Reassessing ESG and Capital Allocation
Kasper Wichmann’s takeaways from the Oxford Sustainable Private Markets Conference 2025
The Oxford Sustainable Private Markets Conference on 15 September was a real highlight.
Unlike many events in the industry, this one struck the right balance: thought-provoking content without incessant pitching and pay to play sessions, and an excellent blend of academics and practitioners that sparked genuinely insightful discussions.
All of it was well prepared and seamlessly hosted by Ludovic Phalippou. The day concluded with a fantastic dinner in the dining hall of Queen’s College – a fittingly light and convivial end to a strong programme in some very august surroundings.
Here are my notes from the day, mixed with some insights from the excellent papers that were presented. Some were more work-in-progress than others, and others were more applicable but all offered insights.
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“There is always capital, it is just that the risk adjusted returns are not attractive”
Conference participant
Executive Summary
- Environmental regulation can improve firm productivity but at the cost of reduced business dynamism
- Disclosure regulation in private equity funds raises LP returns, but benefits accrue unevenly to sophisticated investors
- Venture capital allocates differently when environmental premiums are high, raising substitution risks for early-stage founders
- Development Finance Institutions remain risk-averse, with muted ecosystem impact and crowding-out effects
Reopening the Brown Box: Regulation, Production, and Firm Behaviour
The opening paper, Opening the Brown Box by S. Lakshmi Naaraayanan and co-authors, explored how Indian manufacturing firms responded to emission capping regulation. Firms shifted from self-generated to grid electricity, reduced coal-intensive products, and invested in abatement. Productivity rose, but product variety and business formation declined.
The discussant, Constantine Yannelis, stressed the need for clearer discontinuity tests to quantify elasticity of firm responses. This would be very interesting and likely highly useful for policy makers.
For LPs, the lesson is clear: regulation can catalyse efficiency, but it can also suppress innovation. Allocating capital to regions with strong monitoring capacity may provide upside without incurring the full cost of lost dynamism.
Transparency in Private Equity: A Regulatory Dividend
Yina Yang’s Transparency Regulation in PE Funds and Investor Returns showed that Dodd-Frank’s disclosure rules improved investor outcomes by an estimated 8.6% in fund value, especially in buyouts. LPs benefited through reduced search costs and fewer opaque related-party transactions.
This echoes what LPs have long suspected: transparency improves alignment, but it was interesting to learn that the gains skew towards the sophisticated investors.
LPs should demand not just compliance, but meaningful disclosures on fees, expenses, and conflicts. The challenge is whether these benefits persist in less regulated jurisdictions.
Catering to the Environmental Premium in Venture Capital
Tse-Chun Lin and co-authors introduced a machine-learning approach to classify “green ventures” using Crunchbase data. They found investors chase environmental premiums in late-stage financings, accelerating exits when secondary markets price sustainability highly.
The risk? Early-stage green ventures lose out as capital substitutes away. This was for many participants, a questionable conclusion given the differences in how investors allocate to early stage and late stage venture.
For LPs, this highlights a key question: does the GP have a structured approach to avoid chasing short-term valuation signals at the expense of long-term innovation?
DFIs and Venture: A Blunt Impact Instrument
Aleksandar Andonov’s paper on DFIs challenged assumptions that public capital solves market failures. Analysing 2,770 VC funds backed by 344 DFIs, the authors found muted impact.
DFIs shy away from risk, avoid first-time funds, and often crowd out private capital. Quantitative evidence that supports the anecdotal evidence that I have myself experienced from investing in emerging markets – DFIs can be both a blessing and a curse.
This raises uncomfortable questions for LPs allocating to blended vehicles. If DFIs aim to catalyse ecosystems but end up distorting risk-taking, should private investors rethink co-investment strategies with them?
It should also be food for thought for policymakers as they keep pouring money into DFIs – is there an ROI on this investment or is there maybe a better way to do it?
