Sustainability remained an important consideration for businesses and investors during 2024, driven by regulatory requirements, operational cost savings, stakeholder expectations and the transition towards lower-carbon business models.
Although borrowing costs remained relatively high, interest-rate reductions in the UK and US contributed to improving confidence in the M&A market. The report identifies the prospect of more stable financing conditions as a positive factor for lower and middle-market dealmaking in 2025.
Corporate acquirers continued to dominate UK M&A activity during 2024, accounting for 63% of transactions. However, private equity activity also began to recover following a period in which high borrowing costs and economic uncertainty had constrained dealmaking.
The introduction of the EU Corporate Sustainability Reporting Directive increased the level of environmental, social and governance information that qualifying businesses are expected to disclose.
The report states that approximately 50,000 companies worldwide could be required to report against more than 1,000 sustainability-related data points. It identifies the following qualification thresholds:
Although smaller businesses may not face the same direct reporting obligations, they can still be affected where larger customers require sustainability information from across their supply chains.
This is expected to create further demand for ESG data, reporting systems, measurement tools and specialist sustainability advisory services.
European private equity deal activity increased during 2024 following a period of reduced transaction volumes. The report estimates an 18% year-on-year increase in European activity, while global private equity deal value increased by approximately 12%.
Private equity firms also remained under pressure to exit investments held within their portfolios. At the beginning of 2024, the sector was estimated to hold a record 28,000 portfolio companies with a combined value of £2.5 trillion.
Global private equity exit volumes increased by 9% during 2024, including increases of 19% in Europe and 17% in the US. The report anticipated that further exits could release capital for new investments and support increased deal activity during 2025.
Corporate buyers proved comparatively resilient during the downturn in global M&A. Many companies entered 2024 with strong cash positions after reducing expenditure and streamlining their operations during the preceding period of economic uncertainty.
This financial capacity, combined with reduced concerns about recession, supported continued strategic acquisition activity.
Digitalisation continued to affect businesses across the sustainability sector. The report highlights the growing use of artificial intelligence and machine learning in areas including:
According to research cited in the report, 73% of surveyed businesses were either planning to use or exploring the use of AI for corporate sustainability reporting.
However, the commercial development of these technologies will depend on access to reliable data. The report also identifies data privacy, security and the cost of acquiring suitable training data as potential barriers.
The number of UK AgTech transactions doubled between 2023 and 2024. The report connects interest in this market with regenerative agriculture, farm decarbonisation and the application of technology to food production.
With approximately 72% of UK land used for agriculture, the transition towards more sustainable farming practices represents a significant area of potential investment and development.
Investment in UK-based climate technology companies increased by 24% in 2024, reaching £4.5 billion.
AI-focused climate technology companies experienced particularly strong growth, with investment increasing by 128% to £1.01 billion, according to PwC figures cited in the report.
The UK Government laid the groundwork for GB Energy, a proposed publicly owned energy company intended to support the transformation of the UK energy market.
The Government also committed £1.2 billion to the Green Industries Growth Accelerator, focusing on the development of offshore wind, carbon capture, utilisation and storage, and nuclear energy technologies.
Demand for ESG consulting and advisory services is being supported by increased reporting requirements and greater senior-level involvement in sustainability strategy.
The report states that 44% of UK financial services firms had board directors with professional sustainability experience, increasing to 66% among banks.
It also notes the continued growth of the B Corp movement. The UK reached 2,000 certified B Corps in 2024, with more than 9,000 B Corps operating across over 160 industries worldwide at the time of the report.
Human Capital Management businesses focused on improving productivity through investment in technology and training, alongside the consolidation of complementary services.
The report identifies diversification of client bases and service offerings as an important response to slower activity in the global recruitment and hiring market. UK Human Capital Management transactions also increased during 2024.
Public-market revenue multiples became more stable during 2024 after the elevated levels recorded in 2021.
However, EBITDA valuations continued to vary considerably because many sustainability companies remain at an early stage of development or have yet to achieve consistent profitability.
Among the public companies tracked by Polestar CF:
The report indicates that investors are increasingly looking for strong margins, established processes and greater certainty around future cash flow. As sustainability markets mature, the range of valuation multiples may begin to narrow.
With the exception of Climate Tech, each of the sustainability verticals reviewed recorded an increase in UK deal activity during 2024.
The sector continued to attract significant venture capital investment, reflecting the relatively early-stage but developing nature of many sustainability markets. The report states that 78% of venture capital firms had fully or partially incorporated sustainability principles into their investment strategies.
Polestar CF’s 2024 Sustainability Survey also found that:
These findings suggest that credible sustainability performance is becoming increasingly relevant to business strategy, investor assessment and future business value.
Transactions highlighted in the report include:
The report identified several factors expected to influence sustainability investment and M&A during 2025:
The principal trends identified in the report were increased sustainability reporting requirements, renewed private equity activity, continued acquisition demand from corporate buyers and the growing application of artificial intelligence. UK deal activity increased across most of the sustainability subsectors reviewed, with AgTech transactions doubling between 2023 and 2024.
Larger businesses are facing more extensive sustainability disclosure requirements. Smaller companies can also be affected indirectly when larger customers request environmental and ESG information from suppliers. This is increasing demand for sustainability data, reporting technology and specialist advisory support.
The report covers AgTech, Climate Tech, Clean Tech, Green Energy, ESG and sustainability services, and Human Capital Management. Climate Tech attracted £4.5 billion of UK investment during 2024, while investment in UK AI-focused climate technology companies reached £1.01 billion.
Yes. Sustainability has become an increasingly important investment consideration for private equity firms. In Polestar CF’s 2024 survey, 85% of private equity respondents said sustainability formed part of their investment criteria, while 45% believed a clear sustainability focus could support higher valuation multiples.
The report indicates that investors are placing greater emphasis on strong margins, reliable cash flow, established operating processes and credible evidence of sustainability performance. The quality of ESG data and the ability to demonstrate progress against measurable targets are also becoming more important.
AI and machine learning are being applied to ESG reporting, sustainability data analysis, precision agriculture, robotics and environmental technology development. However, businesses must also address access to suitable data, data-security requirements and privacy concerns.
Valuations varied significantly between subsectors and individual companies. Among the public companies tracked by Polestar CF, ESG and sustainability services businesses ended 2024 at an average EBITDA multiple of approximately 26x, while Clean Tech businesses ended the year at approximately 16x.
The report suggests that established processes, strong margins, reliable ESG data and demonstrable sustainability performance can strengthen a company’s investment proposition. Polestar CF’s survey also found that 45% of private equity respondents believed a clear sustainability focus could result in higher valuation multiples.
