The European Investment Fund (EIF) has published a new study on the European VC and BA attitudes towards ESG (environmental, social and governance) considerations. This study combines the finding of two separate surveys on venture capital funds and business angels (538 VC firms and 60 business angels). Please find some of our take-aways below. Read the full study here.
What is the willingness to make ESG investments?
73% of VC funds and 62% of business angels stated that ESG criteria play a role in their investment decisions.
Why do VCs and BAs invest sustainably?
When considering ESG factors, 75% of VC funds and 81% of business angels are motivated by ethical or social responsibility.
How do VCs and BAs implement ESG investments?
The study showed a difference in how VCs and BAs incorporate sustainability into their investment strategy. While VC funds mainly avoid harmful companies (or “negative screening” – 50%), business angels actively target sustainable companies (or, “positive screening” - 62%).
Business angels also stated to work from an “impact investing strategy” (41 %).
How do VCs and BAs perceive the connection between sustainability and returns?
On average, almost two-thirds of the business angels reported that ESG criteria had no influence on the return on their investment. The remaining BAs, however, tend to view sustainability more positively than negatively.
The study concludes that BAs invest in ESG companies more often for ethical reasons than for financial reasons.
Conclusion: How will sustainability be rated by investors in the future?
One conclusion of the study is that ESG strategies and considerations will increase, as more investors recognize its benefits.
However, despite this positive development, only 8% of VC funds and business angels named sustainability as one of the most important investment selection criteria.
Management team, value proposition and scalability remain by far the most important criteria.
One of the main barriers for investors to employ ESG strategies, is the difficulty of quickly and transparently determining how sustainable their investment is. VCs and BAs should be better " taught" how to determine the sustainability of their investments. The study recommends the creation of generally accepted methodologies and a formal framework for measuring sustainability in companies.
Source: "ESG considerations in Venture Capital and Business Angel investment decisions: Evidence from two pan-European surveys", https://www.eif.org/news_centre/publications/EIF_Working_Paper_2020_63.htm