A growing number of investors in the startup and venture capital (VC) ecosystem have finally started to emphasise environmental, social, and governance (ESG) related matters. There are good reasons behind it and the purpose of this article is to explain why that’s the case and what we at OpenOcean are doing about it.

I remember hearing the first time about ESG many years ago while working at a corporate bank. A person from the Markets Division tried to explain to the rest of us why yet another three-letter-acronym was going to be important. Most people in the audience were yawning and thinking “yeah, yeah, more regulation and rules to oppress us, blabla…”.

The thing is that this early ESG ambassador was absolutely right. ESG quickly became an important topic among institutional investors and eventually others in the food chain also started paying attention to it.

If you ask any sane person if he or she thinks that environmental or social factors are important, the answer is going to be yes. But, as Morpheus said, “there’s a difference between knowing the path and walking the path”. This is especially true in the investment world.

You might think that investors would change their behaviour just because “it’s the right thing to do”. Unfortunately that’s not always the case. Typically investors change their behaviour only when there are strong economical reasons for doing so. Fortunately, when it comes to ESG, investors have now realised that they can actually produce better long-term returns by investing in companies that not only are innovative and great but also have their ESG matters in order.

It’s becoming increasingly difficult, if not even impossible, to put together a VC fund without ESG being part of the strategy. The limited partner investors (LPs) investing in VC funds simply won’t invest if ESG is not your priority. The same applies to LPs when they’re fundraising. They won’t get money from larger institutional investors like pension funds or sovereign wealth funds unless they can be sure that ESG matters are in order.

Which brings us to the most important part of the ecosystem, i.e. startup founders who ultimately are the key drivers of value. If you as a founder want to raise VC funding for scaling your business, you have to be aware of ESG and understand what it requires from you.

You can read the rest of this blog post from blog.openocean.vc where it was originally posted.