Deep tech is at the forefront of innovation, with the potential to solve some of the world's most pressing challenges, such as disease, poverty, and climate change.
As per the World Economic Forum, the global deep tech market is projected to reach $733.7 billion by 2027, emphasizing its pivotal role in a rapidly evolving world.
But how can we ensure that deep tech is developed and used in a sustainable and ethical way? One way is to integrate environmental, social, and governance (ESG) factors into the development and deployment of deep tech.
ESG is a framework for evaluating companies' performance on non-financial factors that can have a material impact on their bottom line and their ability to create long-term value.
As per NASDAQ, the global ESG assets surged to over $6 trillion by 2023, up from $2.24 trillion in 2022.
ESG criteria are used by investors, stakeholders, and businesses themselves to assess how a company is managing its impact on the environment, its relationships with its employees and communities, and the quality of its corporate governance.
As deep tech continues to advance, it's essential to consider its impact on the environment. Technologies such as data centers, supercomputers, and energy-intensive algorithms can have a substantial carbon footprint. Therefore, developers must prioritize energy efficiency, renewable energy sources, and sustainable materials when creating deep-tech solutions.
The ‘E’ in ESG refers to environmental responsibility. The adoption of circular economy principles can also play a pivotal role. This involves designing products and technologies for longevity, recyclability, and minimal waste generation. By doing so, deep tech companies can reduce their environmental footprint and contribute to a more sustainable future.
The 'S' in ESG stands for social impact. This is particularly relevant in the development of deep tech. These technologies have the potential to reshape industries, automate jobs, and change the way people interact with the world. Therefore, ensuring that the benefits are equitably distributed and the potential harms are mitigated is crucial.
The 'G' in ESG refers to governance and accountability. Effective governance structures are essential to ensure that deep tech projects adhere to ethical and sustainability standards. This involves setting clear guidelines, monitoring compliance, and establishing mechanisms for accountability.
Deep tech projects often require substantial investments in research, development, and infrastructure. By integrating ESG principles, companies can enhance their long-term viability.
ESG considerations motivate deep tech developers to create products and services that are not only environment friendly but also economically viable. This can lead to competitive advantages and new market opportunities.
The social dimension of ESG is also relevant in deep tech. These technologies have the potential to transform entire industries, automate various roles, and exert an impact on society as a whole. It is essential to guarantee that the advantages of deep tech are distributed fairly and that possible negative consequences, such as job displacement, are minimized. For instance, Microsoft, a leading cloud computing company, has a number of ESG goals. This includes achieving net-zero carbon emissions by 2030 and empowering 1 billion people with digital skills.
Alphabet, Google's parent company, invested $5.7 billion in ESG in 2023 with a goal to achieve net-zero emissions by 2030. The largest category of investment was green buildings, with Alphabet investing nearly $2.5 billion in the design, construction, and improvements of 14 green buildings, totaling 807,000 square meters.
ESG integration can help deep tech companies in the following ways:
• Increase Customer base: Customers are increasingly looking to support companies that are aligned with their values.
• Improve Brand Reputation: Companies with a strong ESG record are more likely to be viewed favorably by the public.
• Attract and Retain Partners: Suppliers and other business partners are more likely to want to work with companies that have a good ESG track record.
• Boost Employee Morale: Employees are more likely to be engaged and motivated if they work for a company that is committed to ESG principles.
Moreover, investors are increasingly looking to invest in companies that are well-managed and that have a strong track record of ESG performance. Thus, companies that embrace ESG principles are better positioned to attract capital and build trust with stakeholders.
Investors and venture capitalists (VCs) often prioritize environmental, social, and governance (ESG) considerations before making investment decisions. BlackRock, the world's largest asset manager, is committed to making sustainability a core part of its investment process. The company plans to invest $1 trillion in sustainable assets by 2030. It is also engaging with the companies it invests in to encourage them to improve their ESG performance.
The following are the compelling reasons why investors push for ESG:
ESG factors provide valuable insights into a company's potential risks. By evaluating a company's environmental practices, social impact, and governance structure, investors can assess the level of risk associated with the investment. For instance, companies with poor environmental records may face legal and regulatory challenges, while those with weak governance structures may be more susceptible to internal issues such as fraud.
Investors seek sustainable, long-term returns on their investments. Companies that prioritize ESG factors tend to be more resilient and better prepared to weather economic downturns, regulatory changes, and market fluctuations. By emphasizing ESG, investors aim to align their portfolios with businesses that are more likely to thrive over time.
Companies that embrace ESG practices have a competitive advantage. They tend to attract environmentally and socially conscious consumers, which can lead to increased market share and revenue. Investors recognize that companies with strong ESG credentials are better positioned for growth and profitability.
Many investors have personal or institutional values that align with ESG principles. They want their investments to reflect their ethical and moral beliefs. By prioritizing ESG, investors can guarantee that their investments are in harmony with their principles and actively support beneficial social and environmental impacts.
ESG compliance is increasingly becoming a legal requirement in various jurisdictions. Investors want to ensure that the companies they invest in are not exposed to legal or regulatory risks related to ESG. By conducting due diligence on ESG compliance, investors can mitigate these risks.
Investors themselves have reputations to uphold. They recognize that being associated with companies known for their ethical and sustainable practices can enhance their own brand and reputation. Investing in ESG-focused companies can signal a commitment to responsible investing.
Investors often respond to market demand. As more investors seek ESG-focused investments, there is a growing need for financial products and services that align with ESG principles. To meet this demand and attract clients, investors and VCs incorporate ESG into their portfolios.
Companies with strong ESG practices often have better access to capital. Investors are aware of the fact that these companies are more likely to secure funding from sources such as green bonds, impact investors, and government grants. Supporting ESG-focused companies can provide better financial prospects.
Investors consider the expectations of various stakeholders, including clients, employees, and regulators. Meeting these expectations is not only ethically responsible but also sound business practice. ESG-focused investments reflect responsiveness to these stakeholder concerns.
Investors recognize that ESG issues are intertwined with some of the world's most pressing challenges, such as climate change, social inequality, and resource scarcity. Addressing these challenges through investments is seen as a way to contribute to positive global outcomes.
Consumers are inclined to engage with organizations that prioritize sustainability and social responsibility. According to a Nielsen survey, 66% of consumers worldwide are open to paying extra for products and services offered by companies that align with their ethical beliefs.
Following are the factors that highlight why ESG has become crucial for businesses:
Customers, employees, investors, and regulators now expect companies to operate responsibly and address environmental and social issues. Meeting these expectations can enhance a company's reputation and build trust, ultimately driving growth.
Many consumers are seeking services and products that align with their values, including sustainability and social responsibility. Companies that meet this demand can tap into new markets and customer segments.
Institutional and individual investors are incorporating ESG criteria into their investment decisions. Companies that prioritize ESG are more likely to attract capital and secure funding, facilitating growth opportunities.
The growing popularity of green bonds, impact investing, and ESG-themed funds means that companies with strong ESG credentials have better access to capital. This access can support expansion and growth initiatives.
As technological advancements reshape industries, it's crucial to integrate ethical and sustainable practices. Companies venturing into deep tech are increasingly incorporating ESG considerations into their research, development, and deployment processes. They address issues such as responsible AI, data privacy, carbon neutrality, and ethical biotechnology.
