How can european funds get a positive environmental, social and governmental impact within the energy industry thanks to venture capital investment? Theoritical proposal for an ESG indicator

Abstract

Nowadays, talking about investments without also addressing their ESG impacts, is almost impossible. The validity of these sustainability objectives or, on the opposite, the greenwashing they generate, are an inherent part of asset management. Various sectors and types of investment seem to be increasingly attracting investors' attention. Indeed, the energy sector promises more and more opportunities in view of the current crisis and its important role in the ecological transition. In addition, venture capital investment, which allows smaller amounts to be invested in a multitude of new start-ups, makes it possible to follow new trends in terms of new technologies. The combination of these two concepts seems to be beneficial to future investors. However, as more and more investors voice their desires, funds are required to provide more and more alternative investments to traditional funds. Indeed, investors now want to make investments with a positive ESG impact in addition to receiving a return on their investment. Even if this means reducing the return on investment. Therefore, investors need to be able to assess investment funds in a clear way. To do so, current available ESG assessment methods will be presented in order to select the most relevant one for the case at hand. In the following parts of this thesis, this selected method – ESG Scores and Ratings - will be adapted in order to assess European Venture Capital funds investing in the energy industry. A global ESG indicator will be constructed based on a specific matrix taking into account criteria’s materiality. Thus, we will observe how complex it is to develop criteria that translate public qualitative data into easier ranked quantitative data. It is relevant to know that this type of method requires the estimation of a lot of data, given the lack of data made available by the funds. Therefore, it appears that VC investments in the energy industry can have a positive ESG impact if they are made in funds having a high ESG score. However, one must be careful with the data taken into account and consider the ESG indicator for what it really is. Indeed, this provided score is a non-financial indicator that allows us to add a certain nuance to the financial data of the funds.