Introduction to ESG at VC Fund Operations

Why have internal operations typically been neglected? 

This area has been neglected, firstly, because it is complicated to make the direct link between fund-level ESG operational integration and revenue, secondly, it would require changing  entrenched and familiar behaviours (e.g. lack of diversity and governance). Founders want to feel represented and understood by their investors, leading to examples of underrepresented founders looking for investors that have diversity in their team. 

How can you craft an ESG policy? 

The ESG policy must set the tone across the fund, tie ESG to strategy and ensure that there is both focus and ownership. The policy should cover a fund’s approach to ESG, starting with their own clear definition of it.

This definition should cover all elements of E, S and G and should be informed by industry best-practice and existing standards/guidelines (e.g. the PRI).

It’s important for ESG to be framed internally through consultation with a cross-section of key stakeholders within the fund and include an exclusion list of industries and business models in which the fund will not invest, as well as an outline of how ESG is integrated across the end-to-end investment process. Lastly, the policy should also cover how ESG is operationalised at a firm-level.