Climate issues in portfolio investment decisions: a comparison of Private equity and venture capital

Abstract

Private equity (PE) and venture capital (VC) firms increasingly consider climate issues in their portfolio investment decisions.However, what are the underlying motives and which exact consideration strategies are employed?Based on the responses of 479 VC and 215 PE fund managers from two large surveys carried out in 2021, four motives emerge: ethical responsibility, responding to external stakeholders, product differentiation, and portfolio performance.Responding to external stakeholders and portfolio performance motives matter more to PE firms, while the product differentiation motive is more important for VC firms.No difference is found with respect to ethical responsibility as a motive.Regarding climate consideration strategies, screening strategies (positive and negative) are the most popular.Differences between VC and PE firms exist, and the motives to consider climate issues have an impact on the strategies employed.The implications for policymakers and the entrepreneurial finance sector are discussed.

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