As ESG issues become increasingly important, startups and venture capital firms will need to enhance their ESG skills and understanding. Founders must be prepared to address ESG concerns in their business models and strategies, while investors must ensure that their portfolio companies are adequately equipped to manage ESG risks and opportunities. In fact, EY reports that “26% of investors decided in 2022 Investors, regulators, and consumers are demanding more credible corporate disclosures from companies of all sizes. Startups should consider voluntarily disclosing their ESG performance and progress to build trust with stakeholders and demonstrate their commitment to sustainability. Adopting standardized reporting frameworks can help startups communicate their ESG efforts more effectively and combat any potential greenwashing accusations.
The rise of ESG-focused venture capital funds highlights the growing interest in sustainable investments. These funds target startups that have a positive impact on the environment or society, in addition to offering strong financial returns. As ESG becomes a more prominent factor in investment decisions, startups that can demonstrate their commitment to sustainability may have a competitive advantage in securing funding. However, ESG focused VC funds aren’t the only ones who are contributing to this change — researchers found that ~20% of VCs currently take ESG into account.