The term ESG has been circulating within the investment community for a number of years. Now though, in the era of Covid-19, it is enjoying much greater attention. But what, specifically, is ESG and how will it change the investment industry, and Private Equity & Venture Capital in particular?
ESG, which stands for Environmental, Social and Governance, describes the characteristics that make an investment sustainable, responsible or ethical. It is also often used to describe an investment class – sustainable investing – which as well as ESG includes impact investing, socially responsible investing (SRI) and values-based investing.
As Covid-19 turns our lives upside down, there is every reason to believe that it will have a long-term impact on investing, too. For example, more and more businesses are reconsidering whether, even once the pandemic is over, they need continue to fly all over the world for meetings. Zoom, Skype, Teams and other communication and conferencing solutions are proving to be more than good enough for the majority of meetings.
We are seeing changes in term of lifestyle, also. For example, more people are walking, cycling and looking to get out into the countryside. Healthy nutrition is gaining in popularity. Our expectations around electric vehicles are changing from “maybe someday” to their being an increasingly regular sight in the contemporary street scene.
Growing investment opportunities
Together, these and other trends indicate that there is a growing opportunity in the area of ESG investing. And the good news is that ESG investing is possible in every industrial sector, from automotive through real estate to zero net energy. But while one aim of ESG investing is, of course, to support sustainable and more socially responsible ways to live, the other, naturally, is to generate a reasonable return.
The challenge then is to find the right balance. Key here is that the company developing the project, building a new factory or whatever it is, must define how their proposal is not only sustainable, but also aligns with ideas and goals of the investment community. The central question is what impact will the proposed sustainability measures have on the ROI?
Professional matching services
The need to answer this question quickly and clearly provides a strong argument for the early involvement of an investment professional. An investment professional can use their influence during the seed stage to ensure a synergy between their client’s plans and the expectations of their potential investors.
Feel free to get in touch if you would like to know how Kylla can be of added value to match ESG projects with ESG investors in Europe, North America, Middle East & North Africa, and Asia.
article written by Johannes Hammerstein