Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

The global ESG software market is projected to hit $5 billion by 2033. Even at the angel stage, where you're writing $25,000 checks into pre-seed companies, ESG matters.

Not because it's trendy. Because it's starting to affect valuations, exit opportunities, and long-term survivability.

Why ESG Matters for Angels Now

Five years ago, most angel investors didn't think about ESG beyond avoiding obviously problematic industries like tobacco or weapons. Today, it's different.

Environmental, social, and governance factors are shaping investor decisions at every stage. Many are willing to accept lower returns if their capital contributes to meaningful change.

That's not just idealism. It's market shift. If your portfolio company wants to raise a Series A from a major VC in 2025, they're increasingly likely to face ESG questions during due diligence. If they want to sell to a private equity buyer, many PE firms now approach ESG due diligence consistently and formally.

Angel investors need to think about this upfront. Not because you're trying to save the world, although some angels are. But because ESG risks can kill companies, and ESG opportunities can create defensible advantages.

The Three Components: E, S, and G

ESG breaks into three categories, and they matter differently depending on the type of company you're investing in.

Environmental factors include carbon emissions, resource usage, waste management, and climate impact. If you're investing in a logistics company, their carbon footprint might become a competitive liability as carbon pricing becomes more common. If you're investing in a food startup, supply chain sustainability could be a major selling point.

Social factors cover labor practices, diversity, community impact, and customer welfare. This is where things get complicated fast. Does the company pay fair wages? Do they have diverse leadership? Are they selling products that could harm users? These aren't abstract questions. They're risks.

Governance factors are about how the company operates: board composition, executive compensation, transparency, and ethical practices. For early-stage startups, governance usually means checking for obvious red flags like undisclosed conflicts of interest or sketchy cap table structures.

At Hustle Fund, the focus has always been on backing founders who are thoughtful about building sustainable businesses. That doesn't mean every company needs to be a certified B Corp, but it does mean paying attention to how they treat employees, whether they're building products that create real value, and whether they're operating ethically.

Red Flags to Watch For

Let's talk about what bad ESG looks like at the angel stage, because this is where you can actually make a difference with your due diligence.

First, labor issues. If a pre-seed company is already burning through employees, paying below-market wages, or has Glassdoor reviews talking about terrible culture, that's a red flag. Early-stage companies are hard. But if founders are creating toxic environments before they even have product-market fit, it's going to get worse, not better.

Second, sketchy business models. Are they selling products that prey on vulnerable populations? Are they using dark patterns to trap users? Are they claiming social impact while their actual business incentivizes harm? This matters because regulators are paying attention, and companies with exploitative models increasingly face legal risk.

Third, governance sloppiness. If founders aren't transparent about cap tables, are setting up complex offshore structures for no clear reason, or are evasive about how they're using capital, walk away. Elizabeth Yin from Hustle Fund has written about how she's seen embezzlement happen four times across nearly 400 investments. It's rare, but when it happens, the money is gone.

Fourth, environmental negligence. If you're investing in a manufacturing company and they're cavalier about waste disposal or emissions, that's a future liability. Regulations are tightening globally. Companies that ignore environmental impact today will pay for it later through fines, reputational damage, or inability to raise future rounds from ESG-focused funds.

The Impact Investing Spectrum

Not all ESG investing is impact investing. There's a spectrum.

On one end, you have impact-first investors who prioritize social or environmental outcomes and accept lower financial returns. They're investing in companies explicitly trying to solve problems like climate change, financial inclusion, or healthcare access in underserved communities.

On the other end, you have ESG screening, where you avoid companies with bad practices but aren't necessarily seeking positive impact. You're just not investing in tobacco, fossil fuels, or predatory lending.

In the middle, you have investors who believe impact and returns align. They think companies solving real problems for underserved markets can generate outsized returns because they're addressing massive, underserved needs.

Hustle Fund tends to operate in that middle zone. It’s not an impact fund, but we’re backing companies in emerging markets, underrepresented founders, and businesses solving real problems in sectors like fintech, healthcare, and education. The belief is that these companies can generate strong returns precisely because they're addressing big unmet needs.

Conducting ESG Due Diligence

So how do you actually evaluate ESG as an angel investor without turning every investment into a six-month research project?

Start with basics. Ask founders about their values and how they're building their company. Do they have diversity goals? How do they think about environmental impact? What are their governance practices? You're not looking for perfect answers. You're looking for thoughtful ones.

Check for exclusion list violations. Most institutional investors have lists of industries they won't touch: weapons, tobacco, fossil fuels, predatory lending, gambling in some cases. If a startup is in one of those industries, know that they'll have a harder time raising from certain funds later.

Ask about their supply chain if relevant. If they're a physical product company, where are they manufacturing? Are they using suppliers with decent labor practices? You don't need to audit the entire supply chain, but you should know they've thought about it.

Review their governance documents. Are they using standard YC or 500 Startups templates, or did they have a lawyer draft custom docs that create weird incentives? Clean, simple governance structures are usually better. Complexity is often hiding something.

And read the investor updates carefully. Haley Bryant from Hustle Fund talks about how most company updates don't actually say much, but you can learn a lot by reading between the lines. Are founders transparent about challenges? Do they acknowledge mistakes? Do they treat employees with respect in how they talk about team changes?

The Business Case for ESG

Here's the part that matters for angels focused on returns: ESG can actually improve your investment outcomes.

Companies with strong ESG practices tend to attract better talent. Engineers and designers increasingly care about working for companies that align with their values. If your portfolio company is mission-driven and treats people well, they'll have an easier time recruiting.

ESG-conscious companies often have better risk management. They're thinking about regulatory changes, reputational risks, and long-term sustainability. That means they're less likely to face nasty surprises that tank valuations.

They're also more likely to access certain types of capital. Climate tech funds, impact funds, and ESG-focused VCs are managing billions in capital. If your company can credibly claim to be solving environmental or social problems, they have more potential investors for future rounds.

And increasingly, exit opportunities depend on ESG. Public markets are demanding better disclosure. Private equity buyers are embedding ESG criteria in their due diligence. Strategic acquirers care about reputational risk. If your company has ESG problems, it can limit exit options.

Practical Steps for Angels

If you want to incorporate ESG into your angel investing, here are practical steps that don't require becoming an expert.

First, add a few ESG questions to your standard due diligence checklist. Ask about diversity. Ask about environmental impact if relevant. Ask about governance structure. It takes five minutes and gives you a baseline.

Second, check if the company has any third-party certifications or has participated in impact-focused accelerators. Not all startups will, especially at pre-seed, but it's a signal when they do.

Third, trust your gut about founders. If they're thoughtful, ethical people who care about building responsibly, that's usually a good sign. If they're cutting corners, dismissive of concerns, or focused purely on growth at any cost, that's often a bad sign for ESG and for business outcomes.

Fourth, stay informed about ESG trends in your sectors. If you're investing in climate tech, you need to understand carbon markets. If you're investing in fintech, you need to understand financial inclusion. If you're investing in e-commerce, you need to understand supply chain labor practices.

And finally, join communities where ESG is discussed practically, not just theoretically. 

Angel Squad brings together investors who are navigating these exact questions: how to evaluate impact, when it matters, and how to balance financial returns with investing in companies building sustainable businesses. It's the kind of conversation that doesn't happen in formal pitch meetings but matters enormously for long-term success.