responsible employers.

Implementation and Strategic Considerations

Environmental transformation through private equity requires systematic approach and sustained commitment. Technology integration demands careful planning to balance implementation costs against operational continuity. Cultural change management becomes essential, as environmental transformation often requires fundamental shifts in organizational behaviour.

The regulatory environment, while generally supportive, varies significantly across states and sectors. Private equity firms bring valuable expertise in regulatory navigation while helping portfolio companies anticipate future requirements. Most importantly, successful environmental transformation requires alignment with broader business strategy rather than standalone initiatives.

The Way Forward

Environmental stewardship through private equity represents more than corporate responsibility, it constitutes a fundamental shift toward sustainable capitalism that aligns financial returns with environmental outcomes. The transformation won’t happen through policy mandates or corporate announcements. It will emerge from factories and facilities where private equity-backed companies choose to lead environmental change, creating competitive advantages that extend well beyond individual ownership periods.

For India’s mid-size companies, the choice is becoming clear: embrace environmental transformation with the guidance and resources that private equity provides, or risk competitive disadvantage in an increasingly sustainability-conscious marketplace. The companies and investors making this transition most effectively will capture the greatest value while contributing meaningfully to India’s environmental future.

The revolution is already underway, driven not by compliance requirements but by the recognition that environmental excellence has become essential for business excellence.

It is authored by Abhik Mitra, Managing Director, Operations Group, Samara Capital

The views expressed in this article are those of the author and do not represent the stand of this publication.

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