Climatetech investor denounces environmental, social and governance (ESG) as an effective form of measurement among early-stage businesses.
Venture capitalist Amory Poulden describes ESG as “inherently dangerous” as a way to measure early-stage businesses.
Poulden, founder of D2 Fund and former venture principal at Shell Ventures, made the comments during an episode of ‘Conversations on Climate‘; hosted by Chris Caldwell, CEO and founder of green energy firm United Renewable.
During the conversation, Poulden regarded the assessment of early-stage companies within the parameters of ESG frameworks as “unhelpful”, “unlikely to succeed” and “risks obscuring the true positive impacts of start-ups.”
“This may be a little bit of a controversial opinion, but I really hate the term ESG,” follows Poulden’s comments. “You’re taking disparate strands of qualitative data, trying to quantify it and then trying to establish an absolute metric across different pools, which is inherently dangerous.”
Poulden warns against “some of my peers in the venture industry” following the ESG mainstream. It “tends become a tick-box exercise at best, and at worst starts to push the company into quite a process-heavy model…and becomes meaningless,” he continues.
Climatetech venture investing reaches record highs globally
Poulden’s comments on his industry come in the context of a boom in climate start-ups raising venture funding. In 2021, $37billion of venture capital was deployed into the climatetech market; a 250 per cent increase over pre-pandemic levels.
Confirming the health of the market, the US remains a top market for cleantech VC activity, followed by Europe; while China retains the top position for overall funding in the period since 2010.
A focus on the qualitative impact
Above all, both Caldwell and Poulden remain clear on the importance of supporting young businesses dedicated to solving the climate crisis.
Yet despite this, Poulden describes the necessity to judge start-ups qualitatively upon, “the impact that they can have in that particular sector” rather than rely on benchmarks designed for other kinds of companies.
Conversations on Climate is a joint production of United Renewables and the London Business School Alumni Energy Club, which hosts academics and business leaders in conversations around sustainability.