By Gordon Scott, head of strategic partnerships and entrepreneurs network at Brown Shipley, a Quintet Private Bank

The 5th of June marked World Environmental Day, led by United Nations Environment Programme (UNEP) - the biggest international day for the environment and a global platform for driving positive change. 

This year, the theme is Only One Earth, and the campaign calls for collective action on a global scale to celebrate, protect and restore the planet. Transformative environmental change can only be achieved through a global joint effort and naturally, corporations and sustainable investments will play a vital part.

Previously considered by many as niche and led by institutional investors, ESG and sustainable investments have gained significant momentum in recent years, among all types of investors. 

Brown Shipley’s latest research on entrepreneurs and wealthy individuals in the UK found that almost three quarters of entrepreneurs (73 percent) are more likely to invest in a company that has a positive impact on the environment or society, almost 20 percent higher when compared to wealthy people overall in the UK.

When considering long-term performance of these strategies alongside an entrepreneurs’ experiences, this is perhaps not all that surprising.

From a performance perspective, in the medium term ESG equity funds have been shown to be more resilient during bear markets and during black swan events including the global pandemic. 

Of course, more recently the current energy crisis and impact on oil, raw materials, and wholesale energy means that the traditional “old economy” sectors have outperformed over the near term. 

While the timeline cannot be certain, it does seem clear, however, that when short-term pressures normalise the now fully established drive towards cleaner, more sustainable solutions to our global needs will come back to the fore – and likely even more so as economies and businesses aim to avoid supply risks that have driven the current price spike.

For entrepreneurs, we see evidence of ESG being prioritised at all stages of the economic cycle. 

As business founders in the early stages, many entrepreneurs are themselves working to identify needs and build solutions to meet public demand for cleaner, more sustainable, higher impact technologies - balancing consumption driven economic growth with the needs of our planet and the lives we want to lead. ESG, whether labelled as this or not, is clearly identifiable in the early-stage businesses being formed.

Entrepreneurs, as business owners themselves, are more likely than the average wealthy Briton to see and experience first-hand the impact of strong ESG policies on their own businesses. This particularly holds true for more established entrepreneurs who are seeking seed capital, VC support, angel investment and other funding. 

In expanding their businesses and looking for external investment for growth, entrepreneurs will become acutely attuned to private and institutional investors’ desire to balance return on capital with an increasingly positive impact.

Returns and impact are not mutually exclusive. While venture capital and private equity investors are highly unlikely to sacrifice growth in favour of “good”, there is an increasing acknowledgement that a lack of strong ESG purpose is actually representative of increased risk.

In our conversations with entrepreneurs, risk and diversification is a large part of our discussions, alongside the balance of work and personal goals. 

This is become much more commonplace with the new generation of entrepreneurs and founders, and there are notable changes to how this group felt about their trading business being the sole store of value for wealth. They are more inclined to take money off the table, bring in external management, share ownership with employees and strive to create and maintain a “great place to work” ethos and strong sense of culture within their businesses. 

This change in mindset also allows founders to step back and think clearly about their priorities. More and more, founders and entrepreneurs are questioning whether the concentration of risk of in their own trading business still make sense. 

It is evident that diversification of wealth and protecting themselves and their families are prominent on their minds.

Our experience and our research show that whether wealth has been accumulated from new or sustainable technologies, or from more traditional businesses, entrepreneurs are wholly in tune with the opportunity to invest in a way which drives positive investment outcomes whilst doing so in the right way. 

Compared with wealthy people in the UK overall, entrepreneurs are more likely to think that investing in companies with strong ESG policies will result enhanced returns. 

Far from having had its day or being a passing fad, investing sustainably means investing in the innovation, the themes and the technology which will meet the challenge of balancing demand and doing so in a way which protects the planet, our resources and does so in a way which looks after the people employed. There is, in fact, risk in not approaching investment opportunities with this lens.

Entrepreneurs have unique insights, and whether or not it is explicitly labelled as ESG, they are embracing this in all they do.