A Growing Interest in EdTech and the Resulting ESG Opportunity

EdTech aims to improve people’s lives through education and is therefore aligned with ESG by its very nature. But the past two years have thrust the entire industry into the spotlight with new intensity, bringing the EdTech/ESG conversation to the fore.

EdTech: From Nice-to-Have to Necessary

Almost overnight, K–12 schools and higher education institutions needed to find a way to make classes accessible to students remotely due to the conditions of the global pandemic.

As the world learns to live with COVID, the educational technology market is still going strong:

• The average K–12 school district uses 1,447 edtech products per month
• 40% of Fortune 500 companies regularly use EdTech to train their employees
• 57% of workers are "very or extremely interested" in learning new skills that will help them develop or change careers.

It’s no wonder, then, that the global EdTech market, valued at $85 billion in 2021, is expected to reach over $230 billion by 2028.

An Important ESG Opportunity

These trends are, of course, great for EdTech founders. A growing interest in EdTech and corresponding increase in market size will certainly lift all boats.

But not just from a financial perspective. Perhaps even more importantly, the invigorated interest in EdTech will enable companies in this space to more fully provide the social benefits that EdTech platforms are designed for, specifically:

• Closing equity gaps in access to education
• Personalizing the learning experience via rich data/analytics

Given the social good that EdTech can enact, investors and strategic buyers alike are renewing their interest in the space.

How Investors View ESG in EdTech

Socially conscious investors using environmental, social, and governance criteria to screen potential investments are drawn to the inherent promise of educational technology.

Because remote and asynchronous classes allow students with full-time jobs, nightshifts, or family responsibilities to access education at times and places that are convenient for them, EdTech has the potential to reduce drop-out rates and help students from low-income backgrounds become more employable.

Increasing the ESG appeal, some EdTech companies are focusing specifically on women, minorities, and other underserved communities in a bid to help close employment and wage gaps. Consequently, companies in this category are in a great position to attract the interest of investors.

Entity Academy, for example, secured $100 million in funding last fall to support its mission to "[close] the gender pay gap by training, mentoring, and helping women find employment in the 21st century workforce."

Similar funding examples include:

• The Pivot Technology School, which "supports minorities interested in technology careers" and was able to secure $10 million in growth financing a year after it was founded in 2020.
• APDS, whose advanced* *career readiness platform helps incarcerated individuals earn a living wage after release, raised $7 million in Series C funding in July 2022.
• Mentor Collective, which connects students with mentors from similar backgrounds, targeting first-generation and other nontraditional students, and raised $21 million in January 2022.

How the Big Strategic Players View ESG in EdTech

Top players in the EdTech space are reinforcing their ESG principles in all their activities, both internal and external. The following companies are representative of this trend:

Udemy with the United Nations Social Development Goals of quality education, advancing talent, global expertise and economic opportunity, and reducing inequality.

2U provides a one-time full reimbursement for the cost of taking a 2U-powered graduate program to eligible employees.

Powerschool’s Education Fund has provided over $620,000 across eight universities to help over 1,740 diverse education students become first-time teachers.

From an internal perspective, as these larger companies look to acquire smaller ones, they will no doubt seek out those that align with their own values.

From an external perspective (i.e. the social good of EdTech), as new companies in the EdTech space apply the principles of evolving pedagogical research, these companies will become interesting acquisition targets for the large strategic players.

Amplifying the ESG Impact of EdTech

In summary, EdTech has always presented an opportunity to bridge the gap in education for at-risk and disadvantaged segments of the population. But given the renewed interest in the space, EdTech founders and management teams are in a better position than ever to multiply the effects of their mission and increase the ways they can positively impact the world. Hopefully they take advantage of this opportunity to build the solutions that will bridge existing inequities and drive inclusion.