Venture Capital, ESG and Sustainable Investments

Michel Jaccard | Anh-Thu Thai
October 5, 2023

Sustainability is a pressing issue that requires addressing various environmental, social, and governance (ESG) challenges. The venture capital industry has the potential to play a crucial role in sustainable investments due to its characteristics, such as long-term investment horizons and investor protections. However, sustainability has yet to become a major topic in private equity and venture capital circles. Different terms like ESG-aligned, socially responsible, green, sustainable, and impact investing are used interchangeably, causing confusion.

The European Union has implemented regulations like the EU Taxonomy and Sustainable Finance Disclosure Regulations to assess and disclose sustainability performance. Switzerland is also making efforts to align with the EU framework. At the same time, the debate over incorporating ESG considerations into corporate governance still rages, especially in the United States. Furthermore, sustainable funds face obstacles such as perceived risk-return profiles and limited exit prospects. Sourcing deals remains a challenge due to competition and founders’ wavering convictions. ESG due diligence lacks comprehensive frameworks.

Overcoming these challenges requires an integrated approach from the venture capital industry, emphasizing values, commitments, and proper incentives for sustainable investments. Venture capital funds should embrace sustainable investing to shape the industry’s future.

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