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.
Regulation (EU) 2019/2088 of November 2019 on sustainability related disclosures in the financial services sector (SFDR”)
Nexit Ventures considers sustainability risks in its investment processes and due diligence procedures. A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment.
Nexit Ventures Oy as a registered AIFM confirms that any Alternative Investment Funds (“AIF”) that Nexit Ventures Oy is the AIFM for, shall comply with the Environmental, Social and Governance Policy of the Investment Advisor, and shall adopt and implement environmental and social due diligence and monitoring in respect of each of the companies in which the Partnership invests.
The investment objectives, policies, restrictions, and environmental and social requirements of the Partnership are set out in the corresponding Alternative Investment Funds’ documentation.
Our prior assessment shows that the likely impact of sustainability risks on our investments are low.
In relation to Article 7 of the SFDR, which requires disclosure of how principal adverse impacts are considered at the level of the Partnership, we note that there are still a number of uncertainties regarding this obligation, in particular because the relevant regulatory technical standards have not yet been finalized by the European authorities. While supportive of the policy aims of the principal adverse impact regime, we are monitoring the approach of the authorities in this area, but do not currently consider principal adverse impacts. Our approach will be reviewed and amended to meet the regulation, once the publication of the final regulatory technical standards become available.