Hi Inov

Responsible investment policy

 

Engagement for Sustainability

Transforming the digital universe!
At Hi Inov, when it comes to sustainability, we want to go by the book of convictions rather than following trends fueled by the pressure of regulation.
We are convinced that, everyone can make a contribution including Hi Inov. If we want our sustainability agenda to make sense, we need to start from scratch and understand how it can fit in our investment thesis.
Since inception, we have been supporting companies who transform the ever-changing services and industrial landscape with their innovative digital deep-tech technologies.
Environmental, Social and Governance (“ESG”) processes and methodologies have been successfully standardized in the private equity industry. As for venture capital, the environmental dimension and more specifically, climate change, has long been the belief that this issue was not relevant to tech-companies and therefore slowing down any proper integration of ESG criteria.
And yet, according to the « Arcep », the digital sector represents 3 to 4% of global CO2 emissions in 2022, thus corresponding to 2.5% of the carbon footprint in France. This is the equivalent of the airline industry. The more we rely on digital, the more we consume our CO2 credit. This trend is and will go in an ascent fashion. How can we help companies grow and at the same time address the biggest challenge of our century?
Our response is cemented in our sustainability vision and our goal stands in one key priority: embark the digital energy sobriety within our portfolio companies, through the three main stages of the investment lifecycle (pre-investment, ownership, exit) »
We are also convinced that strong ESG propositions correlate with higher equity returns while reducing downside risk. In short, we want to deliver profit and purpose.
As a series A & B stages’ investor, we can transform the startups we back from the starting blocks by using sustainability as the foundation for driving tech companies to re-think their technical architecture and adopt development practices sober in energy by design. Our role is to provide them with the tools to ensure that they are aligned with our convictions and ready to embrace the environmental and social challenges.

 

Sustainability governance with Hi Inov

Hi Inov pays particular attention to the involvement of each member working for the shared vision on sustainability.
The ESG team is composed of two members – the CEO and the Corporate Secretary who are responsible for developing the ESG agenda and formalizing the processes within the Firm.

The consultant and operating Partner who are responsible for conducting the technical audit on the energy consumption complete the ESG team.

The commitment of the top management on sustainability issues aims at ensuring that ESG remains core in the firm’s investment activity. From 2023, the inclusion of sustainability projects will be discussed at least once a year during the Supervisory Board.

Furthermore, Hi Inov engages with industry experts and external consultants. We believe that their role is vital and largely a practical one as they are looking at methods of encouraging sustainability at all levels of our business.

Internally, we want to foster a positive engagement and encourage sustainability thinking in our employee base at all levels. Integrating ESG in our business activity is a big team effort that involves Hi Inov – all members – and our portfolio companies working collaboratively, sharing best practice and helping each other.

In order to ensure ownership and comprehensive understanding (especially regarding the regulation’s requirements), Hi Inov organizes at least one training session per year. The topics discussed will vary according the evolution of the firm’s sustainability agenda and / or the needs of the investment team. If relevant and required, other ESG training session can be set up along the year.

 

Public engagement

At Hi Inov, we recognize the importance of engaging with our peers and our financial industry. We will only be able to meet our objectives and progress over time if we are involved in promoting our convictions.

Hi Inov is a proud new member of the PRI community. This initiative offers investors a menu of actions, guidance, tools and methodologies for integrating ESG criteria into investment strategy while developing a more sustainable global financial system. By joining the signatories of the PRI, we are more than committed to abide by the six principles:

  • Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the principles.
  • Principle 6: We will each report on our activities and progress towards implementing the principles.

Hi Inov’s tech community

As an active investor in the digital tech sector, we joined France Digitale, the leading association of startups in Europe in 2015. Being a member of the association is a useful engagement that provides us with common goals. By creating a regulatory context (in particular, with public policymakers) that is favorable to the ecosystem, the France Digitale’s platform shares good practices and help entrepreneurs to improve their environmental and social impact.

Hi Inov is a member of France Invest (the French Private Equity association) since 2013 and a member of its ESG Commission since 2019.

Sista is a French collective that aims to reduce the funding gap between male and female entrepreneurs.

 

Onboarding our investment team in our sustainability programme

Cherry-picking sustainable tech companies!

Digital technology startups face enough challenges developing new technologies and bringing them to market without also having to consider the environmental or social impact. After years of being a lower priority, ESG has become a key consideration for entrepreneurs. Innovation within the software and advanced engineering space can have significant ESG benefits.

The first step for us is to team up with companies whose core business improves resource efficiency – i.e. increasing productivity and economic output while using fewer resources.

Hi Inov invests in companies we believe can have a positive impact through the choices they make regarding their organization and daily operations. To help new companies understand this, we have developed a framework which assesses a company’s awareness of ESG and the steps they need to take to improve their environmental, social, governance and third-party interactions. Hi Inov’s investment team assesses each company at the point of investment, helps the company to identify key metrics to implement and monitor, and then records their progress on an annual basis.

