May 12, 2023

Here’s what ESG term sheet clauses actually look like

We collected clauses from 20 VCs…and counting

Eleanor Warnock

4 min read

Revaia partners Elina Berrebi (right) and Alice Albizzati

For many VCs and startups, ESG is no longer a nice to have, it’s a must have. 

EU regulation has now put mandatory ESG disclosure requirements on VCs — including data on their portfolio. VCs are under more pressure from LPs to incorporate ESG principles into investing, while consumers and talent expect startups to walk the walk.

As a result, more VCs are integrating ESG-related clauses into their term sheets. That said, it’s still not a feature in the majority of deals; according to data from law firm Orrick, ESG pledges appeared most frequently in Series B term sheets — but still in only 30% of them. At seed, it was a just 11%. 

But what exactly is in an ESG clause and what should founders be on the lookout for? We've collected clauses from 20 VCs, listed at the bottom of this article. We will continue to update this list — if you’d like to share your clause, please email in!


Why have ESG term sheet clauses?

Term sheets lay out the financial terms of a deal — like the valuation — but many investors think that important non-financial terms, like ESG requirements, should be included too.

“It’s important that we cover the sustainability topic from the first document that we share with the company because this is something that has to grow over time,” says Alice Albizzati, founding partner at French growth fund Revaia. 

Revaia and many other VCs also include ESG-related clauses in the shareholder agreement — the legally binding document that founders and shareholders sign when they decide to go ahead with a deal. This document is usually more comprehensive than a term sheet. 

Leslie Kapin, director of impact and sustainability at impact VC Astanor Ventures, says having existing ESG terms in shareholder agreements can help maintain alignment when new leadership joins a startup to maintain “a good and healthy relationship”. These clauses can also help align other investors — who have to sign the shareholders' agreement too. 

What exactly is in these clauses?

Many of the clauses ask companies to put climate, diversity and ESG policies in place in a specified timeframe after investment — usually between three months to a year. They usually also require teams to report progress to the board. 

VC giant Lakestar, for example, asks companies to adopt a climate policy within 12 months of the deal closing. “By setting objectives for the first 12 months, we hope to kickstart the process, nudging our portfolio companies to integrate ESG thinking into their operations, which will ultimately benefit them in the long run,” says partner Mathias Haniel. 

Some clauses can also include “best effort clauses” — encouragement for the companies to do their best to implement something. Revaia, for example, has a best-effort clause to make sure there is at least one female board member joining the board within the next six to twelve months or when someone new joins the board. Now, 90% of their portfolio has at least one female board member, up from 25% of companies before they joined the portfolio. 

What clauses can’t do

There are limits to these clauses. Some VCs say they want to keep them optional in case they're trying to close a very competitive deal and want the fewest number of terms to agree on with founders. 

“I don’t think the term sheet is revolutionary, it’s a baseline,” says Laura Atterwill, head of platform at Fidelity International Strategic Ventures (FISV), the venture arm of asset management giant Fidelity. 

She says her firm has an optional ESG clause and has until now focused efforts less on the term sheet and more on getting FISV’s 20 portfolio companies to take a survey to identify ESG weaknesses, then helping them plug the gaps, such as putting a diversity and inclusion policy in place. 


Hannah Leach, partner at seed-stage firm Houghton Street Ventures and cofounder of VentureESG, questions whether a standard clause works if the investor is backing companies across sectors and business models, and if it’s always the right way to signal a commitment to ESG. 

“If you’ve done your proper ESG due diligence, then the founder already knows that you’re committed. Do you need the term sheet clause in there if it is on the fluffier side?”

Towards standardisation

Some groups are also working on standardised clauses in an effort to encourage use. The British Venture Capital Association has one in its sample shareholder agreement. Berlin non-profit Leaders for Climate Action, backed by VCs including Northzone and Earlybird, created a standard sustainability clause in 2019. 

Earlier this year, VentureESG, a community that helps VCs integrate ESG practices into their investing, published environmental term sheet clauses for both pre-seed to Series B companies, and companies at Series C and beyond. The group is now working on templates for DEI (diversity, equity and inclusion) and ESG clauses more generally. 

VentureESG’s Leach says the industry needs some standardisation, “otherwise ESG reporting is going to get very complicated if everyone has their own version of things. [Standardisation] ultimately makes it easier for founders and ourselves and makes it easier to build consensus.” 

But the clauses aren’t a magic bullet, she says. “Term sheet clauses are never going to solve everything, you need to have one in concert with an ESG strategy.”

Examples of ESG term sheet clauses

Eleanor Warnock

Eleanor Warnock was Sifted’s deputy editor and cohost of Startup Europe — The Sifted Podcast. Find her on X and LinkedIn