The importance of ESG factors in venture capital (VC) investing, as well as how VCs may aid in sustainable development.
Development of any sort relies on available resources, both human and capital resources. Sustainable development is not different. To build economies and societies that responsibly use natural resources, we need both skilled financiers and the capital they manage to create those results. Venture capital (VC) operators represent some of the bravest class of these types of financiers.
Here’s why and how they can drive some of the most important sustainability goals.
VCs can make an impact by focusing on the areas of greatest need.
Focusing on the areas of greatest need does not necessarily mean running a charity. In this case, it means allocating capital from a perspective that balances both growth today and an environment that can sustain future growth.
Because venture capitalists optimize for returns, they are perhaps better placed to pick workable and practical ideas. And because VCs invest early in both promising technology and new or better ways of solving problems, they are best placed to help identify and accelerate the most promising ideas.
Although this is the ideal, it has not always been the case. VCs have to make returns to their financial backers, and sometimes this means picking the low-hanging fruits. The result of this is predictable. Too much VC money chasing too few deals that have little relevance to sustainable growth will create inflated valuations. Of course, that is not to say that we have not seen similar overvalued green startups. The point is that rather
Practical idealism and the spirit of venture
Sustainability for all its practical usefulness is not painless or risk-free. There is so much we don’t know. And yet, there is so much that can be done with what we do know and there is no saying about what we might yet come to learn given how much attention it is getting.
On the other hand, venture capital is so named because it is explicitly designed to “venture,” to take risks. When venture capital is at its best, innovation is accelerated through early-stage, bold entrepreneurs are empowered to build solutions at scale – fast, and we all win.
What is the role of venture capital to advance sustainable development? Simple. Acceleration. Venture capital may not have enough firepower to solve all the environmental challenges we face today, but it can surely play a lead role in speeding up the solutions with the best chance at succeeding. By combining healthy optimism with clear-eyed capital and support programs, “venture” capital can reduce the time bureaucracy needs to solve pressing problems. It only makes sense, and the nature of environmental challenges we face demands it.