08/31/2021

How Venture Capital Can Join the ESG Revolution

Here are four ways they can become more mainstream

ESG has become increasingly mainstream for investors in recent years, as part of a broader wave to embrace purpose and stakeholder capitalism: More than $100 trillion in assets under management (AUM) globally are managed according to ESG principles. This push is at least partly driven by what some call the “business case” for ESG: Empirical studies from as early as 2010 onwards show companies with high ESG performance outperform their peers financially, while 2020 has been a record year for influx into funds performing strong on ESG-principles (justified by the parallel finding that those funds financially outperform their lower-ranking equivalents).

However, venture capital has largely been left by the wayside: In a quick scan of the of the websites of the top 50 largest venture capital (VC) funds, we only found five which mentioned ESG or a commitment to sustainability, while only a few dozen more firms have made public commitments to ESG (among the more than 2,900 VC firms worldwide). A recent Amnesty International study found that almost none of the world’s largest VC funds consider human rights in their investment process. Only one ESG topic, diversity and inclusion, has seen widespread focus among VCs so far.

Why has venture capital been so slow on the uptake? And what will it take to make venture capital join the ESG revolution?

Please select this link to read the complete article from SSIR.