At SmartCap we seek to do our part to contribute to sustainable environment, social equality and wellbeing as well as ethical business practices by following the principles of responsible investing
In addition to pursuing our investment goals, we recognise the importance of responsible investing – a strategy and practice to incorporate sustainability factors (i.e., environmental, social and governance (ESG) elements) into our investment decisions. By promoting ESG matters and encouraging our investees to follow a certain set of ESG criteria, we strive to have a positive impact on such universal problematic issues as:
- climate change;
- resource management and pollution;
- workplace inequality and discrimination;
- violations of working conditions, health and safety requirements;
- money-laundering, bribery and corruption;
- fraudulent, corrupt or otherwise illegal or dishonest corporate governance practices, etc.
However, we firmly believe that in addition to addressing the obvious ethical concerns, responsible investing also benefits the overall performance of our investees. By following ESG practices, our investees should be able to identify, address and manage certain risk factors, which in turn leads to greater value for investors.
Our approach to responsible investing
At SmartCap we approach responsible investing in two main ways:
- integrating sustainability risks as well as possible positive ESG-related impact into our investment decision-making process (ESG integration); and
- improving our investees’ ESG performance (active ownership).
ESG integration means implementing investment practices that explicitly and systematically take into account possible sustainability risks when analysing investments and making investment decisions. ESG integration is also achieved by applying filters to rule investees in or out of contention for investment based on our values and ethics. In addition to limiting possible negative effects on sustainability factors, ESG integration might also include making investments with an aim to achieve positive ESG impact, if that is part of the relevant investment objective.
When engaging in active ownership, we encourage our investees to develop and improve their ESG management systems and to engage in more sustainable business practices. This can be carried out, for example, by agreeing on specific actions to address ESG issues relevant for our investees, reviewing their progress at an on-going basis and holding discussions regarding ESG matters in order to improve their overall handling.
Responsible investment considerations in our investment process
To address sustainability risks or to have a positive ESG impact when carrying out investments and evaluating prospective investees, SmartCap:
- does not make investments into activities that are included to the ESG Exclusion List of SmartCap;
- assesses the investment proposal, inter alia, based on pre-defined sustainability factors;
- includes certain ESG requirements to the terms of the investment and the investment documents based thereon (e.g., the requirement to have an ESG Policy);
- agrees on case-specific ESG-related action plans relevant for the respective investee in investment documentation;
- monitors and reviews the implementation of ESG framework and the effectiveness of the overall ESG performance.
The exact list of sustainability factors that are considered when making an investment as well as the ESG requirements included to investment documents depend on the specific objective of the fund of SmartCap that is making the investment and are described in detail in the terms and conditions set out for the investment.
After making the investment, we work together with the investee to further implement and develop their ESG strategies as practical and proportionate, taking into consideration the size, sector and stage of development of their respective business. We also encourage our investees to measure their relevant ESG impact and progress in order to deliver continuous and quantifiable improvement. By supporting our investees in developing their ESG frameworks, we help them to continuously build even better ESG management systems and, consequently, achieve outstanding results.
We expect our investees to regularly report on certain agreed upon ESG issues in order to follow up on the ESG related progress as well as to be aware of any possible negative impacts, and we expect our portfolio funds to do the same at their underlying portfolio level. We also recognise the growing importance of demonstrating to our investors and to the wider public, how SmartCap together with its investees is managing ESG issues. As such, we will include an overview of our responsible investment initiative and ESG related activities to our annual reports, and encourage our investees to do the same.
No consideration of adverse impacts of investment decisions on sustainability factors
As previously described, SmartCap deploys responsible investment practices, including considering environmental factors when making our investment decisions. ESG criteria are deeply rooted into our values and ethics, which is why we firmly believe that taking into account sustainability factors when making investments is vital part for not only ensuring a sustainable future, but also for creating a competitive advantage and a better return for our investments.
That being said, SmartCap does not consider the adverse impacts of investment decisions on sustainability factors within the meaning of Article 4 of the EU Sustainable Finance Disclosure Regulation (SFDR) at this time. Due to the nature of venture capital investments, it is not reasonable or, in some cases, even possible to request the kind of data from startup companies and early-stage investment funds that is required under the SFDR.