As of March 2023, we’ve put together our first ESG report here at K Fund, a landmark piece of work that has taken over six months of preparation, and one that marks our first steps into the complex and ever-changing world of environmental, social and governance reporting.
The work covers what we’re doing at K to improve our own ESG performance as a management company and family of funds, alongside portfolio reporting - both the methodology and subsequent metrics we’ve tracked from the 36 portfolio companies who participated - before finally an outline of next steps and the work we intend on doing in the months to come.
Instead of publishing the whole report here, we’ve pulled out some of the key trends and insights from the document to live publicly, and to highlight what we’re planning on doing in the near future.
VC, by design, exists to support the building of the world of tomorrow, and we are committed to working with our portfolio companies to ensure that positive environmental, social and governance factors are woven into these new businesses from the earliest possible stages.
Beyond this, the importance of ESG has reached a new peak across the venture and start-up world. The climate situation doesn't need explaining or justifying, but alongside this we are committed to responsible uses of AI and broader governance, alongside the paramount relevance of equality in the workplace - across gender, race, and all protected characteristics.
Since our founding in 2016, people and governance have been at the heart of everything we do.
We have always been aware that an organisation needs a clear purpose to attract and retain the best talent. At K, ours has been to help build efficient, sustainable and forward thinking companies that in turn will drive a progressive, positive Spanish and European economy.
That is why from the beginning we have placed particular emphasis on creating a working environment in which the team feels safe, and where everyone has all the necessary tools to be able to learn and improve. We look to promote the same in all our portfolio companies.
Socially, we have set the goal of a 50:50 team gender split by 2026, improving on a team of 4 nationalities speaking 9 languages, begun planning a part-funded “fellowship” for our next intern cohort, held 10+ official training hours per employee in 2022, and introduced flexible working policies across all team members and offices.
From an environmental perspective, we have committed the management company to being a Net Zero Organisation in the coming years, worked to offset all our travel emissions annually, regulated the temperature across our offices, and moved our suppliers to recycled alternatives.
To show our support and the responsibility we feel as investors, we have been a member of UNPRI.org since 2021, and are always mindful of the Sustainable Development Goals, in particular 5 (Gender Equality), 8 (Decent Work and Economic Growth), 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities) and 17 (Partnerships for Achieving the Goals).
And regarding governance, all our funds have Supervisory Boards meeting at least annually, with the participation of our major LPs and a representative for minority investors, to reinforce our commitment to good governance practices. We have also signed off on our ESG policy as a fund, committed to annual reviews of all internal policies, begun active ESG analysis of our MVB portfolio funds, and implemented various policies and procedures (remunerations, data protection, code of conduct etc.).
While there is still much to do, these steps give us confidence that we're working in the right direction as a family of funds and management company.
“K Fund has been one of Included VC's biggest supporters since even before it became a logo. Over the past four years, the whole team has financially supported Included VC's global mission to change the landscape of future VCs, and given considerable time - the most valuable commodity of them all.” - Nikita Thakrar, Co-Founder & CEO, Included VC
An important part of our ESG work here at K Fund has been our relationship with Included VC. We started working with Nikita and the team in 2019, driven by an alignment to their core objective - that we wanted to give access to VC to those who would not normally have routes into the industry.
Fundamentally, we believe giving access to different profiles improves the quality of investment decisions, increases empathy, and provides a completeness that is lacking in less diverse teams. It also makes the management company a more interesting and more enjoyable place to work.
Over their three most recent cohorts, Included VC saw (from those fellows looking for work), 70+ fellows go into the VC space - an average of 87% breaking into the industry. And from a diversity of participants angle, their last cohort hailed from 40+ countries, identified as 51% female, 10% neurodivergent, 27% from a low socio-economic background, 9% differently-abled, 20% LGBTQIA+, 24% black, 28% asian, 11% mixed heritage, and 7% from a refugee background.
2023 is going to be a big year for Included VC, and we’re excited to be ongoing partners on this journey.
“If this solution dominated the market, what ESG implications could this have?” - question included in all initial deal memos
Over recent years we have observed that the law of unintended consequences, combined with a single-minded desire for growth, has led to negative externalities with many new developments in tech and funding trends in venture.
Quick commerce and social media are a few notable examples, with risks already emerging in Generative AI. Noting these, in our work as a fund we wanted to remain cognizant of the risks associated with new investments.
As such, we have now incorporated ESG questions into our One Pager (initial deal memo) and Thesis (long-form investment memo) documents, alongside assigning an ESG score to every new portfolio company to understand their strengths, weaknesses and market risks.
We have also begun building our thesis around climate tech, mapping ~200 start-ups across the sector and writing thoughts on the market in Spain, and investigating solar opportunities respectively, plus planning a longread on food tech coming in the next few months. Through these efforts we look to back some of the green, clean industry leaders of tomorrow.
We have begun our portfolio reporting journey by leveraging the powerful ESG VC framework, reworking it to fit our needs as a fund.
