Responsible Investment Policy
We at Nexit Ventures believe that our understanding of responsible investment and sustainability improves our investment decision-making and contributes to sustainable long-term investment performance and also have a broader positive impact to the economy, society, and environment.
Nexit is committed to creating better returns for our Investors and one way we do this is through being a responsible investor with a solid long-term strategy we are committed to. This is reflected in our values and investment philosophy, which underpin how we look after our Investors’ assets:
“Nexit is a responsible investor and recognizes that Investors’ best interests are served by supporting a healthy economy, environment, and society.”
“Nexit has a long-term investment horizon, and the mindset of a long-term investor.”
“Nexit requires and continuously develops consistent good company governance via our board work in our investee companies.”
The purpose of this Policy is to outline Nexit’s principles and commitments concerning Responsible Investments. Nexit’s strategy is to generate better financial returns for its Investors while better managing risks and creating sustainable long-term value. At its minimum, the Responsible Investment Policy consists of the integration of Environmental, Social and Governance (ESG) issues into Nexit’s investment processes and decision-making and overall Activist VC Operating Model.
Nexit aims to take the broader net impact into a view when considering investments and significant decisions in our portfolio companies. We aim to understand the overall Net Impact instead of just focusing on Negative Screenings or Positive screenings of potential investment actions.
The Responsible Investment Policy will be consistent with Nexit’s operational and investment strategies, policies and processes. The Responsible Investment Policy will apply to all Nexit’s investments including lead, co-lead, and co-investor positions, and initial or follow-on investments in all geographic locations. The manner and the extent to which Nexit incorporates ESG issues into its investment processes and decision-making as well as Activist VC Operating Model may differ depending on each investment’s characteristics and Nexit’s role as an investor.
Nexit typically makes the selection and management of its investments using primarily its resources. External advisors are used only on a case by case basis when applicable.
The Responsible Investment Policy outlines Nexit’s approach to ESG related risks and opportunities, as they tend to be distinguished from traditional financial and business risks and opportunities by a few characteristics, they may e.g.
- arise over a longer-term timeframe
- be qualitative in nature and not easily quantifiable in monetary terms
- often emerge as high-profile issues of public concern
- be the focus of additional and/or increasing regulation
ESG issues are not static, and hence they are likely to change over time. The risks and opportunities faced by the companies in which we invest may change as ESG issues become more critical and socioeconomic values or sentiments change.
ESG: stands for Environmental, Social, and Governance.
Environmental: refers to issues affecting the natural environment including climate change, resource scarcity, habitat and biodiversity loss, emissions to land, water, and the atmosphere and waste generation.
Poor management of environmental issues by a company may ultimately result in risks such as direct financial costs in terms of higher regulatory compliance costs, ‘clean up’ fees, costs or fines, increased costs associated with resource use and waste disposal as well as indirect financial impacts such as reputational damage. Further, environmental issues such as climate change and resource scarcity may lead to material increases in the level of risk associated with a project or asset and consequently the return required to justify that risk.
Conversely, proper management of environmental issues by a company may result in opportunities such as direct financial benefits including savings from reduced environmental licensing or resource efficiency, and indirect economic benefits such as more significant innovation and improved reputation. Opportunities may also come in the form of new products or services designed to alleviate environmental issues, e.g. clean technologies, renewable energy, and nanotechnology.
Social: refers to issues that impact people and the societies in which they live.
At the macro level, social issues include war, poverty, human rights, aging populations, and migration of populations of people. At a more local level, social issues are those affecting individuals, whether they are employees, customers, suppliers or Investors of a local or a broader community, including labor rights, human capital management, workplace health and safety, supply chain management and community relations.
Poor management of social issues by a company may ultimately result in risks such as direct financial costs including fines and penalties (for example, for instances of breaches of health and safety standards), or interruptions to operations as well as indirect economic impacts such as difficulty retaining staff, reputational damage and increased regulation by governments. Such risks are not limited to the direct activities of companies but extend through the supply chain and to the communities in which companies operate.
Conversely, proper management of social issues by a company may result in opportunities such as financial benefits including lower compliance and reporting costs, and indirect economic benefits including improved satisfaction and retention of staff and customers, enhanced reputation and increased ‘social license to operate.’ Opportunities may also come in the form of new products or services designed to alleviate social issues.
Governance: refers to issues regarding how companies or assets are run and/or ‘governed’
In particular, governance refers to the alignment of a company’s board and management with its shareholders. Governance also refers to that and how the company’s board and management follow and acts based on applicable laws and regulations.
Governance issues include board composition and skills, remuneration, accounting, and audit practices.
