ESG Integration in Venture Capital Investment Practices: Evidence from Saudi Arabia's Transforming Entrepreneurial Ecosystem (International Journal for Scientific Research)

Summary

• The study analyzes survey data from 21 venture capital firms operating in Saudi Arabia to evaluate how ESG factors are integrated into their investment practices.p.1
• In 2024, Saudi Arabia represented $750M in total venture capital funding across 178 deals, accounting for 31% of total VC deals and 40% of total capital funding in the MENA region.p.5
• E-commerce/retail and Fintech represented 33% and 31% respectively of venture capital deployed in Saudi Arabia in 2024.p.5
• The composite ESG Integration Score across participating VC firms averaged 1.62 on a 3-point scale, reflecting an overall emerging but uneven level of adoption.p.12
• Governance is ranked as the highest priority ESG dimension by 57.1% of respondents, compared to 28.6% for social and 14.3% for environmental considerations.p.14
• Value creation and risk mitigation are the top motivations for ESG adoption (42.9% each), whereas difficulty measuring ESG is the primary implementation challenge (57.1%).p.15
• Among the surveyed VC firms, 61.9% are independent venture capital firms and 61.9% have operated for 5–10 years, with 52.4% focusing primarily on early-stage investments.p.16

Key insights

1. ESG integration in Saudi venture capital is at an early transitional stage where selective consideration in investment decisions precedes formal organizational infrastructure.p.1
2. Internal strategic drivers such as value creation (42.9%) and long-term financial performance (38.1%) motivate ESG adoption more than external regulatory pressure (23.8%) or investor demand (14.3%).p.15
3. Technical limitations represent the main obstacles to systematic ESG implementation, led by difficulty measuring ESG (57.1%) and limited internal expertise or resources (47.6%).p.16
4. FinTech (85.7%), SaaS (76.2%), and AI (71.4%) are the most targeted sectors among the surveyed Saudi VC firms.p.16