ESG Why Should Venture Capital Investors Leverage ESG?

Faris Mesmar
2 min readJun 22, 2023

The rising popularity of ESG (Environmental, Social, and Governance) considerations depicts a broader transition to sustainability in venture building. Within the transition, respective ESG investments remain at the forefront of investment conversations -including net-zero, inclusion, diversity, and climate risk. As a result of the COVID-19 pandemic, the ongoing shift will have an impact on a number of enterprises, while revealing health and social disparities. Leaders in valuable investments utilize ESG integration to deliver significant value for the effective value creation.

VC or Venture Capital fund managers have the exclusive opportunity to invest while catalyzing the solutions to handle the most significant challenges -including inequality and climate change. While there is a steady increase in effective ESG maturity across the PE (Private Equity) domain, there are several good reasons to gain traction within the VC.

Why Does It Matter?

The effective management of ESG problems improves financial performance. So, it is pretty reasonable that a similar relationship can be applied in the Venture Capital context.

A well-defined strategy to ESG can increase the overall potential for following on funding rounds or accomplishing value at the exit point at the enterprise level. It could include PE acquisition, trade sale, IPO, or offer buyout.

The general nature of disruptive, innovative tech and subsequent business models, quite foundational to several VC-backed businesses, implies that they might be operating in an unregulated space. As a result, there are higher chances that all-new regulations will be introduced to control the risks or the overall impacts of these types of innovations and advances. In this context, the real benefit of getting ESG right is to be prepared effectively for future regulatory changes.

Paying Attention to Reputation with ESG

The overall reputation also plays a vital role in the modern tech space. Without an excellent reputation, attracting and scaling investors is impossible. You can observe a significant shift in the overall consumer expectations -both on the corporate and individual levels. Millennials are looking into the factor of sustainability in their respective purchasing decisions.

At the same time, procurement departments are looking into the factor of human rights in the field of the supply chain while also considering the GHG emissions of the respective suppliers. Proper purpose and sustainability are core factors that can be useful in attracting and retaining top talent.

Conclusion

ESG integration remains fundamental towards managing risks properly and protecting value. It can be a process through which you are capable of identifying opportunities for immense value creation. As ESG integration in VC continues growing, investors can consider ESG factors as the ground for improved risk management and value creation.

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Faris Mesmar
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Serial Entrepreneur | Venture Builder | Skydiver