Some venture capital managers may be interested in considering ESG factors in investments, but many lack adequate resources to apply those considerations and influence over portfolio companies and do not consider ESG to be material to the asset class, according to a report released Monday by the Principles for Responsible Investment, a United Nations-supported network of investors representing more than $121 trillion in assets.
PRI and VentureESG, a nonprofit urging ESG practices in venture capital, conducted interviews with asset owners, venture capital managers and other stakeholders in June and July of 2021. The paper indicated that the 104 general-partner respondents were either PRI signatories or members of VentureESG working groups. Therefore, the results likely overestimate the extent of ESG practice and understanding in the broader venture capital industry, the report said.
Seventy-two percent of respondents indicated that they had ESG or responsible investment policies. However, very few venture capital firms have dedicated ESG professionals. Often ESG oversight is the responsibility of investor relations executives with no control over investments or junior members of the investment team, the report said.
Venture capital managers indicated that asset owner engagement is not considered a major influence over whether they incorporate ESG considerations in their investments. However, interest in responsible investment by portfolio company founders could sway future venture capital manager adoption of ESG and sustainable investing practices, the report said, noting that venture capital firms compete for companies, not for limited partners.
GPs mostly receive information about diversity, equity and inclusion, and board practices and composition from portfolio companies. Venture capital firms received double the information on social and governance factors than environmental factors, the report said. Venture capital firms provide LPs more information on social and governance factors than environmental factors, it said.
