On ESG and Hope — An update from the frontline of writing the ‘Kingmakers’(#13 )
I was recently invited to a boring looking boardroom on the outskirts of the City of London. It wasn’t my first time in this boardroom, but this time, the ESG training VentureESG conducted was for the Leadership Team of the big asset owner. Our goal for the session was easy enough: make sure the top decision makers know what ESG is and how it matters for their VC investments. Or simply put: explain ESG to the executive team so that they allow their minions to put it into practice.
We, that is my co-director Hannah and I, start these sessions with an ‘alphabet soup’ exercise. SFDR, PRI, TCFD, SBTs, CSRD — ESG is not only itself an acronym standing in for an enormously varied set of issues. The next level down, what is supposed to help with the implementation of ‘ESG stuff’, all the standards, guidelines and tools, adds another layer of alphabetic confusion. Who could be blamed for being blinded by the incomprehensible conglomerations and the ESG myths?
Towards the end of the training, we also go through an exercise of conducting an ESG due diligence on a fictitious ‘immediate delivery’ company we call ‘Flamingos’ (one of my favourite industries indeed, as I have argued in Sifted). Whether the people in the room are LPs or VCs, they love the intuitive ease with which they manage to identify ‘ESG gaps and problems’, prioritise them and decide on red flags.
Throughout the training and our work at VentureESG generally, we engage a wide range of tactics to convince people of the need for meaningful ESG integration in VC. The ‘business case’ argument and a stakeholder map — tracing founders, LPs, regulators, employees all moving towards mission, purpose, values, sustainability and Co — speak a clear language. But then facts, ‘data’ or reason are not really what convinces people to change their mind.
Especially in an environment where politics and polemics dominate conversations about ESG (or ‘woke capitalism’), emotions and experiences are as important to evoke as facts. Understanding that integrating ESG into due diligence might actually be more intuitive and much less additional work than expected could be key for a VC who is on the fence.
Train, write, repeat
This is where I find myself right now, in the middle of ESG trainings, at the heart of one of the movements that is changing European VC; the push is influenced by (European) regulation, LP pressure and an increasing acceptance across the ecosystem that ‘the era of moving fast and breaking things is over’. The press is becoming more critical by the day pushing for an ‘ethical corection’— accusing VC of ‘predatory pricing’ and calling for its abolition.
ESG is not going to solve all the issues critics are pointing at, but it is a start; moving away from chasing ‘unicorns’ and inflating valuations, VCs are rediscovering the benefits of doing due diligence. When money is tigther and VCs are trying to minimise risks, ESG is a fantastic sytematic tool for asking better questions.
I began working on the Kingmakers book in 2018 during my postdoc at Cambridge, and since then my ‘research object’ has developed in all kinds of directions. This is exactly what I am trying to capture in the second half of the book. Writing about something that is changing live and influenced among others by one’s own action is to the same degree exhilarating and complicated; imagine filming one’s surroundings and oneself while speaking and running at the same time?
The first half of the Kingmakers — almost completely finished and based on the 1000+ interviews I conducted with 250+ VC GPs and LPs between 2018 and 2021 — is a description of what venture capital is (or was between 2010–2020) and how it works; in the the second half I turn to an analysis of the changes rippling through the ecosystem right now. In the first three chapters, I unpack why ‘blitzscaling unicorns’ was all the rage when money was cheap in the last decade; in the later chapters, I attempt to capture three major ‘ethical challenges’ in VC: DEI, ESG and impact.
The first chapter I drafted was in fact the chapter on ‘diversity, equity and inclusion’ (DEI), a concept that has been part of VC conversations (and pitch-decks) post-MeToo and Black Lives Matter. When I asked VCs during my time in Silicon Valley in 2019, ‘what is wrong with the industry’, they all admitted: we are too white, male and Stanford-educated. Not only have I co-written a book about this topic in the meantime (Better Venture), I have also commented extensively on my frustrations with the tempo and radically of the (quasi-non-existent) change so far. The chapter is a delicate one — and the one where I struggle with sustaining hope the most. Is there really any change happening, now or soon?
Writing the ESG and impact chapters, I find it easier to remain hopeful. Not only are (European) ESG regulations here to stay — and policed by LPs — it is also an area where Europe is ahead, as Atomico’s Zennström recently argued in Wired. This comparative dimension, Europe versus the US, features repeatedly in the second half of the book as both rhetoric and action in the two geographies different dramatically; surprisingly, perhaps, I will argue that European VC is more interested in disrupting itself than the well-oiled Silicon Valley veterans. And my prediction is clear: disruption, including when embracing DEI, ESG and impact, will turn out to be good for VC business.
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Now, finishing the first draft of the Kimgmakers is the goal for when VentureESG shuts down for the summer. In August, I will be focusing full-time on writing while van-ing through Southern Europe.
The interviews are generally done, but I am still very keen to talk to VCs and LPs with distinct opinions (especially on ESG, impact and DEI) and I am always looking for readers. Always feel free to reach out with opinions and feedback — I want to have conversations!