Also, our approach of focusing on what our companies are setting out to achieve and how they intend on doing it will result in a portfolio which delivers positive returns for both our planet and our investors.

Hi Inov’s ESG framework focuses on the three main stages of the investment lifecycle. With the full support of the ESG team, all members of the investment team are responsible for implementing the process during each phase.

Pre-investment phase

A relevant approach: apply a tailor ESG due diligence with regards to our investment universe.

  • ESG criteria included in all investment opportunity analysis with a focus on the energy consumption profile of the technical architecture of each startup.
  • Full audit of the technical architecture conducted by an expert who builds the audit modelling that enables the startup to assess the energy efficiency of its product at scale. The level of materiality is identified from the initial development of the investment opportunity. The audit report includes technical recommendations to the CTO to reduce the energy consumption of the product.
  • Investment decision: ESG findings included in the investment memorandum. The investment committee has ultimate responsibility for the investment decision.
  • Exclusionary screening: weapons’ business, B2C monetized gaming and betting, tobacco and alcoholic beverages, pornography, human cloning, human organs trading are all excluded.

Ownership phase

Our work during the pre-investment phase will help the team to heighten awareness and appreciation for ESG issues; indeed, most of the time, they have not fully translated into the business practices of the companies.

In addition, key considerations will have been identified and discussed during the investment committee. Those considerations serve as the basis for the implementation of the road map for the coming year and the team at Hi Inov is committed to support and train the portfolio companies to set up for some and to improve for others their ESG practices and policies.

During the ownership period, the team will focus on core dimensions but are not limited to:

  • Environment: it includes i) the company’s energy management and more specifically the ongoing audit of the technical architecture and its energy consumption, and the follow up on technical best practices and recommendations; ii) waste and water use.
  • Social: it includes working conditions, employee engagement and diversity & inclusion, management of relationships with customers, external stakeholders and the communities where the companies operate.
  • Governance: it includes governance bodies and processes, competitive behavior, systemic risk management, business model resilience.

Thanks to the close relationships we maintain with the managers of our portfolio companies, we can drive them to a better understanding and a stronger commitment regarding ESG issues.

The monitoring of the ESG performance of our portfolio is completed thanks to the annual ESG questionnaire which has been revised to encompass materiality KPIs and regulatory requirements. The assessment is meant to be exercised annually and observes the ESG trajectory of each company.

It is implemented by an external consultant who validates the verification and the reliability of the data collectedAll funds are covered by the annual ESG questionnaire.

The monitoring assessment covers five dimensions and all necessary KPIs including the regulatory indicators:

  • Stewardship: General information about the company, CSR practices and team, CSR report
  • Environment: Energy consumption, water consumption, waste generated & carbon footprint
  • Social: Human capital, training, profit-sharing system, diversity & inclusion
  • Governance: Governance bodies, management ethics and data & IT management
  • External stakeholders: Suppliers audit, responsible business practices

Exit phase

When relevant and / or required, Hi Inov can carry out an ESG Vendor due diligence. The purpose of the assessment is to showcase the results achieved during the ownership phase and how the company managed to embrace a comprehensive sustainability mindset and practices.

 

ESG & Sustainability communications to investors, transparency

Being a growing topic of interest, it is critical for Hi Inov to engage with our investors but broadly speaking with our ecosystem – employees, portfolio companies, peers on sustainability and ESG. It is all the more important that all third parties fully perceive and understand our sustainability agenda and our ESG performance at both management company and portfolio companies’ levels.

Dialogue with our portfolio companies

A factsheet is produced at the end of the annual ESG exercise for each portfolio company with a scoring and tailored action plan for improvement. The results of the assessment are shared with the management of the portfolio companies and become the ESG project management tool for dialogue between Hi Inov and the companies, particularly during Supervisory Board meetings.

Dialogue with our investors

Hi Inov intends to disclose ESG activities and progress to its investors through fund ESG reports that are disclosed annually to our investors. Reporting in accordance with the requirements of the SFDR (SFDR templates) will also be provided to investors in Articles 8 funds from 2023.

As a new signatory of the PRI and as part of this, Hi Inov will publicly report its progress on responsible investment criteria in an annual Transparency Report.

We are committed to drive a positive influence and to showcase on a transparent fashion our ESG trajectory and commitments.

 

SFDR communication

The EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”) imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants with substantive provisions of the regulation effective from 10 March 2021.

The SFDR aims to bring a level playing field on transparency in relation to sustainability risks, the consideration of adverse sustainability impacts in their investment processes and the provision of sustainability related information with respect to financial products.

The information below regarding the ESG policy of Hi Inov is provided in accordance with Articles 3(1), 4(1) and 5(1) of the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”).

Policy on the Integration of Sustainability Risks into the Investment Decision-Making Process (Article 3(1).

The Sustainable Finance Disclosure Regulation defines a sustainability risk as an environmental, social or governance event or condition which, if it occurs, could cause an actual or potential material negative impact on the value of an investment.

