ESG has become increasingly mainstream for investors in recent years, as part of a broader wave to embrace purpose and stakeholder capitalism: More than $100 trillion in assets under management (AUM) globally are managed according to ESG principles. This push is at least partly driven by what some call the “business case” for ESG: Empirical studies from as early as 2010 onwards show companies with high ESG performance outperform their peers financially, while 2020 has been a record year for influx into funds performing strong on ESG-principles.

However, venture capital has largely been left by the wayside: In a quick scan of the of the websites of the top 50 largest venture capital funds, we only found five which mentioned ESG or a commitment to sustainability, while only a few dozen more firms have made public commitments to ESG (among the more than 2,900 VC firms worldwide). A recent Amnesty International study found that almost none of the world’s largest VC funds consider human rights in their investment process. Only one ESG topic, diversity, and inclusion, has seen widespread focus among VCs so far.

Why has venture capital been so slow on the uptake? And what will it take to make venture capital join the ESG revolution?

The venture capital industry is led by a highly uniform group of leaders, overwhelmingly white, elite-educated men (forty percent of venture capitalists in the US are graduates of just two schools, Harvard and Stanford). Only 10 percent of VC partners in the US are female, and not even 1 percent are Black. Unsurprisingly, perhaps, venture capital tends to invest in a similarly skewed group of entrepreneurs. The overwhelming lack of diversity has produced what Emily Chang describes, in her book Brotopia as a self-reproducing chauvinist and racist culture of exclusion.

Read the full article about venture capital's ESG uptake by Johannes Lenhard and Susan Winterberg at Stanford Social Innovation Review.