Making sense of the ESG landscape

Making sense of the ESG landscape

Published: 16 Jun 2022 · Last updated: 30 Sep 2022

Insights from Venture Capital and Private Equity investors

The KEY ESG team attended the British Private Equity and Venture Capital Association (BVCA), High Growth 2022 Conference: the UK's leading event for growth companies partnering with growth and venture capital.

This two-day event played host to institutional investors, fund managers, companies, advisers, and service providers. Day 1 was orientated towards businesses in the process of scaling up and investors from across the angel and early-stage venture community. Day 2 focused on late-stage growth and venture capital, bringing together senior business leaders and experienced investors to share their skills and insights on how to accelerate and grow capital.

Our team have now returned from the conference and they’re eager to disseminate their new knowledge and implement their ideas. After a week of reflection and discussion, we've summarized our key findings.

The Panellists: Venture Capital and Private Equity investors

The event featured a host of knowledgeable speakers. Venture capital investors discussed both early and late-stage investing, and private equity professionals provided insights on growth equity and buyout strategies.

ESG metrics are becoming increasingly relevant in private equity investing. Our team were most interested in the panellists’ thoughts on ESG trends and how ESG could impact private equity professionals’ operations.

KEY ESG's Key Takeaways:

Implement ESG systems from the get-go

Many panellists agreed that emerging ESG trends in private equity investing are characterized by the fact that advanced fund managers see ESG not through a prism of compliance, but through a prism of opportunity and value creation.

In venture capital investing, particularly in early stages, it can be difficult for companies to put ESG measurement practices into effect. Teams are often working in a resource scarce context. The priority is therefore on allocating these scarce resources in order to find a Product Market Fit.

Solutions that take this context into account, along with companies' limited time and resources, would be immensely helpful. These solutions could also direct founders towards key areas of focus for ESG. Integrating ESG considerations into a business model and value system from day 1 makes it much easier for a company to develop their ESG operations over time. The alternative is to implement ESG from scratch only when a certain size or level is reached. At this scale, it becomes much more difficult to implement practices without professional assistance.

Something is Better than Nothing

For private equity investors, as opposed to those working in early-stage venture capital, portfolio companies tend to be more mature. Because of this, they are often better able to execute ESG strategies. In most cases, the main hurdle is a lack of in-house knowledge and capabilities.

The panellists were pragmatic in their approach to ESG and their portfolio companies. They acknowledged the fact that their companies operated at different levels of ESG maturity. They also took into consideration the resources that each company had to allocate to ESG.

All panellists agreed that ‘Something is better than nothing’.

Companies with no ESG strategy in place today should not feel concerned by the vast amount of ESG metrics that they could be focusing on. This is often overwhelming and can result in no action being taken at all.

Everyone has to start somewhere, and taking small steps allows companies to develop their ESG gradually over time.

Remain Results-Driven

Private equity fund managers on the panel shared examples of instances in which they, as investors, actively supported their portfolio company management teams in identifying opportunities for ESG value creation.

These ESG initiatives are ESG accretive, in that they have less of an impact on our climate. They also add value, often through financial savings.

The panellists provided tangible examples of how, when integrated appropriately, ESG has a net positive outcome.

Leave it to the Experts

ESG regulations and strategies are constantly evolving. For most private equity and venture capital investors, outsourcing ESG to the experts is the most efficient and cost-effective choice.

At KEY ESG, we take into account the ongoing business objectives of a company. We understand that ESG should be approached and executed in line with your priorities and your day-to-day operational reality.

We work with companies and investment managers operating at a variety of different levels of ESG maturity. Whether you're new to ESG or you've been trying to future-proof your investments for a while, our team is on hand to help you optimize your processes.

Get in touch to see how we can help.