Definitions

We define Responsible Investment as “The integration of impact and ESG considerations into investment processes and ownership practices with the belief that these factors can have an impact on financial performance” (UNPRI). 

ESG is process driven—it focuses on the how—the internal principles, processes and practices that dictate the way in which an organisation operates, or behaves. Impact is outcomes driven—it focuses on the what—the social or environmental outcomes of an organisation’s operations or behaviour (VentureESG). We define any external efforts, as an example, our carbon offsetting program and philanthropic donations, as part of our Corporate Social Responsibility (CSR).

Supporting Frameworks

UNPRI: While not officially a signatory, Northzone is committed to operating in line with the UN Principles of Responsible Investing.

SFDR: Northzone is not currently subject to the European Union Sustainable Finance Disclosure Regulation 2019/2088 (“SFDR”). Although not bound, we voluntarily align our practices with those of an Article 8 fund. This commitment reflects our dedication to contributing to the evolution of global best practices. 

SDGs & IMP: To assess impact in the investment processes, we use the frameworks of the UN Sustainable Development Goals and the Impact Management Project as the basis for our own evaluation.

How we operationalise sustainability and ESG in the investment process

As a venture capital fund, our most significant impact lies in our investment selection. Over the years, we’ve meticulously honed and crafted a process that integrates ESG and impact considerations from the sourcing stage and extending through our portfolio platform services and financial reporting.

Sourcing
At the heart of our sourcing and pipeline management lies a steadfast commitment to accessibility and diversity. We are constantly taking measures to simplify our sourcing process through proactive outreach, employing accessible language, and diligently tracking our deal flow.

Negative Screening (Exclusion list)
We are acutely aware of the responsibility that comes with our investment choices and their potential consequences on the environment and society. As such, we refrain from investing in sectors or activities deemed to have a considerable negative impact. 

We do no investments and do not operate in any of the activities listed below:

• 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, environmental concerns, 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

Positive screening
We value companies that tie their business model to positive impact, irrespective of their sector. As part of our investment assessment, we evaluate potential alignments with the Sustainable Development Goals (SDGs). 

Post-investment portfolio support
Once we have committed to invest in a company, we continue to use our active ownership to support responsible scaling practices. Our support is meticulously crafted to cater to the specific needs of each company, addressing their distinct challenges.

How we operationalise ESG in our firm

While ESG and impact considerations are crucial in guiding our investments and assisting our portfolio companies, they are equally pivotal in shaping the internal management of our firm.  We aim at applying the same ESG considerations and the same standards we measure our portfolio with to ourselves.

• Responsibility and centre of excellence: Every member of our team integrates impact and ESG considerations into their decision-making and in assisting our portfolio entities. However, to ensure a consistent and strategic approach, we’ve designated our Head of Impact & Sustainability as the primary custodian. This is to ensure we have a unified strategy that optimises our unique position in the investment landscape.
  
• 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 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.
• Carbon: We annually estimate a full carbon footprint for the portfolio. Instead of carbon credits, we’ve set a fixed carbon fee which is annually donated to the Milkywire Climate Transformation Fund. We believe this move maximises our impact beyond the “neutrality” concept. Further, we believe that collaboration and innovation are key to solving the climate crisis and this setting allows us to support and track the results of catalytic research in new reduction and removal techniques.
• Governance: all our decision-making from our advisory board to our 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).
• Remuneration policy: The principles behind Northzone’s remuneration policy encourages our investment team to take into consideration the 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. Our partners as well as the CFO and Head of Talent review 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.

International collaboration

Venture investing is a partnership game. We continuously collaborate with LPs, with founders, with other VCs and with experts around the world. Especially on impact and ESG related issues, we emphasise the importance of international collaboration and welcome constructive dialogue. These are some of the collaborations that we actively promote:

• ImpactVC is a community of VCs accelerating impact within venture capital. Built around a shared belief that the most important companies of the next decade will be tackling the world’s most pressing challenges – and that VC has a role to play in nurturing and scaling those companies. To do so effectively, VCs need resources on doing impact well and a community to learn and share insights around that. Northzone was one of the original members.
• VentureESG is a non profit organisation, started by venture capital investors in 2021, supporting the international VC and technology industry with the adoption of state-of-the-art and fit-for-purpose ESG practices. Counting 410 VC members globally and 100 LPs, the community focuses on ESG processes across the full VC value chain from internal fund management and investment decisions making to portfolio support.
• Northzone is also a member of Leaders for Climate Action (LFCA). 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. 
• We are also active members of Diversity VC and recently received our Level 1 Diversity VC Standard certification, which raises the industry standard in terms of diversity Commitment.

For more information, please contact our Head of Sustainability, Anna Skarborg