Environmental, Social and Governance (ESG) Statement

Environmental, Social and Governance (ESG) Statement

At The FSE Group, we use the term ‘ESG’ to describe a comprehensive set of environmental, social and governance matters impacting both our fund and our portfolio. We put these concerns at the core of our operations.

What ESG means for us

Responsible investment is a key priority for The FSE Group (FSE). FSE is fundamentally committed to supporting long-term, sustainable businesses, which will grow, provide employment and generate economic benefit in an environmentally and socially responsible manner. FSE consider ESG factors throughout all stages of our involvement in an investment, which requires proper analysis, judgement and mitigation of risk.

We promote diversity, including supporting underrepresented groups and areas, and we have a proven track record of successfully recycling smaller funds to generate continuous and sustainable economic impact. We have a real passion and successful history in deploying and managing impact market gap funds to support the growth of SMEs. We are a community interest company and we always strive to build a real relationship with the companies we help.

Our Core Principles:

  1. Ensure that our investment and lending process takes a responsible approach to investing, and recognises the potential impact of businesses on the environment, workers and society,

  2. Protect the environment and promote sustainable use of natural resources,

  3. Always be non-discriminatory, and seek equality and diversity in our investing, lending and hiring practices,

  4. Ensure there is no bribery or corruption in any of our dealings,

  5. Provide safe and healthy working conditions for all,

  6. Implement policies and procedures to identify, manage and report on ESG risks.

While a plethora of frameworks and definitions of ESG exist, most are not fit for usage in venture capital and for working with high-growth SMEs. We are hence following a definition of ESG developed with and by VentureESG which defines ESG across eight issue areas linked to E, S and G respectively.

  1. 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).

  2. Social:

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

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

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

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

  3. Governance

    1. Legal and regulatory: being on top of and aligned to the latest laws, regulations and compliance standards; the oversight of these issues should be ensured by the founding team and Board of Directors.

    2. 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.

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

How we operationalise ESG in the investment process

Applying ESG principles is not only based on a comprehensive set of considerations specific to us as an investor and lender, and the SMEs we invest in; we also think through how ESG applies to the entire investment process from sourcing and screening to due diligence and portfolio management and exit.

  1. Exclusion list:

There are certain business models and sectors we do not invest in which include companies engaged in activities that FSE considers is likely to bring the fund into disrepute or fail to meet accepted standards of moral and ethical behaviour – e.g. companies involved in tobacco, arms, pornography.

We will also exclude companies who / whose:

  • founder / member of the senior team is involved or has in the past been involved in cases of harassment, discrimination or bullying

  • do not comply with international standards and conventions regarding human rights, the environment, anti-corruption or labour laws

  1. Sourcing:

We are committed to ensuring accessibility and diversity as core principles in the sourcing and pipeline management of our deals. Concretely, we have put in place mechanisms and steps to make our funnel easier to access and to counteract any lack of diversity that early in the investment process. To counteract the need for ‘warm introduction’, we have installed a simple enquiry form on our website for founders to send us their pitch documentation. All applications are screened by at least one, usually two members of staff.

  1. Due diligence / qualitative assessment of investments:

In the process of screening and conducting due diligence on potential investment targets, ESG considerations play an important role. We are keen to understand the attitude of the founders & management team, their approach to building their companies and any consideration of adverse impacts they might foresee early in the process and have our investment decisions influenced by these factors. The information we collect will play an important role in our investment process.

ESG considerations are included in Investment/Credit Committee papers, and considered by the Investment/Credit Committee, in line with Fund-specific ESG policy. Proposals approved by the Investment/Credit committee are reviewed by Risk and Portfolio Management team to ensure that proposals are in-line with Fund ESG policy, and to ensure that prospective investee/borrower companies have policies in place to mitigate ESG risk.

We are using ESG_VC’s Business Assessment tool, which asks SMEs to answer 48 measures against ESG objectives. This results in a tangible ESG score and a list of key areas to address to improve ESG performance.

  1. Post-investment portfolio support: Once we have committed to invest in a company, ESG considerations will further guide our portfolio management with a focus on both risk mitigation and value creation. We continue our comprehensive approach to ESG supporting our portfolio actively in their journey. While providing ongoing portfolio support, also specifically around matters of ESG, regular annual reviews will ensure progress. For these meetings, the agreed upon KPIs / milestones will be reviewed and adapted (if necessary) as well as new support requirements set. 

  2. Follow-on funding: we believe that making ESG part of our financial decision making is key so receiving follow-on funding at our fund is not only based on commercial milestones but also ESG targets. Decisions will be taken on a case-by-case basis.

  3. Exit: in the case of exiting (via sale, M&A or IPO) we will consider possible ESG factors, too. Advising founders & senior management on the right time to exit and the right partners to work with are important. Similarly, making sure that the exit process is prepared with ESG principles in mind is crucial to us also to avoid earlier ESG-related problems.

How we operationalise ESG in our firm

ESG does not only apply to how we invest and help our portfolio companies flourish and grow but it is also part and parcel of how we internally manage our firm. 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 as a VC firm.

  • ESG responsibility: The CEO of The FSE Group is responsible for implementing ESG policy within FSE. The Managing Director Fund Management is responsible for implementing ESG policy within FSE investments, and Investment Managers are responsible for implementing individual fund investment and ESG policies, ensuring that recommendations to Investment and Credit Committees comply with the requirements. Investment and Credit Committees have oversight over these individual fund policies. Overall accountability for ESG policy lies with the Board of FSE C.I.C.

  • Hiring and working environment: we are committed to hiring a diverse team and providing an inclusive working environment. We have a specific DEI policy in place. We support all our people to work on a hybrid basis, to manage their family and other responsibilities alongside their work commitments; we believe this is key to achieving an inspiring and fulfilling working environment.

  • Good governance: all our decision making in FSE CIC’s board, Management Committee, and the investment/credit committees is committed to good governance principles.

ESG leadership:

Our Group is part of the international VentureESG initiative and community, a group of over 150 VC funds between the US, Europe and Israel driving the industry towards more consideration of ESG principles. We intend to further contribute to this development by both embodying the ESG principles set out in this policy in our fund and helping our portfolio to do the same. We aim to work towards a global ESG ecosystem by sharing and encouraging our practices across the VC landscape.

For more information contact Tom Clarke, tom.clarke@thefsegroup.com

Statement last updated 3rd January 2023