Environmental, social and corporate governance (ESG) investing is now a "must have" for private equity firms, according to a new report by Bain & Company.

While ESG investing is often met with a skeptical eye, particularly in the US, Bain notes that what's made the private equity industry successful in the past is its ability to predict value creation opportunities and to think broadly about how those moments may reveal themselves. ESG should no longer be viewed as a sideshow, Bain argues—rather, ESG should be a core part of what differentiates companies as competitors. ESG principles should be baked into due diligence, value-creation plans and exit strategies

"Private equity has always focused on governance risk and increasingly sees the value in cutting costs through sustainability," the report states. "What's changing is firms' growing awareness that environmental, social and governance issues are highly interrelated and that the biggest benefits over time accrue to companies that balance efforts between all three."