Responsible Investment Policy Principles
The Responsible Investment Policy is grounded in Nexit’s key investment objectives which are to continue to deliver sustainable, ambitious long-term returns for our Investors. We believe that proper ESG management by companies in which we invest in will reduce risks and improve long-term returns while lacking ESG management will increase risks and reduce long-term returns.
Consideration of ESG risks and opportunities in Nexit’s investment processes and decision making is consistent with maximizing Nexit Investors’ long-term investment returns while minimizing risks and is consistent with Nexit’s fiduciary duty and enables us to act in the best interests of our Investors.
We at Nexit believe that this approach will have the auxiliary benefit of contributing to improved environmental and social outcomes, which will in turn:
- contribute to a stronger economy, which is a prerequisite for delivering the best risk-adjusted returns for Investors
- improve the overall outcome for Investors, as their outcome will not only be affected by the financial returns received, but by the state of the environment and the society.
- a further benefit of incorporating ESG issues into investment processes and decision-making is the increased alignment with Nexit Investors’ interests.
Responsible Investment Policy Framework
Nexit’s overall approach to responsible investment is guided by the United Nations-backed Principles for Responsible Investment (PRI):
Principle 1: Incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: Be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3: Seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: Promote acceptance and implementation of the Principles within the investment industry.
Principle 5: Work together to enhance our effectiveness in implementing the Principles.
Principle 6: Report on our activities and progress towards implementing the Principles.
When applying the Responsible Investment Policy to the companies in which we have invested, Nexit is guided by the ten principles of the United Nations Global Compact.
Principle 1: Support and respect the protection of internationally proclaimed human rights; and
Principle 2: Make sure that they are not complicit in human rights abuses.
Principle 3: Uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: Eliminate of all forms of forced and compulsory labor;
Principle 5: Effectively abolish child labor; and
Principle 6: Eliminate discrimination in respect of employment and occupation.
Principle 7: Support a precautionary approach to environmental challenges;
Principle 8: Undertake initiatives to promote greater environmental responsibility; and
Principle 9: Encourage the development and diffusion of environmentally friendly technologies.
Principle 10: Work against corruption in all its forms, including extortion and bribery.
Responsible Investment Approach
Nexit incorporates ESG issues into its investment processes and decision-making including:
- identifying and understanding key ESG issues across the portfolio as a whole;
- being a responsible and active owner of companies with the aim of improving their ESG related policies, practices and performance;
- supporting the development of appropriate laws, legislation or standards which improve responsible investment and the ESG related policies, practices and performance of companies;
- collaborating with other organizations to enhance the achievement of these activities;
- reporting on our responsible investment activities and outcomes to our key stakeholders.
Responsible Investment Implementation
Nexit’s approach to Responsible Investment implementation relies on its Activist VC Operating Model. Under this strategy we consider ESG risks and opportunities in the selection and management of the companies in which we will invest in.
The Nexit team is jointly responsible for ensuring that all the actions taken are aligned with our commitment to incorporating ESG policy and related activities into the selection and management of investments.
Responsible Investment implementation activities will be prioritized based on a range of factors, e.g. the relevance and importance of ESG issues, the potential for Nexit to influence and the progress of implementation to date and the overall absolute net impact of the investment activity.
The incorporation of ESG issues into investment processes and decision making by Nexit does not eliminate ESG risks from Nexit’s portfolio. Generally, Nexit is not excluded from investing in a company with ESG risks. Nexit evaluates ESG risks case by case and may decide to invest in case such identified risk(s) can be reasonably mitigated.
Nexit has adopted this approach for two reasons.
Firstly, Nexit cannot diversify away from ESG risks by excluding investments in businesses serving business segments, where the costs associated with the ESG risks are borne by other parts of the economy.
Secondly, Nexit considers that as an active owner, it may be more effective to use the tools available to responsible and active owners, including engaging with a company and encouraging them to improve their ESG performance. In this way, responsible and active ownership may lead not only to improved ESG performance at the company level, but also to improved ESG performance across the entire economy.
Consistent with Nexit’s operation model, Nexit recognizes that collaboration with others in the investment industry may increase the extent to which our Responsible Investment program can benefit our Investors. We do not have the resources to do all the necessary work. Nexit will, therefore, be an active participant in collaborations that can help us to integrate ESG issues into our investment processes.
Nexit may seek to collaborate with others in the investment industry concerning a particular investment process, e.g. engagement with companies, or with a specific ESG issue.
Nexit will identify and assess opportunities to work with others to increase the effectiveness of our Responsible Investment activities.
Nexit has been experimenting with Net Impact tools and models, that use artificial intelligence and sizeable scientific body of knowledge to assess the positive and negative impact of different companies at scale. Nexit considers incorporating these types of more automated tools and models into investee screenings, due diligence, and portfolio management activities.
