1. Impact Investing
The vision of 4impact is to ‘catalyse a sustainable world’. We believe that harnessing the power of digital technology can contribute meaningfully to sustainable, commercially viable and scalable solutions to some of the environmental and societal challenges we face today, while also generating robust returns for our investors.
We raise funds to invest in early-stage businesses (largely seed to series A), which have intentional, net positive and measurable impact. We invest under three impact pillars: Environment, Inclusion and Health and Well-being. Each of these pillars align with certain of the UN’s Sustainable Development Goals, representing meaningful problems and substantial market opportunities.
Identifying and measuring the impact made by our portfolio companies is critical to enabling the disclosure of environmental and societal performance, increases comparability and transparency and promotes fund accountability.
The Theory of Change forms the backbone of the impact thesis drafted by the company at the time of 4impact investing. We assess the entire impact value chain, concluding with the ultimate impact that the business is aiming to generate. We embed impact KPIs appropriate for each stage of operation, reflecting the Theory of Change, in the corporate documents and the periodic reporting requirements. These KPIs are monitored throughout the investment period and can be revisited as needed.
2 Our broader ESG commitment
4impact is dedicated to an investment mandate which prioritises both delivering positive impact and financial returns. Besides having an overall impact investing objective, we also seek to incorporate broader Environmental, Social, and Governance (“ESG”) factors in our responsible investment decision making.
Our Environmental, Social and Governance (ESG) policy sets out our ESG values, how we implement those values through our investment process, and how we manage ESG risks (if any) on a structural basis. All the startups in which we invest are required to have an inherent positive impact on the environment or society, and this is combined with a structured ESG risk management system to ensure no significant harm is done against other ESG characteristics. Given the sector focus of our funds, we focus on ESG factors that are relevant for software, digital technology or IT companies and identify areas for improvement during the investment period.
We apply the Do No Significant Harm (DNSH) principle in accordance with the EU Taxonomy. This principle means that an investment can only be a sustainable investment if it achieves its sustainable objective without significantly harming other environmental or social factors.
3. Sustainability risk policies and procedures (SFDR Article 3)
See Sustainability Risk Policy (SFDR Article 3)
4. Adverse Sustainability Impacts (SFDR Article 4)
At 4impact we do not consider the Principal Adverse Impacts at the Fund Manager level (per SFDR, the entity) in line with SFDR (Article 4). Our portfolio companies are not required to publish this data and we therefore cannot guarantee accurate and complete reporting to fulfil the requirements. In accordance with SFDR, when sufficient data is available, we will monitor the full series of PAIs (16 indicators) on an annual basis, including the 14 mandatory indicators as well as an optional environmental indicator and social indicator. We will periodically review whether portfolio companies report this data and when they do, we will start considering adverse impacts at entity level (article 4).
On an individual fund level (product level), we do consider principal adverse impacts as stated in Table 1 of Annex 1 of the delegated regulation supplementing Regulation (EU) 2019/2088 of investment decisions on sustainability factors (Article 7). We monitor and evaluate a range of possible adverse sustainability impacts of (potential) portfolio companies, which includes the Principal Adverse Impact indicators relating to climate and other environment related indicators, and indicators for society and employees, respect for human rights, anti-corruption and anti-bribery matters, as provided by the European Union as part of the SFDR.
Nearly all types of economic activity have the potential to impact various sustainability indicators, both positively and adversely. Because of our early stage investment strategy and the fact that we invest only in software companies with a sustainable objective, we generally do not expect significant adverse/negative impacts on these indicators. Our typical investment companies are also likely to be inherently conscious about their potential adverse impacts and strive to mitigate these where possible. Nevertheless we assess PAI indicators and, with our focus on software companies, pay particular attention to the potential adverse impact in energy use related to data processing.
5. Remuneration (SFDR Article 5)
We are an impact venture capital fund with sustainability at the heart of what we do. 4impact’s remuneration policy seeks to fairly reward and incentivise team members to contribute to our mission of empowering ambitious tech entrepreneurs who accelerate the transition to a sustainable world and deliver robust financial performance.
We believe strongly in generating change and delivering meaningful impact through our fund. Our investment thesis is founded on the principle of achieving both financial and impact targets, therefore our compensation reflects this same principle.
Our funds are entitled to up to 20% carried interest, over and above the preferred return hurdle rate. For all new funds, our financial carry will be linked to achieving fund-level impact KPI targets. Any carry forgone will be donated to a charity designated by the 4impact team and the Impact Advisory Board.
This ties our remuneration firmly to the achievement of impact through our portfolio companies.
6. Sustainable investment objectives of our funds (SFDR Article 10)
4impact manages venture capital funds that exclusively invest in innovative, digital startups with a significant positive impact, solving environmental and societal challenges. By backing tech4good startups with knowledge, experience, network, and funding, 4impact can act as a catalyst to building a more sustainable world.
The funds managed by 4impact are subject to disclosure under SFDR regulation. 4Impact.vc Coöperatief U.A (Fund 1) and 4impact Fund II Coöperatief U.A. (Fund 2) are managed by the general partner, Aline B.V., and both have the same sustainability objective and sector-driven investment strategy.
Sustainable Investment Objectives
Our investment objective is to invest in innovative solutions under three impact pillars, aligned with the SDG’s:
1. Environment (SDG 7, 9, 12, 13, 15)
2. Inclusion (SDG 4, 5, 8, 10)
3. Health & Well-being (SDG 3)
Impact led strategy
We target early-stage businesses (largely seed to series A), which have intentional, net positive and measurable impact. We incorporate impact assessment and measurement throughout our investment processes to ensure impact is deeply embedded and maximised in our portfolio
Sourcing: We proactively source deals with outbound industry scans, deep dives, and referrals. These companies are screened for impact to ensure alignment under one of our three impact pillars, and contribution to the UN’s SDG’s, is inherent and intentional, shows additionality, and is material and measurable.
Due diligence: When we have found a company with potential, we set up an impact case upfront to ensure contribution to our sustainable investment objectives is not assumed at face-value. To do this, we draft and assess the company’s theory of change, identify measurable impact KPIs and targets, ensure their articles are aligned with their impact mission, deliberate the additionality of the solution, and consider any ESG risks entailed. These features are then considered and approved by the Investment Committee.
As shareholders: Actively monitor financial and impact indicators and provide ongoing strategic input.
Exit: Prioritise responsible exits for our investments.
We publish an annual impact report in which we report on the impact made by our portfolio companies.
7. Qualification financial product
Based on the above disclosures and explanations, we believe that our funds qualify as Article 9 compliant products. We will work to define them as such in 2023 in order to be compliant in future years.
Since the requirements under SFDR are subject to change, we will continue to follow them closely.