This document describes Butterfly Ventures’ approach to sustainability risks and the policies regarding the investment process and investment related decision making.
We acknowledge that sustainability factors may both pose risks and present opportunities to our funds’ portfolio companies. Success in any of our investments may be impacted not only by their financial performance but also by other performance criteria, particularly by their ability to both mitigate the sustainability risks and seize the opportunities to provide solutions to the environmental, social and governance issues.
We are committed to ensure that in our due diligence and monitoring for each investment of our funds, sustainability factors are a part of our investment decision procedure, including appropriate consideration of environmental, social and governance issues.
We select investments and make investment decisions with due diligence and always in accordance with the investment policies and principles agreed with our investors in the partnership agreements of our funds.
Sustainability Risks and Factors
We approach the sustainability risks and sustainability factors in our investment process and investment decisions by dividing the sustainability factors under the three categories of Environmental, Social and Governance.
Environmental risks considered include adverse effects of climate change, emissions, energy usage, neglected energy efficiency, materials usage, neglected resource efficiency including recycling, as well as, effects of loss of biodiversity.
Social risks considered include health and safety issues, employee satisfaction, diversity and inclusion, human rights, consumer and community issues.
Governance risks considered include legal compliance, applicable industry practices, cybersecurity, business ethics, transparency, and general governance practices.
Consideration of Sustainability Risks as an integral part of Investment Decisions
We have integrated consideration of sustainability risks and opportunities into our investment process, the due diligence of target companies, as well as, into our active ownership and coaching of our portfolio companies. In addition, related indicators are reported to the investors of our funds.
Sustainability risks, especially environmental and social issues, are simultaneously global trends that provide opportunities for our portfolio companies to provide solutions in high demand. Resource efficiency, including both material efficiency and energy efficiency, is of key importance and investment driver in the industrial segments. Sustainable living, including such as energy efficiency at homes, consumers’ expectations of environmentally and socially smart products and services, similarly in the consumer segments.
On the other hand, a potential investee company that fails to fulfill its potential customers sustainability and ESG expectations, is most likely to fail to become our portfolio company.
We conduct a standard due diligence on the target companies, including the legal, financial, governance, business and other relevant issues.
Investee company’s legal compliance and compliance to other applicable standards and practices is evaluated for each investment. This consideration includes sustainability factors, as well as, potential future regulation and marketplace factors anticipated at that time.
A summary of due diligence, including any material findings, is included in the investment documentation for our investment decisions. The summary is complemented with further details regarding possible issues on any of the surfaced sustainability factors, when necessary. An investment proposal with its appendices is the summarized information for the evaluation of the attractiveness of an investment opportunity, as well as, the investment decision. Based on the due diligence findings we may exclude investing in businesses, including such that contain sustainability risks.
We invest in startup companies in their early stages. Our requirements and coaching starts from the product-market-fit, profitable business model and successful go-to-market, and then extends with further emphasis on corporate responsibility and governance as the company matures.
We actively mitigate the sustainability risks by requiring each of our portfolio companies to work on its own corporate responsibility policy which best serves value creation in that company, and to adopt a corporate governance policy which advances good governance and a Code of Conduct based on the company’s values.
Requirements and expectations may vary with respect to other sustainability risks and aspects depending e.g. on the sector, geography and business model of the portfolio company in question.
Monitoring and reporting
We actively control the sustainability risks by actively monitoring also non-financial performance of our portfolio companies, including sustainability factors, parallel to the financial performance. We then report the status of our funds and underlying investments to our investors in compliance with agreements with investors.
We expect the sustainability issues and risk management to be a yearly theme in each portfolio company’s board meetings, and the related reporting to be covered once a year in the board simultaneously with the financial statements, including topics such as employee safety and health, equal opportunities, and fair play.
We gather and summarize our portfolio companies’ sustainability issues annually, and agree on required actions, including necessary amendments to this document, once a year in the board of directors. The emphasis in this process is on the progress and trends, as well as, on the description of positive impacts related to the sustainability factors and corporate responsibility on our portfolio companies’ business, valuation and, thus, on the potential returns to our funds’ investors.
We will update the investors of our funds as to sustainability matters relating to our funds’ investments at least annually (at meetings of the investors of our funds, in reports provided to the investors or otherwise) and whenever there are any substantial issues.
This document was last updated on 10th March 2021. Our contact person in sustainability risks and our policies regarding the investment process and investment related decision making is the managing partner of Butterfly Ventures.