In January 2022, a little over a year ago, the World Economic Forum posted an article under the headline ‘ESG is coming to venture capital’, suggesting that interest in ESG investing or business practises had been lacking previously.
12 months on and there can be no doubt of the importance of environmental, social and governance (ESG) to VCs, investors and founders looking for funding.
More than ever, VCs are taking a long and hard look at their impact on the world. Beyond supporting the businesses of tomorrow, most – if not all – are now asking themselves what they’re doing to promote diversity, sustainability and fairness.
For VCs, the conversation around ESG is two-fold. As well as VCs looking at their own values and impact, ESG is playing a far greater role in investment decisions.
Where once due diligence would’ve only focused on a start-up’s tech stack or defensible IP, VCs now want to know what companies are doing with regards to ESG, from their team make up to the size of their carbon footprint.
And while there was a time when the industry might have looked on this data as a ‘nice to have’, new studies are proving what many have known for a long time – ESG is not only crucial to society; it can also drive greater value for investors.
Research from Moore Global, a major accountancy firm, found companies that place greater importance on ESG see greater revenues than those who don’t.
According to Moore Global, ESG aligned businesses saw a 9.7% revenue rise from 2019 to 2022 compared with a 4.5% boost for less ESG aligned companies.
Backing this up, recent findings from McKinsey found that 83% of C-suite leaders and investment professionals believe ESG programs will bring about more value to shareholders in five years than today, highlighting ESG’s long-term value.
In addition, McKinsey found these respondents would be prepared to pay ‘about a 10 percent median premium’ to acquire a company with a positive ESG record.
One of the reasons for this could be the looming legislative requirements for businesses to quantify and track data around ESG factors like carbon footprints.
As Re-Fi Ventures founder Antony Yousefian pointed out in our recent white paper, ‘What’s Powering The Powerhouse?’, companies who don’t have this data to hand are soon going to be left behind and –even worse – penalised.
If this isn’t enough to convince investors and businesses of ESG’s vital importance, consider trends like ‘climate quitting’, which has seen a growing number of people leaving jobs at companies with poor environmental records.
Also consider the impending rise of Gen Z founders, who commonly surpass other generations in terms of the value they put on climate and social issues. Often, ESG considerations will be baked into their companies from the beginning, putting more pressure on incumbent competitors to get their house in order.
Whether it’s new rules, greater revenue or the fact CleanTech deals skyrocketed in 2022 with 140 deals completed in H1 2022 (surpassing blockchain and digital security), it’s clear a major turning point in ESG and VC is coming for the better.
What is Praetura Ventures doing on ESG?
As well as investing in some truly exceptional ESG-led businesses, including SteamaCo, Culture Shift and Modern Milkman – which recently received B-Corp certification – the entire Praetura Group is committed to the Good Business Charter.
The GBC lays out 10 commitments for businesses to follow, from environmental responsibility to looking after employee wellbeing.
In addition to this, we are consistently evaluating ourselves, thanks to our Praetura Task Force, which is made up of committees and Praetura volunteers who meet regularly to discuss areas like D&I, wellbeing and the sustainability.
Among our many initiatives, everyone across Praetura is given two additional days of annual leave for the purposes of volunteering, whether that’s helping out in the community at a local care home or offering time up to work at a food bank.