Monitoring and Reporting on Responsible Investment Policy Implementation
Nexit will monitor the implementation of the Responsible Investment Policy and report to its Investors, as applicable, on the implementation of the Policy on a regular basis including:
Reporting on Responsible Investment to the Investors, as applicable, is incorporated into Nexit’s Investor reporting. Nexit will also meet any external reporting requirements required by law or regulations.
Nexit management is responsible for approval and regular review of the Responsible Investment Policy as well as for oversight and implementation of ESG matters.
This policy will be reviewed from time to time, but at least, every three years. In addition, the Policy is required to be updated as required to reflect changes in:
- the legal or regulatory environment as it relates to ESG issues;
- the investment policy or processes;
- strategy or operations;
- Investor or community expectations.
Communication of the Policy
The Responsible Investment Policy and any related policies and guidelines will be communicated to all Nexit employees and service providers, as applicable. The Policy will be made available to Nexit Investors and the wider community on the Nexit website.
Pre-contractual Product Disclosure Pursuant to Article 6 of Regulation (EU) 2019/2088
Statement on principal adverse impacts of investment decisions on sustainability factors
Pursuant to Article 6 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (Disclosure Regulation or SFDR).
Sustainability Risk Integration at Fund Level
Sustainability Risks refer to environmental, social, or governance events, or conditions, such as climate change, which would cause an actual or potential material negative impact on the value of an investment.
An “Investment” is a company (public or private) that the Firm owns equity in.
While Nexit Ventures acknowledges the importance of such risks into the investment process and the overall positive impact it could have for all relevant stakeholders, in regards to our fund, Nexit Ventures will comply with the fund level reporting as detailed by the SFDR. Hereinafter referred to as “The Fund.”
To integrate sustainability risks into the Fund’s investment decision-making process, the Fund has:
- Assessed the sustainability risks which are potentially likely to cause a material negative impact on the value of products’ investments
- Selected the relevant frameworks and standards used to identify sustainability risks
- Established the approach of how the Fund are considering sustainability risks (e.g., standalone risk or cross-cutting risk, both)
- Identified the types of sustainability risks considered (e.g., reputational, operational or litigation risk)
- Clarified the tools used to collect further data/information related to identified sustainability risks (e.g., stress testing program, scenario analysis)
- Detailed the measures implemented to reduce sustainability risks within the portfolio (e.g, excluding sectors/behaviors or sector-specific materiality matrix to assess sustainability risks of investments)
- Specified actions to ensure sustainability risks mitigation in day-to-day business operations and throughout the investment process (e.g., allocating responsibility for sustainability risks)
The Sustainability Risks Integration Policy can be found below.
Principal Adverse Impacts at Fund Level
Principal Adverse Impacts (PAIs) are any negative effects that investment decisions or advice could have on environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.
While the Fund acknowledges the importance of such factors into the Investment process and the overall positive impact it could have for all relevant stakeholders, PAIs will not be considered at fund level.
Our Fund does not consider it, at this time, for the following reasons:
- Still in the process of developing a procedure to monitor and collect data from investees
- There is lack of accurate data readily available from investees
- Limited current capacity and resources to monitor principal adverse impacts of our investments
However, the Fund expects to comply with entity level reporting for principal adverse impacts by next year.
While the Fund does not consider SFDR PAIs, there is commitment to considering ESG criteria throughout our investment process and require investments to report on a few ESG KPIs.
This information related to the integration of ESG factors in our investment engagement and decision-making process can be made available upon request.
Sustainability Risks Integration Policy
Statement about the integration of sustainability risks in investment and portfolio monitoring activities and transparency of remuneration policies in relation to the integration of sustainability risks
Pursuant to Article 3 and Article 5 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (Disclosure Regulation or SFDR).
Nexit Ventures integrates relevant sustainability risks in all aspects of its investment strategies, client solutions and organization. Hereinafter referred to as “The Firm.”
A “Sustainability Risk” is an environmental, social or governance (ESG) event or situation which, if it occurs, could have an actual or potential material adverse impact on the value of an investment.
An “Investment” is a company (public or private) that the Firm owns equity in.
The purpose of this Sustainability Risks Integration Policy (hereafter the “Policy”) is to define the framework by which the Firm will manage Sustainability Risks in its business activities.
The Policy aims at fostering an operating culture that promotes sustainable and ethical behavior in conducting the Firm’s own business. It also aims at ensuring that the Firm’s investment products are protected from or can cope with material Sustainability Risks which might have a negative effect on environment, society, performance, or reputation.
The Policy applies to the Firm and any funds it manages. It includes all the Firm’s business operations and investment decision-making processes that are under its control.