Sharing this document with our portfolio, we received 36 responses, with companies ranging from Crescenta (2 employees) up to Factorial (834 employees). These organisations had a mean size of 59, but a modal company size of 11 employees (reflecting our early-stage focus).
Unsurprisingly, 78% of the respondents were based in Spain, with a long tail including the UK, USA, Germany, Belgium, Portugal, and Australia.
The environmental data reflected our expectations around a broadly early-stage portfolio, showing that companies have limited understanding of how to act with regards to emissions - there is little tracking, offsetting, or goal-setting currently.
There was consistent feedback from respondents that there is desire to learn more here, but little understanding of where to start. This presents an opportunity for us to work with experts alongside the portfolio to understand best practices, foster learning between companies, and gradually improve performance.
In social reporting, the data reflected the longer-standing importance of social factors in business operations across Europe compared to environmental considerations. The portfolio showed active and positive efforts across parental leave, return to work initiatives, and diversity in teams.
We were pleased to see 15% of our boards have at least one female member, with one board having 70% female representation, and another with 100% female representation.
Regarding gender diversity at team level, 6% of portco's had between 75-100% of female representation at management level, while 25% encouragingly had between 30-50% female representation. We expect this number to improve as portfolio companies mature over time - as a number of small organisations with very few employees whatsoever skew the data unhelpfully.
And in terms of ethnic minority presence, over 70% of the portfolio currently don't provide this information, limiting its usefulness. It was concerning that 17% have no underrepresented background team members, and that only ~6% have over 50%, although this likely also reflects the fact 80% of the portfolio are in Spain - a market with considerably less ethnic diversity in the tech sector than Northern Europe or the United States.
We were pleased to note that 44% of companies either have an active recruitment plan in place to reach people from diverse backgrounds (e.g. working with specialist headhunters, partnering with relevant university groups, etc.) or plan to have one in the next 12m.
And similarly, 60% of businesses offering internships, 50% offering mental health strategies (or planning to do so in the next 12 months), 60% offering study support to staff, and 33% offering health care benefits (again skewed by the number of small companies) to all staff suggested a portfolio that is working to look after its employees.
This presents an opportunity to work with the portfolio on good governance practices. Naming independent NEDs, training teams on GDPR compliance, data governance, ethical uses of AI, and sharing relevant documentation (policies, codes of conduct etc.) across portfolio organisations. We look forward to undertaking this work in the months to come.
We were proud to highlight two notable portfolio companies in the report, working actively in the climate/ESG spaces. Firstly, IF Lastmile is a portfolio company focused on eliminating the environmental impact generated by fashion, with the vision of turning returns into a lever for environmental improvement.
IF’s mission encourages more sustainable returns, with their estimates suggesting carbon emissions from returns to drop-off points are around 37% lower than from pick-up returns. In recent months they have been able to improve drop-off performance from 17% to 66% across clients, by better communicating the ecological impact of the different pick-up methods. This in turn has generated an average CO2 reduction of c.20% across all returns.
IF also works to promote second-life for products, connecting with re-commerce solutions, and recyclers to stop unsellable items ending up in landfill. And on top of this, they use electric returns vehicles, eco-packaging and printing-free returns to further diminish negative impact.
Alongside IF, BCome is a portfolio organisation offering a sustainability platform for textile and apparel businesses, empowering them with data and tools to build responsible supply chains, guarantee transparency and bring this information through to the final customer.
Founded in 2019, BCome works to integrate the environmental, economic and social dimensions of sustainability with the aim of accelerating the transition towards a systemic change in the fashion industry.
The product traces, measures, and evaluates the impacts of fashion products all along clients’ value chains, including validating product traceability, measuring environmental impact, evaluation eco-score of products, and digitising data to connect physical products to digital experiences.
The tool allows the assessment of up to 5000 SKUs per customer project, saving up to 80% of customer time on tracking sustainability tasks, and reducing team requirements by 60% in the process.
While this data may, at first, present challenges, we have been heartened by the attitude of portfolio organisations in responding, and in demonstrating a desire to improve their activities in the months and years to come.
Based on the data we have received, we observe some obvious quick wins, including education for portcos around emissions reporting, travel offsetting, and environmental targets. Alongside these, there is much that can be shared between portco’s on shared parental leave policies, diversity-first recruiters and hiring policies, mental health & wellbeing, and study support policies.
As of April 2023, we are beginning this work right now, collaborating with external partners to support the portfolio with key documentation, information sharing and education sessions. We will set clear objectives for portco's and set 2023 targets for ourselves, as well as start tracking ESG performance as we do financial metrics.
Fundamentally, we see VC has a central role to play in promoting businesses that do good and act properly. We’re engaging in this exercise because we see VC has an axiomatic role to play in promoting businesses that do good and act properly, and because we’re observing more companies acting upon ESG foundations, or moving towards them, each week.
We’re extremely excited for the year to come (you can read more in our recent post - what we’re looking forward to in 2023), and will be sharing more on the many activities we’ve got planned as a fund very shortly.
This post was written by a human being.
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Questions? Comments? Get in touch at max@kfund.vc.
