We recently hosted ESG_VC’s inaugural summit, bringing together in person for the first time our incredible community of venture capital firms, limited partners, advisors, and founders.
The Road Ahead - hosted by Beringea and Cambridge Innovation Capital - delved into the evolving landscape of ESG across the venture capital ecosystem, examining how it is shaping the strategy of venture capital firms, the expectations of limited partners, investment operations across European venture, and the interactions between investors and founders throughout the ecosystem.
Our speakers – from the Lord Mayor of the City of London Corporation to partners from Lakestar, Atomico, and Northern Gritstone and LPs including Legal & General Capital and the British Business Bank – ensured that the agenda was packed full of insights.
There was, therefore, plenty of food for thought and we’ve tried to condense the key takeaways from the session into one article. Undoubtedly, we’ll have missed a few nuggets of insight from the day, so if you’d like to learn more about ESG_VC or find out about future events, then visit our website and get in touch.
1. A lot of progress is being made – but portfolio data remains critical to meaningful change…
Our opening panel brought together partners from some of Europe's leading VC firms
Fortunately, there was an incredible amount of positivity about the progress being made across the European venture ecosystem when it comes to ESG. Whether it’s the emergence of impact-focused investment strategies or the growth in detailed, standardised ESG reporting across venture capital portfolios, many firms are putting their best food forward and making progress on their ESG objectives.
Nonetheless, our opening panel – bringing together Andrew Williamson, Managing Partner of Cambridge Innovation Capital (CIC), camilla richards, Partner at Atomico, and Natalia Neuman, General Counsel and COO of Lakestar for a conversation moderated by Raph Crouan of Orrick, Herrington & Sutcliffe LLP – shed light on the barriers often faced by VC firms looking to embed ESG.
Natalia highlighted that portfolio data remains the critical challenge facing venture firms today – both in terms of breadth and consistency. Many early-stage companies still require significant hand-holding – a point also highlighted Camilla, who noted that attempts to translate ESG frameworks from private equity have been a blessing and a curse.
While venture capital has plenty to learn from its peers in private equity and public markets, all of our panels made clear that a venture-specific approach is critical to embedding ESG successfully across our industry. ESG_VC offers a free tailored framework for collecting data from your portfolio, as was highlighted by Atomico, Lakestar, and CIC.
2. ESG must be proportional – for companies and investors…
Our LP panel examined how ESG is trickling down from institutional investors through to portfolio companies
Beyond simply tailoring ESG frameworks for venture capital, panellists throughout the event highlighted the need to adjust our expectations and approach according to scale – and this applies to both companies and investors.
Our panel of LPs – Julia Groves, Managing Director for Sustainability at the British Business Bank, and Stephanie Kempton, Investment Manager at Legal & General Capital joined Henry Philipson, Director of Marketing and Communications at Beringea on stage – explained that they will often flex requirements for ESG when dealing with smaller investment firms.
Likewise, Andrew Williamson from CIC highlighted that expectations for ESG will always adjust to the stage and sector of start-up that his firm is dealing with – it is critical, as he stressed, to educate companies about the simple steps that can be taken to kickstart their ESG journey.
However, each of our panels agreed that there was a need for some level of standardisation across the ecosystem. The LPs that joined The Road Ahead both emphasised the need to establish an agreed set of metrics that can provide institutional investors with comparable data across asset classes.
3. More regulation will mean more reporting, so it is key to get ahead…
We were joined by Nicholas Chipperfield of the British Private Equity & Venture Capital Association (BVCA) for a technical update on the regulatory landscape – with a particular focus on ESG and sustainability – facing firms across the UK and European venture ecosystem.
The message for attendees was simple: sustainability regulation is here to stay. Not only has the European Union’s Sustainable Finance Disclosure Regulation (SFDR) had a significant impact on the industry, but many firms are now gearing up for the UK’s Sustainable Disclosure Requirements (SDR), which are expected to launch in Q4 2023 with a view to being applied by late 2024.
While SFDR has not been without problems, it has demonstrated the appetite of regulators and institutional investors to get to grips with sustainability disclosures and reporting – and it has been a positive force in building momentum for ESG within venture capital, as it has led to far greater scrutiny of internal processes and expertise across investment firms.
Further, the BVCA were keen to impress upon our attendees that regulators are now thinking about what comes next for sustainability regulation, beyond simply disclosure and transparency. For example, a recent discussion paper from the FCA on sustainable finance showed the interest of regulators in linking remuneration to sustainability KPIs.
On a positive note, Andrew Williamson shared his perspective that it is far easier (and more fun!) to get ahead on ESG. Being dragged and pushed by investors or regulators will always be a challenge for time-poor VCs and portfolio companies.
4. It is critical to have a conversation about ESG…
Our platform panel examined the practical application of ESG across venture portfolios
Amid many acronyms, frameworks, and regulatory headaches, several panellists were keen to stress that value of conversations when it comes to ESG.
Both Julia from the British Business Bank and Steph from Legal and General Capital outlined that a significant proportion of their due diligence will involve sitting down with investment teams to discuss their current ESG processes and how these will be expected to develop over time – it was certainly not the case that there is a pre-determined approach to ESG at either organisation.
Likewise, both Andrew from CIC and Camilla from Atomico spoke in detail about the dialogue that is required between investor and portfolio company to drive successful ESG outcomes, particularly at the earlier stages of growth.
Similarly, our panel of portfolio specialists – James Hadley from Northern Gritstone, Grace Savage from Molten Ventures, Annabel Clark from Syncona Limited , and Dr Tauni Lanier of BDO – were quick to emphasise the significant value in taking the time to sit down with portfolio leaders to align on a set of objectives for ESG within their businesses.
As a dedicated ESG lead within Molten Ventures, Grace Savage laid out the detailed work that is delivered within their portfolio – from creating a benchmark for ESG performance using the ESG_VC Measurement Framework through to developing a clear roadmap of objectives and initiatives for portfolio companies to deliver against.
This type of engagement is best practice within the industry and, clearly, it will not be possible for firms with fewer resources or less in-house expertise. However, it indicates the value of taking the time to work with portfolio companies to align your plans and goals.
5. It’s okay to be great at one thing – you don’t have to be good at everything!
Our final panel brought together founders and operators to discuss the on-the-ground view of ESG
While the road ahead for ESG in venture capital can appear complex and uncertain, our speakers persistently stressed the value in identifying specific and achievable targets, whether as a business or as an investor.
Julia Groves, for example, highlighted her preference for investment firms that have a clearly stated objective, whether that is driving the net zero agenda through their investment strategy or fostering the next generation of diverse investors. Simply being great at one thing is better than falling at the first hurdle when faced with a broad set of approaches to ESG.
Similarly, our panel of founders and operators – Jack Scott of DASH Water, Michelle You of Supercritical, and Rian Urding FCA of Pragmatic joined Michelle Lamprecht of CIC on stage – showed the value of focus when it comes to adopting ESG in scaling businesses. For DASH, achieving B Corp status has been an arrowhead for the business, while both Supercritical and Pragmatic have driven growth through a clear focus on the environmental agenda.
As Natalia Neuman of Lakestar advised on our opening panel of the afternoon, “don’t be paralysed by the fear of failure.” There is a world of opportunity in getting to grips with ESG in venture capital and – as shown by vibrant and diverse community that joined us at The Road Ahead – a world of people to speak to when thinking about your own ESG journey.
If you would like to learn more about ESG_VC, how to join our future events, and our work across the venture capital ecosystem, then please download our annual report from 2023.