Key findings: Significant progress on net zero balanced by challenges in leadership diversity

This year’s research showed a near doubling in the proportion of startups measuring their carbon footprint, increasing from 16% in 2022 to 28% in 2023. Building on this, 8% of startups now had a net zero policy in place, an uplift from 5% in 2022, while a further 17% of those surveyed expected to set a net zero target in 2024.

Diversity in leadership remained an area needing greater focus, as 41% of the startups did not have a woman on their board. Additionally, the proportion of companies with no women in senior management roles increased to 20% from 15% in 2022.

The data highlighted that startups were investing heavily in alternative sources of skills and talent, as they grappled with constrained budgets and a competitive recruitment market. 57% of startups analysed provided study support to their employees, up from 40% in the prior year, while almost half (47%) offered an internship, apprenticeship, or trainee programme, increasing from 35% in 2022.

UK versus Europe: European startups lead on net zero and responsible AI

European startups were found to outperform their UK peers on net zero, with 35% of European startups measuring their carbon footprint versus 24% in the UK. Europe also led the UK in the adoption of responsible AI, with 34% of European startups offering staff training or codes of conduct on the responsible use of AI versus 30% of UK startups.

In contrast, UK companies led on issues such as diversity and inclusion, with 45% of UK startups providing equality, diversity, and inclusion training for their staff, compared with 25% of European companies. UK startups also had a greater focus on data security and privacy, with 70% reporting that they had processes in place to comply with data regulation compared to 57% in Europe.

Sector benchmarking: SaaS struggles with boardroom diversity matched by strengths in AI

Diversity within specific tech sectors revealed that healthtech and biotech startups led the way, with only 26% of businesses having no women on their board, compared to 45% of SaaS startups failing to appoint a woman to their board of directors. However, 37% of SaaS companies offered training or codes of conduct on responsible AI, ahead of healthtech and biotech (21%) and other sectors (31%).

Now in its third year, the research has been published in partnership with the British Private Equity and Venture Capital Association (BVCA) and Marriott Harrison, the leading independent legal venture and growth specialist. It analysed performance against standardised metrics spanning environmental, social, and governance issues within startups. It also provided benchmarking of performance by sector and geography.

Henry Philipson, Co-Founder and President of ESG_ VC, commented: “The third edition of ESG_VC’s annual research – analysing data from almost 600 startups – offers a vital snapshot of ESG across the venture ecosystem. As an industry, we have made notable strides in the race to net zero, but diversity in startup boardrooms is not improving fast enough. We must now maintain momentum and focus on the challenges that remain. To do this, ESG_VC has built a much-needed roadmap for ESG in startups that reflects the findings of this research.”

Suzi Gillespie, Head of Research at the BVCA, commented: “The larger dataset of third edition is hugely valuable, enabling us to track progress over time and analyse sector trends. ESG_VC also provides welcome guidance on how to make improvements in environmental impact, diversity of workforce and governance at the early stages of growth is a key part of the groundwork for robust and successful businesses.”

David Strong, Head of Venture Capital and a partner at Marriott Harrison, commented: “The private markets have fallen under the regulatory spotlight in recent years, as a result of their continued growth and success, which in turn has brought ESG frameworks to the forefront of the minds of both founders and investors. Navigating the ever shifting world of environmental, social and corporate governance has - quite rightly - become a front and centre consideration for founders and their teams in recent years and we are continuing to see increased engagement in this space.”

The research analyses performance of startups against 56 metrics included in the ESG_VC Measurement Framework, a free tool for benchmarking ESG performance in startups used by more than 100 VC firms globally. This provides the world’s largest dataset for understanding ESG in startups and builds on two years of prior research. This enables ESG_VC and the BVCA to conduct detailed trend analysis, and benchmarking of performance across the industry.