By Prateek Toshniwal
Angel investing has long been a critical source of funding for early-stage companies. These investments not only provide much-needed capital but also mentorship and connections to help these companies grow and succeed. However, in recent years, there has been a growing recognition that investors must consider more than just financial returns when making investment decisions. Environmental, social, and governance (ESG) factors have become increasingly important in investment decisions, and angel networks are no exception. ESG investing is an investment strategy that considers a company’s environmental and social impact, as well as its governance practices, alongside financial performance when making investment decisions. It is becoming increasingly popular among investors who want to align their investments with their values and promote positive change in society and the environment. A recent study indicates that a significant percentage of investors in India are interested in contributing towards environmental restoration efforts, with 46% of investors expressing such a desire. Additionally, nearly 40% of investors are interested in investing their money to protect against environmental, social, and governance (ESG) risks. Another 33% of investors want to make a positive impact on society with their investments.
ESG investing originated as socially responsible investing (SRIs) in the 1960s when investors sought more ethical business practices. ESG investing has since grown and evolved, with ethical considerations and alignment with values remaining common motivations. Investors now require companies to disclose how they are adapting to climate change. Investment firms collect ESG data to inform valuation and risk decisions. ESG has moved from a niche service to a mainstream and spans multiple asset classes, catering to a diverse group of investors. ESG provides an opportunity for organizations to create long-term value and foster innovation.
The Importance of Environmental Impact
Climate change and other environmental issues pose significant risks to society and the economy, and investors must do their part to mitigate these risks. By investing in companies that prioritize environmental sustainability, angel networks can help create a more resilient and sustainable future. Investing in such companies can also provide financial benefits. For example, companies that use renewable energy sources can often save money on energy costs, leading to higher profits. Additionally, companies with strong environmental practices are often more attractive to consumers and investors who prioritize sustainability, which can increase their market share and brand value.
The Importance of Social Impact
Companies that prioritize social impact often have a positive impact on their communities and can help address social challenges. By investing in these companies, angel networks can help promote social progress and support companies that are making a positive difference in people’s lives. Furthermore, investing in companies with strong social practices can also provide financial benefits. For example, companies that prioritize employee well-being and diversity often have higher employee satisfaction and retention rates, leading to a more productive workforce. Companies that prioritize social impact are also often more attractive to consumers and investors who value socially responsible companies, which can increase their market share and brand value.
The Importance of Governance
Companies with strong governance practices is often better equipped to manage risk and ensure long-term success. By investing in companies with strong governance practices, angel networks can help promote transparency and accountability, which can benefit investors, employees, and society as a whole. The incorporation of ESG factors into investment decisions by angel networks can play a crucial role in promoting positive change and supporting companies that align with their values. Additionally, they can also reap financial benefits, such as cost savings, increased market share, and brand value. Thus, the consideration of ESG factors is crucial for angel networks to make informed and responsible investment decisions that contribute to a better society and environment.
(Prateek Toshniwal is Serial Investor, Financial Advisory and Co-Founder of IVY Growth Associates (India) | MI Capital (UAE). Views expressed are author’s own.)