What is a responsible investing framework, and should you implement one?
As we say goodbye to another B Corp month, our first since becoming one of the only VCs in the UK to become a B Corp, we wanted to share our responsible investing framework for the first time.
As part of the B Corp process, you must go through a rigorous impact assessment, consisting of more than 200 questions covering governance structures, environmental impact, recruitment, compensation, and more. Simply by going through the B Corp process, you find inspiration to improve and build on what you do. You can read more about our B Corp journey here.
And while we set ourselves some specific ESG performance targets, we largely did not include our investment process within this system of measurement. As an early-stage investor, we pride ourselves on providing genuine, long-term support and knowing when to step back, mandating an ESG code of practice didn’t seem very in keeping with that approach. Certainly, we hoped that by becoming B Corp certified ourselves, we could better encourage our portfolio (whether through the B Corp process or not) to run their businesses ethically and responsibly, but unilaterally adding more data collection or imposing actions was not going to be the right approach.
And so, we have created our responsible investing framework. The definition of responsible investing (RI) is the integration of ESG factors into investment selection and management. Our framework is designed to help with, and standardise the integration of, these factors into our decision-making. We are grateful to the work of the BVCA Responsible Investment Advisory Group (full disclosure, I am now a member) for their support in creating the initial structure.
Our RI framework is still very much still a beta version, but we hope this can encourage others to start thinking about their own processes as we continue to work on our own.
Step 1: Identification and screening
We start with an initial ‘desktop’ review of the company’s sector and geography for any likely concerns. Examples would include, an industry or supply chain known for pollution, environmental harm, or risk of forced, or child, labour.
We also keep an excluded activities list. These include the areas you would likely expect such as weaponry, gambling, pornography and so on. In addition to this list, we came up with a list of broader, and debatable, areas as a team we were uncomfortable with. For example, “do nothing to make the internet a worse place”. These exceptions can often be the most powerful but are also hard to capture into policy.
Step 2: Evaluation and collaboration
The next stage is to consider the business in a more holistic way, guided by any queries from the initial review. We have a list of jumping-off questions to consider and explore with management teams that are relevant to their business. Questions might relate to the company’s use of raw materials, its workforce, or its use of training datasets – especially those containing personal data.
This step is also an opportunity to discuss our approach to ESG and our commitment to responsible investing with management teams. In our experience, founders are already excited about ways in which they can build the best business possible and are open to considering how ESG considerations can play a role in that.
Step 3: Make a plan
Now you need an action plan. This might incorporate any remediation steps, but more likely will be positive steps to further strengthen the business such as creating a code of conduct, implementing a diversity and inclusion initiative, or measuring its carbon footprint.
As part of our platform and community offering to the portfolio, we operate a hub of template policies for companies to use and adapt, as well as offering resources and training. But is more important to work with companies to establish their own bespoke commitments across identified areas, focusing on what is important to that company and where they can create the most impact.
We will keep working to improve and build on this framework and we'd love to know what you think. Get in touch with us via Twitter or you can reach out to me directly.