Venture Capital Firms Launch New Alliance Pushing Startups To Eliminate Carbon Emissions

 Nearly two dozen venture capital firms in the United States and Europe announced an alliance on Tuesday centered on pressing early-stage companies to pursue net zero carbon emissions.

The Venture Climate Alliance will “help to drive” a global transition toward net zero economies such that portfolio companies can “enter and thrive in dynamic markets where climate will play a much greater role.” Member firms will therefore achieve net zero emissions in their own operations by 2030 and encourage portfolio companies to do the same by 2050.

“Our goal is to bridge the gap between what’s happening in public markets, where hundreds of companies have made bold forward-looking net zero commitments, and early stage innovation, which has the potential to decarbonize legacy industries through a combination of better products, more efficient processes, and lower costs,” Venture Climate Alliance founder and Prelude Ventures principal Alexandra Harbour said in a statement.

The initiative includes venture capital behemoths Tiger Global Management and Union Square Ventures and will be supported by climate finance advisory firm Great Circle Capital Advisors. “It’s critical that the venture capital industry support technologies that accelerate the climate transition,” Union Square Ventures partner Samson Mesele added in the statement.

Similar net zero alliances currently exist among firms in the asset management and investment banking sectors to likewise move portfolio companies closer toward eliminating net carbon emissions by 2050 or sooner, an objective established by the Paris Climate Accords. Members of the Net Zero Asset Managers, for instance, include BlackRock, UBS, Fidelity, and State Street, four of the sector’s five largest companies.

The move to create the Venture Climate Alliance occurs amid pushback from lawmakers and the broader marketplace over the environmental, social, and corporate governance movement, also known as ESG. Skeptics contend that the investment philosophy intermixes political and social causes favored by executives, such as reducing carbon emissions or diversifying company leadership, in a manner that compromises or distracts from profitability.

Vanguard, the world’s second-largest asset management company, exited the Net Zero Asset Managers at the end of last year to “provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks.” The move came immediately after lawmakers in the state of Texas announced a hearing over asset managers’ purported misuse of taxpayer dollars as they allocate public funds, including pension and retirement plans, according to ESG criteria.

 

The pursuit of net zero carbon emissions is closely associated with divestment from companies and industries which produce or heavily utilize fossil fuels. Several major investment entities admitted in recent months, however, that fossil fuel divestment is harmful to returns, especially over the past year in which the energy sector has outperformed other industries typically favored by ESG investors. Officials from the Government Pension Fund Global in Norway, one of the nation’s two sovereign wealth funds, acknowledged they had missed the chance to benefit from outsized returns in the energy sector, while executives from Harvard Management Company, which manages the elite university’s endowment, disclosed that its losses were attributable to fossil fuel divestment efforts even as the organization remains “proud to be deeply engaged in the issue of sustainability.”