Most of our surveyed investors responded that investing in the SDGs is an important endeavour for them, as evidenced by the 66% average share of their portfolios. Yet, sustainability still appears to be a less important feature than either scalability or financial performance, as seen in Figure 7.
Such tendencies are not necessarily an uncommon feature for a VC’s investment strategies. Most VCs tend to focus on high growth potential companies, which in turn favours scalability over addressing sustainability, as scalability has a higher connection to the startup’s ability to increase their efficiency rate (i.e. growing revenue by creating higher economic output pr. resource input)<span class="superscript" >6</span>, which is more strategically tied to their return on investment potential.
This is not to say that addressing social and/or environmental sustainability problems are not important to investors. In fact, our data indicates that it is the third most important factor in the surveyed VCs’ decision making. It scores highest within the segment ‘high importance’, and is above criteria such as the reputation of entrepreneurs, their education background, or the diversity of the founding team. These elements are normally considered vital for the success of a venture. As shown by a new study by Harvard Business Review, some of the most important features that VCs look for when scouting for potential startups to invest in are team composition, educational background and diversity of founding team<span class="superscript" >7</span>. It is therefore fair to assume that sustainability is a growing field of interest for investors and an increasingly important influence on their decision making processes.
... sustainability is a growing field of interest for investors and an increasingly important influence on their decision making processes.
However, the consequences of viewing scalability and financial performance as more important elements than sustainability for decision making could potentially compromise the levels of innovation and diversification of the Danish business sector. This would risk not responding to the necessity and importance of creating truly sustainable solutions that would combat the adverse impacts of climate change and intensified use of scarce resources.
Simply put, transitioning towards green technologies will yield high returns for both investors and society at large. Not only will we reduce the transactional costs of reconfiguring our economies; we will also position Denmark favourably on the global market as a provider of quality sustainable products and services.
The State of Sustainability in the Danish Investment Ecosystem