UK venture capital firms are increasingly encouraging their portfolio companies to engage meaningfully with ESG issues.
However, despite clear intentions, progress remains mixed across key areas such as carbon measurement, responsible AI adoption, and board-level gender diversity.
ESG_VC’s annual benchmarking aims to reveal the true extent of progress by measuring indicators from firms based globally.
The data, produced in partnership with the BVCA, was developed by ESG_VC, a non-profit co-founded by Henry Philipson that merged with VentureESG in January.
Philipson now serves as a council member of VentureESG and co-leads portfolio support for the initiative alongside running the communications at international investor Beringea across the UK and Europe.
One of the goals of VentureESG is to support companies, at any stage of growth, in their sustainability journey and paving the way for more responsible businesses in the modern digital economy.
The framework offers the initiative a snapshot of the landscape, with analysis from 711 venture-backed companies – 55% of which are UK based.
The data, now in its fourth edition, assessed metrics across companies based in the UK, APAC, Europe and North America. It was revealed that UK startups outperformed their global peers in several areas; adopting ESG initiatives at a faster pace despite a lack of ESG-focused regulation.
I think this data shows a competitive market for both startups and investment in the UK,” Philipson said. “All of these gains – however marginal – should be front of mind.”
A strategic rethink
The data revealed that there has been a decline in the number of startups measuring their carbon footprint, from 28% in 2023 to 23% in 2024. While initially concerning, Philipson argues the shift may reflect a deeper strategic rethinking.
“It may not actually be a wholly negative thing,” Philipson explained. “It may be an intentional decision from a company that it is not a metric that is material to them today or in their future.” The current emphasis, Philipson suggests, is moving towards “materiality” – encouraging companies to focus on ESG issues relevant to their growth.
The data revealed that there has been a noticeable rise in investment in internal talent and mental health. A majority (70%) of companies now provide study support, up from 40% two years ago.
“There is still a war for talent in startups,” Philipson explained. “Anything that a startup can do to shift the needle on recruitment and retention is going to be valuable.”
The appeal of internal development initiatives also lies in their affordability and immediate impact, thanks to the ease of set up and fast return on investment, Philipson explains.
Responsible AI has emerged as the most dynamic ESG topic. “Most people are really lasered in on this issue now,” Philipson said, with many venture capital firms incorporating AI ethics into their due diligence.
While restrictions are not yet written into investment agreements, investors are “being clear on what could be the risks or opportunities of investing in a particular technology,” according to Philipson.
Breaking the cycle
On gender diversity, there has been only marginal progress. “It is frustrating that progress has been slow,” Philipson admitted, despite efforts to support companies in diversifying their boards.
While the proportion of companies with no female board members remained unchanged year-on-year at 41%, for those companies with at least one woman on the board, women make up 31% of board members.
The issue, Philipson argues, is perpetuated by industry norms. “We need to break outside of the mould,” he adds. There have long been calls for a standardised framework across the venture capital industry, and VentureESG has joined forces with the British Business Bank and BVCA to launch a UK reporting standard for ESG and sustainability.
“The UK has an opportunity to define a different set of rules,” Philipson said. “We will bring a group of institutional investors around the table to define what those standards will look like, with a launch set towards the end of the year,” Philipson explained.
“I think this data shows a competitive market for both startups and investment in the UK”
Shaping the future
The data encourages firms and founders to align sustainability and inclusion with long-term business value rather than chase trends.
“There is no one-size-fits-all solution,” Philipson concluded, “But the goal is to help build great companies – ones that are not just commercially successful, but also resilient, responsible, and representative of the future we want to create.”
The momentum for change may be slower than hoped – but the direction is clear. The UK’s venture capital ecosystem is laying the groundwork for a more thoughtful, accountable kind of innovation, where doing good and doing well go hand-in-hand.
Read the full report here.
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