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Northzone ESG Policy 2022

At Northzone, we use the term ‘ESG’ to describe a comprehensive set of environmental, social and governance matters impacting our fund, our portfolio and our firm. We put these concerns at the core of our operations because we know their importance for our long term success.

What ESG means for us

While a plethora of frameworks and definitions of ESG exist, many are not fit for usage in venture capital and for working with early-stage technology startups. We base our policy on a definition of ESG developed specifically for venture by and together with VentureESG:

Environment:

Considering the environmental impact from Scope 1 (directly caused by the company/VC, e.g. through facilities) and Scope 2 (indirectly caused, e.g. energy, electricity, waste) to Scope 3 (caused by upstream and downstream activities, e.g. business travel, transportation of the product, customers’ energy usage); targeting both measuring but most importantly reducing the impact across all scopes (at fund and portfolio level).

Social:

DEI: integrating diverse and inclusive practices across all areas of the business (e.g. diversity of the fund or the founding teams, inclusive hiring practices)

Team and working environment: building a strong culture and being a conscientious employer (e.g. pay gap, parental leave, living wage)

Responsible design: designing and building services and products with consideration of the ethical and human implications on the end-user and society

Supply chain: working towards an ethical and environmentally resilient supply chain

Governance:

Having appropriate governance structures in place, according to the company’s stage (e.g. board structure, share structure); writing out a code of conduct (committing the company to high ethical standards); adopting a whistle-blower policy.

Data privacy and security: instilling a strong culture of trust, responsibility and best practice (e.g. with internal systems) around data

How we operationalise sustainability and ESG in the investment process

ESG, sustainability and impact apply to our entire investment process from sourcing and screening to due diligence, portfolio management and exit. We make sure to address these topics in a concise and analytical manner in order to continuously improve our understanding and improve returns of our funds.

These are some of the concrete things that we do:

Exclusion list

There are certain business models and sectors we do not invest in which include companies engaged in the production or trade:

  • products or services deemed illegal under host country laws or regulations or international conventions and agreements
  • produce / trade in tobacco, weapons/munition, pesticides/herbicides (subject to international phase-outs / bans), sex work, pornography, as well as companies where more than five percent of total sales come from the distribution of these products
  • produce/are involved in the production of fossil fuels, including unconventional extraction of fossil fuels, such as oil sands and deep-sea drilling in particularly sensitive areas.

We will also exclude companies who / whose:

  • do not comply with international standards and conventions regarding human rights, the environment, anti-corruption, or labour laws
  • product/service / business model is rooted in / reliant on exploitative tactics, either of a certain demographic or an at-risk group

Sourcing

We are committed to ensuring accessibility and diversity as core principles in the sourcing and pipeline management of our deals. To do so, we are continuously taking steps to make our funnel easier to access and to counteract any lack of diversity that early in the investment process:

  • Active outreach: Our investment team and our Head of Sustainability actively source investments in the impact entrepreneurship space and intentionally aim to source from entrepreneurs with diverse backgrounds.
  • Usage of accessible language: On our website as well as in all (written) communication, we are careful to use accessible language.

Due diligence

Because we believe that long-term thinking is key to being a successful investor, we carefully take into consideration ESG and the overall sustainability as we assess our investments. We are keen to understand the attitude of the founders but also how the current transition dynamics might influence the viability of the business model. We are also keen to understand our own potential in relation to the investment; how well Northzone is positioned to assist the company in its sustainability journey.

  • Aspects considered:
    • What is the founding team’s approach to sustainability, ESG and impact?
    • How could ESG and impact considerations impact the viability of the business model?
    • Which sustainability KPIs would we be interested in tracking if investing?
  • Northzone support potential
    • How does the investment link to the overall Northzone materiality map?
    • How can Northzone add to the impact/sustainability of the investment? What experience do we have internally, in our network and in our eco-system that will add to the founders’ journey.

Post-investment portfolio support

Once we have committed to invest in a company, ESG, sustainability and impact considerations will further guide our portfolio management with a focus on both risk mitigation and value creation. We do not apply a set structure for all portfolio companies to follow but instead realise that our support is most valuable if suited to the company’s needs and timeline. Our Head of Sustainability is the key liaison for our portfolio companies as we support them in sustainability and ESG-matters throughout their growth. Our operator’s network is specifically built out with sustainability expertise, we continuously gather insights from

How we operationalise ESG in our firm

Sustainability, ESG and impact does not only apply to how we invest and help our portfolio companies flourish and grow but it is also key to how we internally manage our fund. We aim at applying the same ESG considerations and the same standards we measure our portfolio with to ourselves; being in a strong position when it comes to ESG ourselves not only makes our demands to portfolio companies more believable, it also strengthens our (economic and structural) position.

  • Responsibility and centre of excellence: while every member of our team is concerned with and thinks along lines of ESG when making decisions and supporting portfolio companies, we have assigned the overall responsibility for to our Head of Sustainability. This person is responsible for ensuring that we have a cohesive strategy in place that continuously leverages our unique role in the investment eco-system.
  • Hiring and working environment: Northzone has always placed the highest value on being diverse by design, reflecting different ways of approaching and seeing the world rather than reflecting a single investment philosophy. We’re one of the few investors that has a 50/50 gender parity on our investment team. We believe that by being a diverse team, reflecting different backgrounds, nationalities and perspectives, we’re able to outperform our peers. We also recently received our Level 1 Diversity VC Standard certification, which raises the industry standard in terms of diversity commitment.
  • Good governance: all our decision making in both the advisory / oversight board and the investment committee is committed to good governance principles; across these bodies, we track a range of diversity metrics (e.g. gender/ethnicity of investment team and advisory board) and are committed to always keeping [ideally a 50/50] gender split.
  • Remuneration policy: The principles behind Northzone’s remuneration policy encourages our investment team to take into consideration the impact on sustainability of potential investments as part of their due diligence. Though there are no directly linked KPIs that dictate remuneration, consideration of ESG factors as applied in their roles is one of many facets considered during performance and remuneration reviews. The GP group as well as the CFO and Head of Talent review the salaries on a yearly basis ensuring that employees are paid fairly for comparable work across the board and any variance is due to legitimate job-related factors. As part of this process, Northzone will continue to review sustainability risk profiles of our Funds.

Sustainability Disclosure 2022

Principle Adverse Impact Statement, SFDR and UN PRI

Northzone is not currently subject to the European Union Sustainable Finance Disclosure Regulation 2019/2088 (“SFDR”).  As such, we do not currently consider the principal adverse impacts of our investment decisions on sustainability factors as provided for under the SFDR. We are however developing our funds and reporting procedures to operate in a manner consistent with SFDR Article 8.

We have opted to comply with the UN Principles of Responsible Investing and although not a signatory, we have incorporated the PRI guidance into our investment processes.

International collaboration

Venture investing is a partnership game. We partner with LPs, with founders, with other VCs and with experts around the world. Especially on sustainability related issues, we emphasise the importance of international collaboration and welcome constructive dialogue.

As one example, Northzone is a member of Leaders for Climate Action (LCFA). The organisation was founded with the goal to make the biggest possible contribution in the fight against the climate crisis through owning its actions and demanding stronger measures from political leaders. They have grown a community of over 1,000 members who have pledged over USD 6.6 million which has in turn reduced and compensated for over 350,000 tons of carbon. Northzone was formally certified as a Carbon Neutral company in 2020. Furthermore, the LFCA engagement entails a term sheet clause we’ve added since 2020 to help our companies become carbon neutral.