3. Sustainability Risks Integration into investment decisions
Sustainability risk considerations are integrated into our investment decision framework as part of the overall risk assessment.
The stages at which sustainability risks are integrated into the investment decision-making process occur at these points:
(1) Due Diligence: The Firm engages with potential investments on the most material ESG topics through a pre-investment questionnaire. The Firm will identify sustainability risks that are most likely to harm investments and assess performance during due diligence. An investment with poor performance and lacking the commitment to improve may forgo the Firm’s investment.
(2) Ownership and Monitoring: The Firm will also require investments to complete an annual ESG questionnaire in which sustainability risk-related questions will be integrated. In line with the due diligence process, the Firm will identify generalized sustainability risks which are relevant to the investment type and geographic operation location.
How sustainability risk considerations are integrated into practices might differ among our investment teams as the relevance, availability of information, and time horizon of sustainability risks will vary depending on the investment product’s characteristics.
4. Sustainability Risks Assessment Approach
The Firm assesses, integrates and manages the likely impacts of sustainability risks on financial returns. Sustainability factors cover a broad range of issues, including (but not limited to):
- Environmental factors: climate change vulnerability, carbon pricing, biodiversity, water, waste management, pollution, etc.
- Social factors: compliance with recognized labor standards, compliance with employee safety and health protection, fair working conditions, diversity, and development opportunities, product safety and customer welfare, infectious diseases, etc.
- Governance factors: risk and business continuity management, integrity and ethical behavior, information security and data protection, board composition and remuneration, regulatory and tax compliance, political instability, etc.
As part of our broader risk management processes when investing, The Firm has implemented procedures to identify, measure, manage, and monitor sustainability risks.
The Firm has separately reviewed the sustainability risks which are potentially likely to cause a material negative impact on the value of its products’ investments. For this, we run an analysis of potential sustainability risks relevant to our business activities. We are using the following frameworks and standards to underscore our sustainability risks assessment: Invest Europe Guidelines
Sustainability risks are considered in the investment decision process together with traditional investment risks (for example market, credit, or liquidity risk). Sustainability risks may have a significant impact on traditional investment risks and be a factor that contributes to their materiality.
The Firm treats sustainability risk as:
- A cross-cutting risk that manifests through many other established principal risk types
Sources of sustainability risk include, but are not limited to:
- Reputational risk to the investment
- Regulatory risk to the investment
- Litigation risk to the investment
- Operational risk to the investment
Capital adequacy for sustainability risk should be assessed based on an internal assessment of the material risks that may impact the capital position.
At this end, the Firm use the following tools and processes to assess the sustainable risks linked to its investments:
- ESG questionnaires applied to all potential investments
Risk management & monitoring
The Firm takes the following risk management measures to reduce/mitigate sustainability risks on portfolio level:
- Active ownership to influence the activities or behavior of investee entities
- Excluding sectors or behaviors (e.g. companies that don’t act in accordance with the UN Universal Declaration of Human Rights, the ILO standards, the UNGC and the OECD guidelines for multinational enterprises)
Systematic sustainability risk monitoring is essential for proper risk mitigation in day-to-day business operations and throughout the various investment stages. This process refers to the action implementation such as:
- Ensuring fund managers and analysts have access to relevant information, making it possible to identify sustainability risks within the investable universe.
- Requiring portfolio companies to regularly communicate on how they mitigate key sustainability risks
- Summarizing identification of sustainability risks and action taken for LPs and/or public disclosure
5. Sustainability Risks Related Remuneration Policy
The Firm has defined principles relating to remuneration for all employees, taking into account the Firm’s structure, strategy, objectives and risk policy, in order to remunerate and reward employees in a fair and motivating framework. These principles are described hereafter.
General remuneration principles
The Firm’s overall envelope of salary increases and variable remuneration depends on the ongoing year’s budget.
It takes into account the Firm’s financial performance as a whole and the specific nature of tasks and responsibilities of each department. Each individual is assigned criteria and objectives to determine its performance and contribution to the Firm’s performance.
Remuneration is thus based on both the assessment of the employee’s performance and the entity’s overall performance.
Executives’ packages are subject to the validation of a dedicated Remuneration Committee.
An investment manager will be allocated responsibility for the implementation of this policy and ensuring the application of related procedures.
This Policy is communicated on an annual basis to all employees via the normal Firm channels, including the Firm’s internal rules and the Firm’s intranet and is introduced to all new staff at induction.
The Policy is communicated on an annual basis to all employees via the normal Firm channels, including the Firm’s internal rules and the Firm’s intranet – and is introduced to all new staff at induction.
This Policy was approved on 31st January 2023.