Traditionally, U.S. private market investors who adopted environmental, social and corporate governance (ESG) frameworks — the very few thus far — did so to evaluate a potential company or investment on how it approached areas like sustainability or diversity.
But now, in the post-Roe era, as controversial conservative legislation sweeps the nation, some VC investors and founders believe the social definition of ESG investing should expand to incorporate pressing human rights issues such as reproductive healthcare.
Last year, Amnesty International found that none of the top VC firms consider human rights adequately in their due diligence, while an analysis in the Stanford Social Innovation Review found that out of 2,900 VC firms worldwide, only a few dozen have made a public commitment to ESG investing. That may change as private markets face more consumer pressure to compensate for government shortfalls.
A pressing issue to consider now is the precariousness of reproductive healthcare as states look to restrict access to abortion and contraception further. Expanding the definition of social investing to encompass reproductive health adds urgency to the topic, helping reframe its economic and social importance.
Investors could prioritize looking at the benefits a company offers, like parental and period leave; evaluate businesses’ stances on issues like abortion; and research the impact of products on the health of women consumers. LPs and investors could also focus on reassessing their contributions to venture capital firms that keep access to reproductive healthcare at the core of their investments into healthcare startups.
Black Ops Ventures managing partner Heather Hiles said it’s worth looking at human and civil rights issues, such as access to reproductive healthcare, as a critical component of ESG. Johannes Lenhard, a co-founder at U.K.-based industry organization VentureESG, agreed.
“Reproductive rights ultimately fall under human rights,” he told TechCrunch. “Human rights very straightforwardly fall under ESG.”
Many public pension funds in the U.S. already forbid investments in countries with noted human rights violations. Lenhard added that most people associate such transgressions as “far away issues.” He said that rethinking political occurrences in the U.S., such as moves to limit access to reproductive healthcare, is a way to bring the conversation of human rights closer to home.
Hiles and Lenhard are just two within the VC community who agree that reproductive health should be part of ESG investing. In yet another vibe check, founders and investors told TechCrunch that the health of society depends on addressing the needs of both the planet and the people. And those with economic prowess must take a stand.
“Reproductive rights ultimately falls under human rights. Human rights very straightforwardly fall under ESG.” Johannes Lenhard, co-founder, VentureESG
Recharge Capital Partner Haley Gahan also believes reproductive healthcare should be considered part of ESG initiatives. She said that funds could make an impact by providing capital to innovations in the space, which affects the bottom line and health equity for everyone.
Trish Costello, the founder of Portfolia, concurred, telling TechCrunch that focusing on reproductive health as an ESG issue helps fill the existing white space in the market and spurs much-needed innovation.
Women were excluded from clinical trials until 1993, meaning much of the modern medical rubric inherently dismisses women’s needs and concerns. As a result, heart attacks in women are often misdiagnosed, issues like fibroids and endometriosis are downplayed, and procedures like abortion are stripped of medical relevance. Innovation in the space is increasing, albeit slowly — in 2020, Rock Health found that women’s health startups received just 3% of all digital health funding, a 105% increase from the year prior.
Lorin Gu, the founder of Recharge Capital, said looking at reproductive healthcare as an ESG initiative could help increase the capital flowing into the space by getting more investors to talk about it — especially older investors who don’t consider reproductive health a standalone issue.
“We are not powerless,” Costello said. “We can affect change quickly with our dollars.”
Meanwhile, VentureESG co-founder Hannah Leach believes many firms have started talking about this issue but aren’t yet sure how to navigate the conversation or its execution. For this, Lenhard points to National Venture Capital Association as a group that could provide best practices.
VentureESG is based in Europe, where Lenhard said ESG practices are most likely to be adopted by investors and companies, though abortion is less of a hot topic because it is broadly available across the EU.
“We are not powerless. We can affect change quickly with our dollars.” Trish Costello, founder, Portfolia
Steve Norcini, head of sustainable investing at Wilmington Trust, said that European governments have been vital in pushing ESG regulations. In the U.S., in contrast, that push tends to come from private capital. Lenhard feels if prominent firms in Silicon Valley took a strong position on abortion access as an ESG standard, it would spark others to take a harder look.
“There is a whole culture of FOMO, particularly around VCs and startups,” Lenhard continued. “This FOMO is mainly built by investors in SV. They are leading the pack.”
Angel investor Ed Zimmerman, who also serves as an LP at First Close Partners and chair of the tech group at Lowenstein Sandler, said that while he doesn’t anticipate the adoption of reproductive rights under the ESG umbrella to become common, he does believe there are ways for firms to make their stances clear.
For example, firms could add language in a side letter against a company ever denying access to reproductive care, or LPs can tell firms they don’t want their capital called for an investment in a company headquartered in a state without access to abortion care or one that lacks a plan to guarantee the right to its employees.
“If someone were actively working to limit reproductive rights, I would not be comfortable having them involved with [my] company.” Olivia DeRamus, founder, Communia
Zimmerman added that side letters revolving around an ethical or social issue are not common, but they aren’t exactly rare, either. He said he once worked on a deal with a chip manufacturer and a gaming company that included a side letter that said the chip company’s tech couldn’t be used in games that contained violence.
“It’s messy, and I think it’s hard work, but I know a couple of funds that have done things and that are doing things,” he told TechCrunch. “I’m sure there will be LPs and family offices who do it.”
Investors can also look at holding portfolio companies accountable for actions while increasing their consciousness of where and to whom their money is allocated. For example, in 2014, the U.S. Supreme Court ruled businesses can religiously object to the federal law that requires employers to cover birth control in employee health plans. Contraceptives help regulate periods, reduce the rate of maternal and infant mortality and prevent unwanted pregnancies.
The U.S. has the highest maternal mortality rate among wealthy nations, a rate that’s likely to increase given abortion bans and threatened restrictions on contraceptives. LPs have a choice whether to back a business that doesn’t offer birth control as part of employee health plans — and founders have an option of whether to take money from investors that fund other startups that don’t support abortion rights or access to contraceptives.
Zimmerman noted this, saying that founders could stop accepting money from investors who do not consider reproductive rights. Olivia DeRamus, the founder of the social networking app Communia, agreed and said it’s vital that founders ensure investors and employees align with the company values; otherwise, they risk being pulled in opposite directions, torn between a company’s morals and investor pressure to maximize profits.
“We’ve got to say it matters how people are treated.” Heather Hiles, managing partner, Black Ops Ventures
“Everyone is entitled to their personal opinions, but anyone involved in Communia would need to be supportive of our broader mission, including reproductive rights and abortion access,” DeRamus told TechCrunch. “If someone were actively working to limit reproductive rights, I would not be comfortable having them involved with the company.”
Overall, Norcini believes that the definition of what falls under ESG investing is bound to change. That’s why for now, Gahan said it’s essential to focus on educating investors and founders about human rights so they can start assessing the long-term financial, environmental and social potential of their investments.
To start, Hiles believes the industry should codify ESG standards and apply ratings in a publicly trackable way, like a company’s market value on the New York Stock Exchange.
After all, consumers are already looking to hold the feet of those with economic power to the fire as the expectation for political responsibility turns toward investors and corporations. Women’s rights are only the start; the new normal started yesterday.
“When we only expect leaders to be responsible and accountable to making money, then that’s what they focus on,” Hiles said. “We’ve got to say it matters how people are treated and that matters every day, just as much as how much money is made.”