1. Responsible Investment and ESG Implementation
We acknowledge that ESG 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.
We also acknowledge that both the investors in our funds and co-investors in our portfolio companies may have their own requirements and approaches to responsible investment. These may include expectations in relation to responsible investment factors in the investment processes, ownership processes, and reporting.
We have integrated consideration of responsible investment risks and opportunities into our investment process, and we are committed to the further development of ESG policies and procedures in a manner that has a positive impact on us, our funds and our funds’ portfolio companies. We are engaged to monitor and promote compliance with the UN Global Compact (e.g. respect for human rights). We are committed to ensure that in our due diligence and monitoring for each investment of our funds, ESG is a part of our investment decision procedure, including appropriate consideration of environmental, social (including health and safety, employees, human rights, consumer and community issues) and governance issues.
We select investments carefully in accordance with the investment policies and principles agreed with our investors. We exclude investments in weapons, gambling, tobacco and alcohol.
ESG issues, especially environmental and social issues, are global trends that provide lucrative investment opportunities. Resource efficiency, including both material efficiency and energy efficiency, is a key innovation 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, is providing new investment opportunities in the consumer segments. In particular, the major megatrend of digitalization is providing opportunities to investments that significantly serve the environmental, social and governance goals.
On the other hand, a potential investee company that fails to fulfill its potential customers 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 ESG 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 investments decisions. The summary is complemented with further details regarding possible ESG issues 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 ESG 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 require each portfolio company 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 ESG aspects depending e.g. on the sector, geography and business model of the portfolio company in question.
Monitoring and Reporting
We monitor financial and non-financial performance of our portfolio companies, including ESG issues. We report the status of our funds and underlying investments to our investors in compliance with agreements with investors, Invest Europe/IPEV guidelines, applicable legislation, accounting regulations, and other statutory requirements.
We expect the risk management and corporate responsibility issues to be a yearly theme in each portfolio company’s board meetings, and the corporate responsibility 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 own and portfolio companies’ corporate responsibility 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 of corporate responsibility issues on our own and portfolio companies’ business, valuation and, thus, on the potential returns to our funds’ investors.
We will update the investors of our funds as to ESG 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.
2. ESG in Our Own Operations
We aim to minimize any burden to the environment caused by our own activities. We do this by small daily choices, such as, we extensively use video conferencing instead of travelling to face-to-face meetings, we use and encourage the use of digital documentation format, we actively sort and recycle office waste. We are an example, and encourage our portfolio companies to take similar action.
We invest in startup companies in their early stages. Majority of all new jobs are created in these young, small companies. Our investments strongly contribute to the job creation. In addition, through our investments and business development work, we encourage innovation, promote economic growth, and enhance global competitiveness of our investee companies. We follow applicable labor, safety and health regulations and have valid licenses and permits for our operations.
We conduct our business by good ethical principles and follow the industry best practices, as well as, the principles agreed with our investors. We follow transparent communications practices towards our investors.
We strive to promote equal opportunities for all individuals. We strive for fair play among all managers, employees and stakeholders. We aim to proactively contribute to the satisfaction and the long-term engagement of our employees.
Butterfly Ventures is a member of the Finnish Venture Capital Association (FVCA). We follow the Professional Standards and Code of Conduct of Invest Europe. Due consideration is also given to other non-binding Invest Europe and national associations’ guidelines andrecommendations such as the Openness and Transparency Recommendations of FVCA. We are involved in the activities of the local industry association to promote the development of the venture capital industry and promote cooperation.
3. Sustainability Risks as an Integral Part of Investment Decisions
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
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.
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 take sustainability risks into account in all stages of our investment process; we mitigate the risks by starting the sustainability evaluation already during due diligence and taking any surfaced findings into closer investigation, and by requiring investee companies in creating and adopting their own sustainability policies. We actively control the sustainability risks by 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.
This document was last updated on 13th June 2022. Our contact person in responsible investment and ESG related issues is the managing partner of Butterfly Ventures.