Neil Fong has been promoted to Managing Director Asia of BurdaPrincipal Investments (BPI) and will continue to expand investment activities in the region and drive further growth.
ESG stands for Environmental, Social and Governance and refers to the now more common practice of integrating and monitoring these factors in the context of business activities. But how relevant is ESG for venture capital (VC)? Is it still “nice-to-have” or a game-changer for both investors and start-ups? BurdaPrincipal Investments (BPI), the growth capital arm of Hubert Burda Media, covers ESG and sustainability as a holistic approach looking at their activities as well as other stakeholders. Recently, they have published their second ESG report.
We talked with Clare McCartney Beer, Chief Operating Officer (COO) at BPI, who joined Burda in the beginning of 2021 and looks after BPI’s ESG strategy. Clare first had experience with the ESG sector over 10 years ago – although as she states, thankfully a lot has changed since then. She has also spent time working in the impact investment space and, in her previous role, looked after the sustainability report for the online neighbourhood platform Nebenan.de which joined the Burda family in 2020. Clare shared insights about the relevance of ESG for the investment scene, why an external and an internal view is so important and how BPI works together with their portfolio companies to improve in this space.
ESG is not just an area of corporate responsibility, it is also a huge opportunity. It is clear that humanity faces multiple social, environmental and governance challenges and there is a need to contribute positively to these. In our portfolio, you can see that many of the businesses we have invested in are also socially driven businesses. In addition to this, we think there is a great strategic argument for ESG. There is growing evidence, in academic and industry studies, that focus on ESG yields great value for companies for example through lower costs or greater access to funding, increased productivity or top line growth and better allocation of assets. For all these reasons, for us at BPI, we want ESG to be more than a box-ticking exercise that we simply cover with a report. The report gives a nice summary but we also want to raise awareness about important issues and help our portfolio companies to improve across certain areas by providing feedback. Our goal is to collectively raise the bar.
We expanded the ESG survey and report this year to focus on not only diversity and inclusion, team environment, environmental footprint, legal, regulatory and governance but also sustainable supply chains, responsible product design, and data security. So far, there is no global mandated standard for reporting. In Europe, we have some regulations around what needs to be addressed for different investor groups but it is still quite early stage and high level. With our survey, we followed the focus areas suggested by a non-for-profit industry group called VentureESG – which we are also a part of. VentureESG is a global community of over 300 VC firms working together to make ESG a standard part of due diligence, portfolio management and internal fund management. We see the work of this group as helping to provide tools and information and establish best practice in the market.
In general, the topic has exploded in the VC space over the last two years. This is particularly great to see as VC – as an industry – was lagging in some respects to take on board some of these ESG issues.
We are still very early on in the journey and continuously learning and developing ourselves. I think for some it may seem daunting, confusing or unnecessary but getting involved sooner rather than later is a wise choice. ESG will be a factor for absolutely everyone in business going forward so it’s important to have an understanding and take action here.
We want to be able to walk the talk: We can't ask questions of our portfolio companies that we aren’t asking ourselves. After completing the survey internally at BPI, we examine the results and define areas that we want to improve on within our operations and how we conduct business. Last year, following the first report, we focused on improving diversity and inclusion in our recruitment processes, and we developed individual climate pledges within the team amongst other areas. Following this year’s report, we will build on how we conduct governance within our investment processes and look at how we can make our internal supply chains more sustainable.
This year, we thought more about how we can work together with our portfolio companies on the topic of ESG. We started by offering more informal sessions where portfolio companies could ask each other questions or share knowledge for example on what climate footprinting platforms others were using, or if anyone had a good supplier code of conduct template. They often face the same problems, or work on the same topics so it was nice to see this exchange. Additionally, we provided each portfolio company with an individual scorecard following the survey: This is an overview of how they performed across different areas, and some tips on areas that they can look to improve on. For the scorecards as well as for our sessions we received some good feedback so it is something we will continue to pursue.
I think businesses with more of a focus on sustainability often look for this for their investor base because it's such an important topic for them internally and they want to know that it is being valued on the investor side. For all other start-ups, it’s never too early to look at or start working on environmental, social, governance topics. However, I fully appreciate that at an early stage, you don't always have the time and resources to make it a key focus. For that reason, one of the most important things for us to understand at early stages of due diligence is if the company isn’t looking at it yet, do they have an open mindset and are willing to work with us on the topic of ESG.
I think in line with industry and technology changes, focus areas for ESG will continue to adapt and develop. There will always be new areas or deeper analyses that we need to look out for. In this year’s report, we learnt data security is something that is perhaps often overlooked at early stages of company development but a really critical piece of infrastructure. Given Burda’s strong enterprise knowledge on this topic as a large media house, we think this could be a good topic for one of our next portfolio sessions.
If you are interested in learning more about the report’s insights and how the BPI portfolio companies performed, take a look at the full report here.