07 Mar The Rise of ESG in Venture Capital

Those of you who have already read our piece on Sustainability will know how important this theme is for us at VDK Capital. Today we are going to look at the second piece (of four) that focus on venture capital and Environmental, Social & Governance (ESG) investing.

Today’s article, entitled “The Rise of ESG in Venture Capital,” was authored by Ellen Brooks Shehata and Jacob Tasto in late 2020. The authors acknowledge, as did the piece by Ryan Nelson, that the world of finance has been slow to acknowledge many of the priorities central to ESG. This is especially true of venture capital, where only 11% of VC firms invest through an ESG lens. About one-quarter of these firms adopt an explicit ESG strategy (their thesis centres specifically on impact/ESG/sustainable development investing), while 75% of those firms with an ESG focus utilise an implicit strategy. There is evidence, as well, that these ESG firms (explicit or implicit) raise less capital than non-ESG VCs.

Nonetheless, there is a trend of an increasing number of vehicles being raised by ESG VCs. Since 2015, the number of ESG-focussed funds has quadrupled, as has the amount of venture capital raised. The pandemic has been a big catalyst behind this. Moreover, as a percent of the VC market, ESG funds have been steadily rising in prevalence and have been attracting an increasing share of capital allocated. And, when compared with the ESG alternatives in public markets, which are often characterized by “buzzword-chasers,” the small but growing group of ESG VC firms consist largely of genuine managers where investors are able to truly make long-term, impact-minded, alpha-generating bets.

Sustainability is a fundamental element within the ESG umbrella. This, together with the other priorities embedded in the ESG framework, is, and will always remain, one of the main areas of focus and key priorities for us at VDK Capital.

Find more here : VDK Capital Medium