Introduction, Purpose, and Goal
it is incorporated within the firm’s processes, and how we ensure the promotion of relevant factors in our portfolio. Ultimately, it lies with the portfolio companies themselves to develop and adhere to an ESG framework that is suitable for their stage, industry, and business model. At the same time, we strongly believe that we can support the adoption of relevant criteria and help set up sustainable processes.
The definition of ESG has been widely discussed in the past couple of years, and ESG in public markets has converged towards a reporting and measuring exercise. 42CAP is following the definition guidance of VentureESG decomposing ESG into a ‘universe of issues’, both at the fund as well as at the startup level (VentureESG Whitepaper).
Environment
Direct Environmental Impact (Scope 1):
Impact of the operations of the fund or startup, e.g. energy useof offices or business travel
Indirect Environmental Impact (Scope 2):
Impact of goods/services purchased as part of fund’s or startup’s operation, e.g. what type of electricity is used, carbon footprint of food order for business meeting
Environmental Impact of Upstream/ Downstream Activities (Scope 3):
Impact of other companies the fund or startup engages with, e.g. of investors, cleaning service, suppliers, etc.
Social
Diversity, Equity and Inclusion (DEI)
e.g. diverse hiring and promoting, equal pay, parental leave
Team and Working Environment
e.g. anti-harassment, benefits, performance management / fair feedback
Responsible Product Design
e.g. unintended consequences, inclusivity/accessibility of products
Supply Chain (where applicable)
e.g. supply chain (social/environmental) impact, disruptions
Governance
Corporate Governance
e.g. independent board, transparent reporting, ownership
Legal & Regulatory
e.g. complying with labour and tax regulations, human rights
Data security and privacy / data practices
e.g. collecting/storage/management of data, implementing GDPR
‘Doing ESG for a VC fund means (re)structuring its operations and (internal) practices in accordance with a set of ESG principles in mind. The above ‘universe of issues’ we have written out in a full framework can serve as a guide to start this evolving process. ESG involves implementing practices across the VC value chain, from investment decision making (as part of due diligence) to fund management and portfolio management and requires continuous reflection on the VC’s impact on all stakeholders, from shareholders (LPs), employees, start-ups, nature, and society more generally. ESG hence both incorporates adherence to wider ESG risk analysis but also ESG opportunities.’
In the next chapters we want to communicate our values and point of view of ESG along our value chain of Fund Management, Investment Decision and Portfolio Management.
Fund Management
In order to promote sustainability to our portfolio companies, we need to lead by example and strive to continuously benchmark and improve our endeavors. On a fund level our main considerations include the culture, way of working within our team as well are resources consumed by our office infrastructure and business travels. Therefore we:
- have implemented a flexible work-from-home policy that allows employees to reduce unnecessary commute to a minimum.
- offer single offices equipped with ergonomic furniture, such as working chair and standing desks to each employee.
- organize regular internal events that foster team building and an open office culture.
- have implemented a diverse hiring policy.
- source office electricity from renewable sources if landlord allows it.
- went to a fully paperless office operation in order to save resources.
- set up a whistleblower system to make sure everyone working in and with our team feels fairly and equally treated.
- Implemented a strict KYC process, ensuring compliance with the FM-GwG.
- endorse online meetings over physical ones wherever possible.
- using train and public transport for any travels up to four hours as the default travel option.
- combine travel routes wherever possible in order to minimize necessary air travel.
- offset any necessary flights 100% through sustainable fuel directly with the airline.
- have implemented a diverse hiring policy.
These criteria will be regularly discussed in team meetings to ensure adherence across the whole company. During the yearly strategy workshop all points will be discussed and reconsidered in depth.
Investment Decision
In the course of our investment process, 42CAP is proactively excluding sectors and business practices that we deem socially and/or environmentally harmful.
These exclusions include:
- Production and trade in tobacco and distilled alcoholic beverages.
- Production of and trade in weapons and ammunition in any kind.
- Casinos and gambling, including internet gambling and online casinos.
- Fossil fuel-based energy production, such as coal mining, oil exploration.
- Energy- intensive or CO2-emitting industries.
Sourcing
In order to ensure accessibility and diversity in our deal pipeline the full team is committed to screen all incoming applications via the public team email or directly via Linkedin with the respective team members. This does not only guarantee an ongoing open-mindedness but also counteracts the need for warm introductions as often seen in the industry. All applications are screened by at least one member of the investment team.
Due Diligence
Given 42CAP’s investment focus on B2B software companies, we are in the fortunate position that none of our portfolio companies relies on fossil-fuels or other non-renewable materials or energies as their core of their business model. On the contrary the main value proposition of most companies is driven by optimizing suboptimal resource allocation and processes. At the same time, we are aware that operations such as cloud computing are becoming an increasing challenge, which cannot be neglected.
During every due diligence process we actively check for relevant ESG factors and
their positive potential as well as negative impact. For example:
- Did the due diligence process surface any obvious red flags (noncompliance, ESG risks)?
- Are there any ESG considerations or risks that could have a significant impact on the product or business model of the company?
- What are positive ESG effects of the company’s product or business model and how can this improve over time?
We are set to further improve and adapt our DD process to find a suitable framework going forward. Any ESG related concerns arising during this process will be brought to the investment committee’s attention by the respective deal lead and will be duly documented in case of an investment in the investment memorandum. Furthermore, all material concerns will be thoroughly discussed with the founding team.
Portfolio Management
To further promote ESG within our portfolio, we include a sustainability clause as part of every issued lead term sheet. This clause requires portfolio companies to create, implement and maintain an ESG policy within a reasonable amount of time. To support this process, we will provide a write-up for founders to find guidelines and frameworks.
42CAP is also striving for active board involvement, accepting board seats with portfolio companies, whenever possible. Regular part of the board work includes providing guidance on corporate strategy, monitoring performance as well as culture and governance. Furthermore, we are planning to issue an appropriate ESG reporting on a yearly basis, considering the portfolio’s maturity and exposure.
Roles and Responsibilities
Our full team is committed to and collectively responsible for the compliance withand fulfillment of this ESG policy across all functions and processes. For all ESGrelated questions feel free to contact Julian von Fischer.
This document will be reviewed and, if necessary updated, on a regular basis.
The document was last updated on February 9, 2024.
