The VC Perspective

An increasing number of VCs have embraced ESG integration into their investment approaches and in-house management practices for similar reasons to PE. However, whilst the risks and opportunities the sectors are facing are similar to PE, the approaches to incorporating ESG within VC investments are more nuanced due to the different and earlier positioning of VC within the investment ecosystem.

The VC community is starting to collaborate on developing frameworks and approaches which are more representative of the early stage nature of their investment portfolios, their smaller investment share, the asset classes they typically invest into, and the more limited in-house resources most GPs have. That said, many VCs are reporting the competitive advantage strong ESG credentials can bring, and the benefits of working with early stage companies to embed positive ESG cultures and approaches early on in their evolution.

Below are details of some of the key resources, which detail the best practice approaches to embedding and responding to ESG for the VC community from both a GP to portfolio and an LP to GP perspective.

Useful Resources

Responsible Investment Approaches:

How to write an ESG policy for a VC fund — a practical guide | VentureESG – Top tips and step by step guide by VentureESG on how to develop an ESG Policy, with through a VC lens.

Supporting your VC portfolio on ESG? A new support tool is here to help you | VentureESG – Top tips to consider when integrating ESG into your portfolio companies; the VC perspective.

Reporting:

ESG_VC – ESG_VC has developed a venture-ready ESG measurement framework, which asks early-stage companies to answer 48 measures against ESG objectives.

VentureESG – A community-based non-profit organisation from VCs for VCs, working to make ESG a standard part across the VC value chain, from due diligence and portfolio management to internal fund management and reporting.

Climate:

Venture Climate Alliance – The Venture Climate Alliance is made up of a growing group of leading VCs committed to achieving a rapid, global transition to net zero or negative greenhouse gas emissions by 2050 or earlier.

Diversity Equity and Inclusion:

Diversity – Creating a fairer and more diverse Venture Capital industry | Diversity.VC – A global benchmark for Diversity, Equity, and Inclusion (DEI) best practices in the VC industry.

Diversity and Inclusion for VCs | investmentdiversityguidelines.com – A report which ‘has been created by leading investors and professionals within the venture community as a resource for institutional and other investors who wish to maximise access to diverse deal-flow and manage their companies and portfolios to optimise return.

Finding What Works: Pathways to Improve Diversity in Venture Capital Investment | British Business Bank – A recent report produced by BBB on finding pathways to improve diversity in VC investment.

Investing in Women Code IIWC | British Business Bank – The Investing in Women Code is a commitment to support the advancement of female entrepreneurship in the United Kingdom by improving female entrepreneurs’ access to tools, resources and finance from the financial services sector.

A best-in-class DEI Term Sheet Clause from VentureESG and Diversity VC | VentureESG – A best in practice DEI term sheet clause launched by Venture ESG and Diversity VC.

ESG is a challenging area for venture capital firms, as the companies they back tend to lack the time, resources, and expertise to engage meaningfully with ESG. As investors, you clearly need to embed ESG into your investment process to drive growth, deliver reporting, and comply with regulation. It is critical, though, to think about how to tailor your approach to a venture capital portfolio, using frameworks and resources that prioritise education, incentivise progress, and provide a pragmatic solution to the ESG problem within start-ups.

Henry Philipson

Director of Marketing and Communications, Beringea, and Co-Founder, ESG_VC

We continue to see a lot of momentum, especially within European VC, to embrace ESG integration across the value chain. This is driven by both investors’ increased understanding that ESG is a material issue as well as the continued top down pressure from both regulators and LPs, the former of which are clearly paving the way, and the latter of whom are increasingly requiring ESG integration from their managers. As ESG in VC is still nascent, VC funds across the globe are finding value in being part of a collaborative community, which enables knowledge-sharing around best practice, peer support and capacity-building across their firm.

Hannah Leach

Partner, Houghton Street Ventures, and Co-Founder and Co-Director, VentureESG

The VC Perspective

Turning Intention into Action | 2023 Research and Trends

Useful Resources

Responsible Investment Approaches:

Reporting:

Climate:

Diversity Equity and Inclusion:

Explore other sections in the Toolkit

What is an ESG Strategy

Implementation

Monitoring & Reporting

ESG Knowledge Hubs