Assessing the environmental, social and governance risks and opportunities is a core part of Hi Inov’s ESG due diligence.

Due to the investment scope in which Hi Inov operates, the integration of sustainability risks is carried out with a view to considering the materiality of the ESG stakes in relation to the business model of digital startups.

Before investing in a company, Hi Inov will perform the ESG assessment which is mandatory for each investment opportunity. The investment team will ensure that it includes all the relevant and material sustainability risks. The outcomes of the analysis are enclosed in the ESG section of the investment memorandums for discussion during the investment committee who has ultimate decision.

The purpose of this process is to identify, analyze and weight each material risk before any investment decision is made.

No Consideration of Sustainability Adverse Impacts (Article 4(1).

Hi Inov has taken position against the consideration of the principal adverse impacts of its investment decisions on sustainability factors as specifically contemplated by the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”).

Hi Inov has carefully evaluated the requirements of the PAI regime in Article 4, and the Final Report on draft Regulatory Technical Standards which was published in October 2021 (the “PAI regime”). Hi Inov is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors and the market, as to how financial market participants and financial advisors integrate consideration of the adverse impacts of investment decisions on sustainability factors.

That being said, it will not prevent Hi Inov from applying its ESG process when considering an investment opportunity which the firm believes to be more suitable to the investment strategy of its funds.

Hi Inov remains attentive to the further developments of the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”) and will update its position when the firm believes such developments are fitted to its investment strategy.

Remuneration Policy and Sustainability Risks (Article 5(1).

Hi Inov has separately implemented a remuneration policy (the “Remuneration Policy”), which governs the processes concerning the payment of remuneration to Hi Inov’ s in-scope employees and other in-scope members of staff.

Hi Inov’s employee’s remuneration combined a fixed remuneration (salary and benefits) and variable remuneration (including bonus). The risk-limiting features of the Remuneration Policy include (amongst other things) the application of non-financial metrics. In accordance with the Disclosure Regulation, Hi Inov has conditioned part of the variable compensation of all team members to both sustainable criteria and targets. For the purpose of meeting our objectives in terms of integration of sustainability risks in our investment activity, we choose to set such criteria and targets individually and collectively. Any decision on the allocation of the variable part is linked to Hi Inov, its employees and portfolio companies’ performance and achievements.

Hi Inov acknowledges that the Remuneration Policy, and an individual Employee’s remuneration, must be consistent with and promote sound and effective risk management and not encourage risk-taking that exceeds the level of tolerated risk of Hi Inov.

 

Climate change and biodiversity risks

Creating a bridge between digital and climate change!

In 2022, the CO2 emissions generated by the digital sector amounted to 3 to 4% of the global CO2 emissions which represents as an example 2.5% of the carbon footprint in France. Being such a contributor to climate change, there are huge opportunities within our sector to help reduce emissions (and other waste).

At Hi Inov, we decided to tackle the climate change challenge by choosing an angle more appropriate to our targeted companies.

As lead or co-investor, in startups that provide digital transformation solutions to SMEs and large businesses, we support innovative companies at their Series A and B stage. The business model of such companies relies on the development of digital applications or IT infrastructures entailing in some cases high energy expenditure.

We are working from the due diligence phase to identify the “energy profile” of each investment opportunity and help Founders and CTOs of our portfolio companies to transform their technical architecture so that they can favor the most efficient modules, in terms of energy consumption and CO2 emissions.

Energy audit in the preliminary phase

  • ESG due diligence + thorough audit of the “energy profile”
  • Analysis of the outcomes from a risk/opportunity perspective
  • Inclusion of the ESG analysis in the investment memorandums

Transformation in the ownership phase

  • Tailored support on climate change issues for each portfolio companies
  • Climate change and biodiversity monitoring through specific KPIs

In order to improve its climate trajectory and align its business activity with the Paris Agreement, Hi Inov intends to launch the first carbon footprint assessment of the firm in 2023. This will be the first step in terms of climate change commitment. Such measure should cover scopes 1, 2 & 3 and will be supplemented by annual objectives.

The preservation of the biodiversity

Hi Inov is committed to the objectives of the 1992 Convention on Biological Diversity which sets three global objectives to achieve sustainable development:

  • The preservation of biological diversity
  • The sustainable use of its elements
  • The fair and equitable sharing of the benefits arising from the exploitation of genetic resources

Biodiversity impacts of the digital sector are extremely hard to assess because the cause – impact relationship can be very heterogeneous and indirect.

Considering our investment scope, it is unlikely that our portfolio companies are misaligned with the Convention on Biological Diversity. On the contrary, we see the digital sector as an asset to provides a virtually infinite source of inspiration for technological innovation and help preserve the biological diversity.

In any case, we will include biodiversity-related indicators in our ESG due diligence questionnaire and in our annual ESG assessment and so, ensure that our investment opportunities and portfolio companies are not harming the biodiversity elements.

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