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Does deep tech investing with a positive ESG impact have mutually exclusive objectives?

The Foresight Williams Technology Funds invest in early-stage, deep technology hardware and software companies with potentially game-changing innovations. 

While innovation within the hardware and advanced engineering space can often have significant Environmental, Social and Governance (“ESG”) benefits, with many founders wanting to have a positive impact on the world they operate in, tension can arise. Deep technology start-ups face enough challenges developing new technologies and bringing them to market without also having to consider the environmental or social impact.

This tension is something the Foresight Williams team (“FWT team”) tries to dispel early on in a relationship with a portfolio company. We believe ESG considerations are critical to the long-term success of business for the following reasons:

  • Delivers better financial returns: Academic literature on ESG concludes that strong ESG propositions correlate with higher equity returns while also reducing downside risk1. This is because a focus on ESG can help to facilitate top-line growth, reduce costs, increase employee productivity and optimise investment and capital expenditure2. In short, companies with an ESG focus can deliver profit and purpose
  • Motivates employees: There is greater awareness amongst society of the need to change consumption habits to reduce humans’ impact on the environment. This awareness is strongest amongst millennials, of whom 85% say that environmental sustainability is extremely important to them3. As Millennials now make up the largest single generation in the workforce, companies with a strong ESG proposition are more likely to attract and retain high performing employees, enhance employee motivation and increase productivity
  • Attracts investment: In 2018, global sustainable investment exceeded $30 trillion4, up 68% since 2014 and 10x since 2004. This growth has, in part, been driven by the realisation that a strong ESG proposition can safeguard a company’s long-term success. Early-stage companies with a strong ESG culture are therefore more likely to have a wider range of funding options available to them as they grow

We’re often asked how can early-stage, deep technology companies, with limited commercial traction and a handful of employees have a positive ESG impact. The answer is through what they do and how they do it.

Firstly, through their core business activities. The FWT fund invests in companies which are helping to improve resource efficiency – i.e. increasing productivity and economic output while using fewer resources; decarbonise the energy system, and having a direct impact on people’s lives through the products and technologies they have developed. All of these companies are addressing large market opportunities which are forecast to grow as the world adapts to the energy, climate and social challenges it faces. Indeed, it is because these opportunities are large and growing that the companies solving these challenges make attractive investments opportunities.

Secondly, we believe all our portfolio companies can have a positive impact through the choices they make regarding their organisation and daily operations. To help new companies understand this, Foresight has developed a five-principle framework which assesses a company’s awareness of ESG and the steps they are taking to improve their environmental, social, governance and third-party interactions. The FWT team assesses each company at the point of investment, helps the company to identify key metrics to implement and monitor, and then records their progress on an annual basis.

While it is not possible to develop a single framework which accurately and meaningfully records the impact of our whole portfolio, we believe our approach of focusing on what our companies are setting out to achieve and how they intend on doing it will result in a portfolio which delivers positive returns for both our planet and our investors.

If you would like further information or to discuss an investment opportunity, please contact us on +44(0)20 3667 8199 or email sales@foresightgroup.eu.

If you would like to learn more about how we can help support you to achieve your business ambitions, we’d love to hear from you. Please contact us on 020 3367 8100 or email peinfo@foresightgroup.eu.

Tax reliefs are dependent upon an investor’s individual circumstances and are subject to change. Capital at risk.


Appendix

  1. Mozaffar Khan, George Serafeim, and Aaron Yoon, “Corporate sustainability: First evidence on materiality,” The Accounting Review, November 2016, Volume 91, Number 6, pp. 1697–724, ssrn.com; Zoltán Nagy, Altaf Kassam, and Linda-Eling Lee, “Can ESG add alpha? An analysis of ESG tilt and momentum strategies,” Journal of Investing, Summer 2015, Volume 25, Number 2, pp. 113–24, joi.pm-research.com.
  2. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value#
  3. https://www.nielsen.com/eu/en/insights/article/2018/global-consumers-seek-companies-that-care-about-environmental-issues/
  4. Global Sustainable Investment Review 2018, Global Sustainable Investment Alliance, 2018, gsi-alliance.org.