Environmental Partisanship in Crowdfunding
Vesa Pursiainen and co-authors demonstrated that environmental commitments on Kickstarter reduce campaign success by nearly 10%. The effect is strongest in Republican-leaning areas and for hardware projects. It would seem an obvious conclusion based on the data, leaving the question of why those looking to raise capital would make the commitment in the first place.
For LPs, the lesson is not about crowdfunding per se but about politicisation of ESG. Even when projects are rational, investor sentiment is filtered through ideology. This should caution GPs when marketing ESG themes: narratives that resonate in Europe may fall flat in the U.S. heartland and maybe increasingly elsewhere as well.
Who Should Manage Impact Investments?
Christophe Spaenjers and co-authors examined affordable housing investments. Non-profits paid more and sold for less, underperforming for-profits on rental growth and capital gains. Poor governance exacerbated outcomes.
For LPs, the implication is practical: impact investing is not inherently inefficient, but manager selection is critical. For-profit GPs with impact mandates may deliver stronger blended outcomes than small non-profits lacking bargaining sophistication.
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The presentation and discussion of the six papers were followed by two excellent and very thought provoking keynotes. Not everyone in the room agreed, but then, that was not the intent.
Keynote: ESG as the New Active
Jules Van Binsbergen delivered perhaps the most provocative keynote. He likened ESG in DB plans to active management – ambitious, unbenchmarked, and often unaccountable.
His message: ESG should not substitute for fiduciary duty. If NPV to society is positive but NPV to shareholders is negative, it belongs in public policy, not pension funds.
This challenges the comfortable consensus of many LPs. If ESG is simply alpha in disguise, a strong statement, then the bar for evidence must be far higher. It was a very refreshing and needed take on ESG, which to some extent has become almost orthodox in nature with dire consequences for those who do not adhere to the beliefs.
Keynote: Transition Finance and the Capital Stack
Adair Morse reframed transition finance as a problem of incentives, not scarcity. The public sector cannot shoulder the energy transition alone, and blended finance is outdated if it implies concessionary returns. Instead, capital must be pooled to back projects that can survive subsidy-free.
Her call to “stop thinking green vs. brown” resonated. The capital stack must enable each sector to play to its strengths. For LPs, this means asking managers how they position portfolios for transitional, not just green – assets.
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Practical Takeaways for LPs
From the two keynotes and six papers, three red flags and three guiding questions stand out:
Red flags
- Regulatory arbitrage risks where firms or funds simply shift problems elsewhere
- DFIs crowding out rather than crowding in private capital
- ESG claims untethered from benchmarks or evidence
Questions for managers
- How do you measure productivity improvements from sustainability initiatives without ignoring lost innovation?
- When chasing green premiums, how do you avoid overpaying at the expense of early-stage venture creation?
- What governance structures ensure that impact capital is stewarded efficiently, especially in housing and infrastructure?
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Closing Reflection
The Oxford Sustainable Private Markets Conference underscored both the promise and contradictions of ESG in private markets. Regulation improves efficiency but reduces variety.
Transparency boosts returns but not equally. Environmental premiums reward late-stage but starve early-stage ventures. DFIs promise catalytic impact but often fail to deliver.
For LPs and GPs alike, the conference was a reminder: sustainability is not about labels. It is about incentives, governance, and capital allocation
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Among conferences, this is by far my favourite. And I do hope I can attend again next year.
Stay Illiquid!
Kasper
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Sources
- De Simone, Naaraayanan, Sachdeva. Opening the Brown Box: Production Responses to Environmental Regulation (2024)
- Yang, Yina. Transparency Regulation in Private Equity Funds and Investor Returns (2024) – Abstract Only.
- Lin, Tse-Chun et al. Catering to Environmental Premium in Green Venture Financing (2024)
- Andonov, Aleksandar et al. Do Development Financial Institutions Create Impact through Venture Capital Investments? (2024)
- Pursiainen, Vesa et al. Environmental Partisanship in the Crowdfunding of Technology (2024)
- Spaenjers, Christophe et al. Who Should Manage Impact Investments? Evidence from Affordable Housing (2025)
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