Sustainable start-ups earn a 15% premium

Start-ups with a poor sustainability track record could see their valuation reduce by up to 4%

Early-stage investors are rewarding start-ups with strong sustainability credentials, according to research commissioned by Amazon.

UK venture capital and private equity investors say greener companies can command a 15 per cent valuation premium, whereas start-ups with a poor sustainability track record could see their valuation drop by up to four per cent.

The study found that over the last 12 months, 81 per cent of investors have requested more details about the sustainability credentials of the start-ups they are investing in, citing personal values and their own organisation’s ESG (environmental, sustainability and governance) commitments as driving factors.

Where concerns lingered over just how green a business is, more than half (56 per cent) dropped the investment opportunity.

Generally, investors cite concerns about the sustainability of a business’s logistics throughout the supply chain and responsible waste management processes.

Last week, Dragons’ Den investor Deborah Meaden urged business founders at the SME XPO in London to reassess their supply chain, saying they should walk away if suppliers don’t follow-through on their environmental promises.

Sustainability is a growing sector, with green business deals seeing some of the strongest activity for venture capital funding in the last quarter of 2022 – along with gaming, health and biotech.

Nicole Lowe, a director at KPMG, said at the time that European cleantech deals would likely accelerate in 2023 as countries work to meet decarbonisation targets.

However, the report from Amazon found the volume of current and upcoming ESG regulation is deterring 70 per cent of investors from investing in start-ups focused on sustainability.

To take the next step in growth, 83 per cent of investors said start-ups need better support to embed environmentally sustainable practices, while the same percentage said that over half of start-ups they see lack the right technology and know-how to operate more sustainably.

John Boumphrey, Amazon’s UK country manager, said: “Today’s research highlights the clear premium given to businesses with strong sustainability credentials and illustrates how environmental impact is increasingly guiding investment decisions, as investors seek out solutions to address today’s climate and waste challenges.”

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Dom Walbanke

Fred Mann

Dom is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various lifestyle...

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