Clearly societal attitudes have changed and VCs and start ups are seeing investors place more importance on ESG. For many institutional, and indeed many individual investors, ESG considerations are part of their due diligence process. They recognise the positive long-term returns while mitigating risks associated with environmental and social issues. Indeed, many family offices are very concerned about reputational issues when investing. There has also been increased regulatory pressure, as governments and regulatory bosies increase disclosure requirements and guidelines. As mentioned, society as a whole is more socially and environmentally conscious. Brands with purpose really resonate now with consumers, perhaps in a way that they didn’t before.

For startups, this isn’t just a fad that can be ignored. It’s of strategic importance if you want to scale. I can’t imagine any firm has ever been denied access to capital for being sustainably focuses and ethical. Naturally, it reduces risks too, as you’re less likely to receive regulatory fines, or to suffer reputational damage. Finally, being sustainability focuses may open new markets, many of which are expected to experience significant growth in the next few years.

The benefits for VCs are obvious too. Clearly any investment is made with long term value creation in mind, and firms who embrace ESG considerations early on are better placed to create value as they scale. It’s certainly easier culturally to look at a business through an ESG lens day one, then to try and shift culture once a business is established. An ESG focus also helps VCs align with the wishes of the LPs. Finally, it can only enhance the VCs reputation and perhaps will expose the firm to a great number of opportunities.

Certainly, it’s an interesting area. Fram works with VCs across investment roles, sales & marketing, finance, operations, and compliance. This gives us good industry insight into the shifts the sector is seeing. Whilst capital raising has been tougher of late, it’s a hiatus and we all know that ESG will be at the forefront of any recovery.