Conducted in collaboration with Marriott Harrison, a law firm specialising in high-growth markets, the research revealed that over half (54%) of the 91 VC firms surveyed view 'achieving net zero' as the least significant motivation behind their ESG efforts.

The primary insight from the survey shows that value creation is the main impetus for ESG initiatives in venture capital. Nearly half (48%) of the firms cited value creation as the top driver for their portfolio companies' ESG activities. This was followed by regulatory compliance (23%) and reporting to limited partners (LPs) at 15%, with only 8% prioritising net zero targets.

Despite an increasing workload related to sustainability, many VCs lack in-house ESG expertise. Only 29% of the firms surveyed have sustainability specialists leading their ESG efforts. This gap exists even though 54% of respondents now publish annual ESG reports, 91% have established ESG policies, and 87% have appointed an ESG lead. Consequently, ESG responsibilities often fall to broader teams without specialised training, underscoring the need for industry-wide collaboration and resources.

Furthermore, ESG considerations have become a standard in deal-making. A significant 70% of VCs now include a 'sustainability clause' in their term sheets, and 45% incorporate a 'diversity clause,' reflecting the growing importance of these factors in the venture capital landscape.

Henry Philipson, Co-Founder and President of ESG_ VC, commented: “This research shows the challenging position many VC firms find themselves in today. Investors are clear on the need to prioritise ESG and sustainability as significant drivers of value in their portfolio, but they often lack the resources or expertise to act on these objectives. ESG_VC and Marriott Harrison are, therefore, playing a key role in collaborating with the ecosystem to build a pragmatic roadmap for deploying ESG within startups.”

David Strong, Head of Venture Capital and a Partner at Marriott Harrison, commented: “ESG frameworks have been brought to the forefront of many discussions within the private markets and this was clear from the initial ESG_VC report. Diving deeper into the investor survey has been enlightening. In particular it is interesting to see the findings on term sheets where diversity and sustainability clauses are becoming more prevalent in European term sheets (contrary to the direction we are seeing sentiment moving in the US).”

The investor survey comes following its analysis of ESG data collected from 587 startups backed by leading venture capital firms including Atomico, Molten, Beringea, Oxford Science Enterprises, and Astanor:

• The findings highlight that Europe is outperforming the UK on net zero with 35% of European startups measuring their carbon footprint compared to 24% in the UK
• Europe also leads the UK on the adoption of responsible AI, with 34% of European startups offering staff training or codes of conduct versus 30% of UK startups
• However, these significant progress markers are balanced by the challenges still faced in leadership diversity with 41% of respondents answering that they do not have a woman on their board.