Increasingly, venture capital firms are seeing a mandate from limited partners and industry stakeholders to make sure their portfolios are ready for a new imminent era of Environmental, Social, and Governance (ESG) best practices in Southeast Asia.
Until recently in places like Indonesia, ESG compliance was always more of an afterthought for investors, rather than a focal point. But now, with more institutional capital from overseas trying to get into the market, local venture firms and startups alike are seeing a true need to get their ducks in a row.
Large multinational companies must adhere to stringent ESG regulations in their home countries, and the capital they deploy overseas is not exempt from this.
In a recent episode of Indonesia Digital Deconstructed by AC Ventures, the firm’s new Head of ESG Lauren Blasco discussed with its Founder and Managing Partner Adrian Li how the local tech ecosystem can act today on ESG, to be ready tomorrow.
Where tech meets ESG in Indonesia
The transcript below has been condensed and edited for focus and clarity.
Adrian: So Lauren, let’s take a look at your experience and what it’s meant for large companies that aim to transform their operations. What inspired you to focus your career on ESG?
Lauren: As a child, I was very much interested in the environment, recycling waste, etc. So when I had my first job in private equity, I had the opportunity to work in the hospitality space. Sustainability was just starting to enter into the infrastructure side. So, that’s kind of what was the beginning of my career in ESG and impact.
Adrian: Coming from private equity, you obviously looked at a number of large enterprises. What common pain points did you see them facing in terms of ESG and sustainability?
Lauren: This was really dependent on the type of industry. But if we just look at the markets in Asia, I think each country is different. Indonesia, in particular, has a lot of waste issues and needs to focus on circularity. This is especially true when looking at infrastructure for buildings, materials, and more. One of the main components is looking at what industry we’re focusing on and then kind of back-tracking into the pain points from there.
Adrian: What drove you to make the career transition from the world of finance and private equity to head up sustainability at Potato Head Group?
Lauren: When I first moved to Bali, I was working on projects around the region, but none in Indonesia. I met with Ronald Akili, the group’s founder, and he shared with me his passion for sustainability. This was inspiring. He wanted to bridge the gap between sustainability, art, and design and it really piqued my interest. Being at the forefront of sustainability in Indonesia’s hospitality game showed me that it could be cool and accessible to everyone. It’s also based on the idea that little decisions in our everyday lives can make a big difference.
Adrian: How does plastic waste, specifically, manifest itself in Bali?
Lauren: The biggest and clearest sustainability issue in Bali is that a lot of plastic waste gets washed up on its shores. At specific times during the year, this negative impact is amplified. So coming here as a tourist, you envision being in paradise. You don’t envision sitting on a chair overlooking the beach full of waste around you. To address the problem, we need to educate ourselves, our staff, and our government about the harmful impacts of the waste streams that are coming in and where they’re coming from. So are they coming from the ocean, or are they coming from the rivers? This is something we at Potato Head Group worked on a lot. We came up with a solution that we were going to be single-use plastic-free.
Adrian: What attracted you to come work in the venture capital space, and what should investors and tech companies keep in mind about the importance of ESG moving forward?
Lauren: So, I’m very interested in ways to deliver the most impact to Indonesia. Working for a company like Potato Head or any individual company, you’re able to accomplish a certain amount of impact. But when you’re working for a VC firm, like AC Ventures, you’re able to scale this across a portfolio of many companies and see it cascade down throughout society. At the end of the day, my job is about this precisely. The impact that I’m able to have by virtue of dealing with a portfolio is much greater. I think if we focus on the tech space, one of the really interesting components is that most tech companies have an underlying element of impact kind of baked into the philosophy of their businesses.
Adrian: From our early talks, I remember that coming from the world of finance, you’re inherently at an interesting spot where you specialize in marrying impact and sustainability with granular metrics. Can you talk a little more about that, and how ESG is measured in developed markets?
Lauren: Yes, so the main difference between Indonesia and more developed markets is the current state of regulation. When a market is highly regulated, there are specific rules about how and what your company reports. Having this on the near horizon in Indonesia will undoubtedly be a game changer. Indonesia is currently in its infancy in terms of ESG reporting.
I’m using a tool called Upright to run what is called “net impact assessments” across all of our portfolio companies. The scores we get from these are what will put local startups on the best footing possible so that when more stringent ESG regulations do come into effect in Indonesia, our portfolio will already be in the habit of collecting this data. But, almost more importantly, it will help inform how the companies can improve. Without a baseline established, this wouldn’t be possible.
When it comes to foreign institutional capital coming here, what we are doing with startups today to measure their net impacts will open the door to more investors who are actively looking to participate in the tech space. To make sure this happens, we’re aggressively laying the framework now. Quite simply, we need to go above and beyond what’s expected.
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AC Ventures is a leading venture capital firm investing in early-stage startups focused on Southeast Asia. We are a generational partner to founders driving positive environmental, societal, and economic impact. If your institution seeks to deploy smart capital in the market, please get in touch.