Tesi’s review of sustainability in venture capital and private equity investment – Sustainability is a cornerstone of VC & PE investment, so more will be required of startups and growth financing applicants

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Tesi’s review shows that startups and growth companies seeking growth financing need to address the sustainability of their operations, because all VC & PE investors evaluate the responsibility of the target companies when making investments. There is growing openness and transparency regarding sustainability, and its evaluation will become more systematic during ownership, as well.

This is Tesi’s first review of the subject. Altogether 33 Finnish general partners of venture capital and private equity funds responded to the questionnaire. This represents some 90% of the players, almost the entire market. The aim of the review was to provide an overview and offer investors comparison data to support their development efforts. The results also serve growth companies and startups as the sustainability of business operations will affect the availability of follow-on financing.

Addressing responsibility and sustainability is a cornerstone in the activities of Finnish VC & PE investors. The most widespread sustainability targets are the ESG and impact evaluations of portfolio companies, and a common theme is the wellbeing and diversity of personnel. A good 60% of VC & PE investors conduct ESG evaluations for all initial investments before the actual investment decision.

There is still much to do, though. Only slightly less than one-fifth of VC & PE investors monitor the development of sustainability in all their investments during their ownership, while almost 60% do so for some. Going forward, most VC & PE investors will conduct more systematic and more comprehensive evaluations of companies’ sustainability. This will be reflected, in practice, in selecting investees and, on the other hand, in supporting the sustainability targets of portfolio companies.

Startups and growth companies must be prepared to address the sustainability aspects of their own business far more widely than earlier. At stake, also, is which companies will receive follow-on financing in the future,” says Tesi’s CEO Pia Santavirta.

VC & PE investors started, quite naturally, to evaluate sustainability for their investment decisions. The evaluation of sustainability during ownership will now become widely adopted and will also require investors to be better prepared for it. Developing sustainability is value creation at its best,” comments Matias Kaila, who heads Tesi’s Fund Investments team.

Finnish VC & PE investors and sustainability

  • 94% have sustainability integrated with the company’s strategy
  • 97% have sustainability targets
  • 61% conduct an ESG evaluation before the investment decision for all initial investments, while 88% conduct an evaluation for at least some
  • 18% require monitoring from all companies of their sustainability meters, while 58% monitor at least some
  • 73% plan to start SFDR Article 8 or 9 reporting in future, while 27% currently do so