Why Businesses with a Positive Impact Narrative can earn a Higher Valuation ‍

Research report by Lasting Impact
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Abstract

Investment firms who get their impact narrative right – evidence-based and linked to the value drivers of the business – can see increased valuations of portfolio companies. A weak narrative can reduce overall credibility, and its absence can shrink the buyer pool and lead to price-chipping.  This qualitative research with senior partners and directors at private equity firms, placement agents and investment banks, as well as senior corporate executives and advisors, reveals the recognition by the investment industry of impact and sustainability headwinds and tailwinds affecting valuations; the belief that impact matters as a driver of profit, not an alternative to it; and that impact is a factor in valuations.

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Key Findings

• 91% of those surveyed believe that a positive impact narrative can increase the value of a company, provided it is substantiated by facts.
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• 100% agree that a positive impact narrative is more likely to increase the valuation if it links explicitly to revenue generation.
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• 76% believe that impact needs to be ingrained from the start, although it might not be called ‘impact’ initially, and the narrative can be developed during the holding period.
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• A weak impact narrative can shrink the buyers’ pool and lead to price-chipping, with 76% believing it can reduce valuations.
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• 38% think that impact narratives are not wellarticulated ahead of sales.

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Introduction

Investment firms are increasingly having to consider questions of impact – positive social and environmental benefits - as well as financial returns.  Regulatory and reporting requirements (particularly in Europe) mean firms have to report on the impact they and their investments are having; and many investors – from pension funds and insurers to family offices and sovereign wealth funds – look for the funds they place to deliver positive impact alongside returns.  And if investment firms are having to think about impact, then the companies in which they are invested must too.   Conversely, talking about impact can create issues with stakeholder groups, from certain consumers to the Trump administration and ‘red state’ pension funds with anti-ESG policies.  

At the same time, the end of low interest rates andthe ability to create so much value from rate arbitrage, mean that investment firms are having to focus even more on value creation from the performance ofthe businesses in which they are invested.

So how does the investment community view impact in2025?  The objective of this research was to understand what connection the investment world sees between impact and valuation and in doing so gather expert insights as to how investors and portfolio companies might design for impact value creation.  In this, ‘narrative’ is critical as the public manifestation of that impact to all stakeholders, including investors.

This paper is based on in-depth, structured interviews with 21 leading figures inthe investment world, from private equity and venture capital funds to investment banks and placement agents; from corporate M&A departments and advisors; and from the US and Europe. They were selected on the basis of their influence on investment decisions and experience of valuations.