ESG at HTGF: Helping to drive sustainable innovations
In this interview, Claudia Raber and Dr. Adrian Fuchs from our ESG team offer insights into their work and present High-Tech Gründerfonds’ (HTGF) recently published ESG Report. They talk about the importance of sustainability in the start-up world and show how we and our portfolio are actively contributing to a more sustainable future.
Our first ESG Report was recently published. What did it focus on?
Claudia: The ESG Report centred on our fourth fund generation, HTGF IV, which was established at the end of last year. We look back at the year 2022, specifically the fourth quarter, during which the first investments in the new fund were made. We also offer an overview of the status quo to show where we are currently at and in what areas we are active. We focus on the issue of sustainability both on a fund level as well as in the portfolio and provide an outlook on where we aim to be.
What does your ESG work consist of at HTGF?
Adrian: On the one hand, we integrate sustainability aspects into our due diligence of potential investments. Another important aspect is the interaction with our portfolio companies. For instance, we offer trainings on various ESG topics to raise awareness and promote the adoption of sustainable practices. An additional focus of our work is the ESG reporting of our portfolio companies. Finally, our work also involves communication and active exchanges with our fund investors and network partners on ESG topics.
Claudia: Our work also extends to our own team. This means that at HTGF, where we now have roughly 100 employees, we strive to achieve sustainability in various areas.
HTGF has been making investments from the HTGF IV fund for almost one year now. What measures have been taken to ensure the aspect of sustainability is considered when making investment decisions?
Adrian: As part of our due diligence (DD) work, we now also conduct an ESG DD with each potential portfolio company. Part of this involves ESG screening, which helps us to ensure that we can invest in the relevant sector in the first place. A recent example of this would be our decision to not invest in a software company active in the gambling industry. We also cover sustainability metrics such as emissions or diversity. This allows us to record initial ESG data points in addition to the reporting data that becomes available at a later point in time. As a final aspect of the ESG DD, we match companies up with the Sustainable Development Goals (SDGs) they are contributing towards, allowing us to split our portfolio up into basic clusters.
Claudia: HTGF IV is an Article 8 fund. This allows us to continue our very successful work since 2005, which is to finance and promote young technology companies – but now with an additional focus on ecological and social aspects. This means that we work together with our ventures to ensure that the issue of sustainability is integrated into their business models.
To make a distinction here, we are not an Article 6 fund, which completely disregards sustainability aspects. But we are also not an Article 9 fund, which pursues overarching sustainability goals in addition to ensuring the sustainable orientation of its investments.
How can start-ups benefit from a focus on sustainability?
Adrian: There are many advantages. First of all, investors place a greater focus on ESG topics in later financing rounds. It is worth getting to grips with the topic at an early stage, as investors in subsequent phases will increasingly inquire about such data.
Secondly, a good position on ESG topics makes start-ups more appealing to employees, which in turn allows them to attract talented individuals.
Thirdly, an effective ESG strategy can help to promote growth, as companies that are well-positioned in this field have a greater appeal for both B2B and B2C customers. This can be useful, for instance, if you are an indirect supplier of an automobile company that has switched its focus to carbon-neutral production.
Fourthly, efficient ESG management can help to reduce costs with savings of up to 10 percent. This is especially relevant in industries with high levels of water and energy consumption.
Fifthly, in some industries, such as aviation, a considerable proportion of turnover and profit is dependent on regulatory interventions. A solid ESG strategy can help to counteract this.
How does HTGF support start-ups in this area?
Claudia: We have developed specially tailored services for our portfolio companies that cover a broad range of aspects. This includes onboarding calls as well as intensive deep dives in which our start-ups can work on their individual ESG journeys. What’s more, we offer a range of formats as part of our HTGF Academy that tackle topics such as carbon footprint measurement, diversity, legal aspects and much more.
Start-ups also benefit from the support of our network. We see a lot; we hear a lot, and we talk a lot with other investors. All this feedback helps shape our work and we are able to pass it on to our portfolio. We want to see our companies as well-positioned as possible to enhance their appeal to follow-on investors.
Let us focus for a moment on the United Nation’s Sustainable Development Goals (SDGs), which HTGF and its portfolio can contribute towards.
Claudia: As mentioned at the outset, we are not a fund that is exclusively focused on impact. But we can point to SDGs to which we have made a demonstrably positive contribution. In this regard, we asked ourselves the question: what are we achieving at HTGF through our investments, and what are our portfolio companies achieving? Seven of the 17 SDGs stand out here, in particular SDG 9, which is focused on the improvement of industry, innovation and infrastructure. Moreover, many start-ups are contributing to SDG 3, which is focused on health and well-being. And SDG 8, which involves improving working conditions, is right at the top of the list.
Climate tech is the latest hot topic. What role does it play in HTGF’s portfolio?
Adrian: HTGF has been active in the field of climate tech since its origins in 2005. Across all four fund generations we have invested over €60 million in roughly 60 different start-ups from the field of sustainability. And more than €770 million has been injected into these start-ups by external investors in follow-on financing rounds. In the pre-seed and seed stages, we are therefore one of the leading climate tech investors in Germany – and maybe even beyond. We don’t need to shy away from comparisons with new climate tech funds. We have already made substantial investments in start-ups and achieved successful exits.
Can you leave us with an outlook for the future? Where do you aim to be?
Claudia: Top of the list of priorities is making sure we continue to consistently implement our ESG strategy. In doing so, we support our portfolio in ensuring they are optimally positioned in terms of sustainability. We will also continue to empower our HTGF team and to optimise our operational processes with respect to ESG aspects. On top of that, we want to further promote the issue of sustainability within the start-up ecosystem through intensive, outward-looking networking and through targeted training measures both internally at HTGF and on a portfolio level.
Adrian: For HTGF IV, we have set ourselves the aim for 2024 to ensure that 80 percent of our start-ups report on their carbon footprint. We are well-aware that a report on its own does not automatically lead to more sustainable activities, but we are convinced that addressing the issue of ESG – even at an early stage – can have a positive effect on companies and industry. Our aims are focused on environmental aspects, as this is what’s called for by most follow-on investors. In terms of social aspects, we are as an example aiming to ensure that 20 percent of the young portfolio companies from our fourth fund generation develop a corruption prevention policy. For this goal, we are intentionally going down the route of voluntary commitments as opposed to contractual clauses.
Claudia: We are of the firm belief that companies which think about the issue of sustainability right from the offset not only have a better chance of success in the future but will also have it easier further down the line because they do not have to reconsider or restructure their existing processes. And our aim within the ESG team is to provide the best possible support in this regard for our ventures to help drive sustainable innovations.
Thank you very much for the interview!