1. Summary
The Green Generation Fund GmbH & Co. (the Fund’ or Green Generation’) is structured as a German limited partnership and managed by the Green Generation Management GmbH (the Firm’) as its General Partner. The Fund’s mission is to build a h4 start-up ecosystem within three verticals: Food Tech, Health Care & Wellbeing, and Green Tech. The Fund aims to contribute significantly to the UN Sustainable Development Goals and to prevent further crossing of planetary boundaries by pursuing sustainable investments in these focus areas. Environmental and social indicators are set forth for each portfolio company prior to the Fund’s investment.
Since 2021, a new regulation on sustainability-related disclosures in the financial services sector applies to all EU market participants, including the Green Generation Fund. Under the Sustainable Finance Disclosure Regulation (SFDR), SFDR funds are classified according to their ESG commitment and positive contribution to environmental and social objectives.
Article 9 funds have at least one sustainable investment objective with a h4 ESG and Impact focus. Green Generation Fund aims to meet these requirements by investing in start- ups which (1) contribute significantly to an environmental objective; (2) do not harm environmental or social objectives; and (3) follow good governance practices. Green Generation Fund takes into consideration negative adverse impacts of the Fund’s investments.
We support and welcome the move towards greater transparency in sustainability related disclosures and assessments for the industry.
2. Consideration of Principal Adverse Impact Indicators
Mandatory and optional ‘Principal Adverse Impacts’ (PAIs) on sustainability factors will be taken into account within the monitoring process. Sustainability factors are defined as “environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery”. All investees are required to report on PAI sustainability factors with the beginning of the holding period at least once per year. If PAIs are identified, the Green Generation fund develops a mitigation strategy together with the portfolio company’s sustainability team. If that is not feasible, the investment opportunity is not pursued further. As data is still being currently collected, a valid data basis is not yet available.
3. Sustainability Risks
As part of its due diligence process, the Fund takes an assessment of sustainability risks into account including evidence, external, stakeholder participation, drop-off, efficiency, execution, alignment, endurance, and unexpected impact risks. Sustainability risks are environmental, social or governance events or conditions that, should they occur, could cause an actual or a potential material negative effect on the investments’ value. Evaluating and supporting opportunities to enhance value creation through sustainable practices by setting ambitious improvement targets can have a positive impact on the Fund’s financial performance. The risk score of these assessments guide GGF’s investment decisions. In its free discretion, GGF may decide to make an investment even if sustainability risks have been determined. In such cases, GGF may apply appropriate mitigation measures.
4. No significant harm to the sustainable investment objective
Green Generation Fund does not invest, guarantee, or otherwise provide financial or other support, directly or indirectly, to companies, including portfolio companies, or other entities whose business activity consists of: Alcohol and Tobacco, Gambling, Weapons, Pornography, Fossil fuels and Distilled Alcohol.
To exclude any possible negative effects and to uncover as well quantify adverse environmental effects, GGF conducts an environmental impact assessment of portfolio companies’ products and/or services GGF also assesses potential adverse effects in regards to environmental, social and governance issues during its due diligence and considers the results in investment decisions. For that purpose, a dedicated questionnaire has been integrated in the pre-investment due diligence as well as in the post-investment monitoring and support processes. Portfolio companies are committed to providing the necessary data by signing the term sheet and shareholder agreement. Given that the Fund invests nstart-ups in very early stages- often just consisting of a team and an idea- impact forecasting involves assumptions and predictions which may or may not materialise.
5. Sustainable Investment Objectives
The Fund’s investments not only avoid harm, but also generate significant positive and measurable environmental and/or social outcomes for the planet. A “significant” outcome means a product or service will lead to considerable reductions in at least one of the following five key areas: GHG emissions, resource exploitation, biodiversity loss, inequality of minorities, and food insecurity within a timeframe of eight years. “Positive” impact refers to a product or service that addresses a systematic challenge in Europe and the United States, such as climate change, environmental protection, and inequality of opportunity. “Measurable” impact defines a product or service whose effects can be quantified, and a company whose founding team has expressed a robust commitment to measuring and managing its impact. The Fund wants to contribute to an economy that operates within the planetary boundaries, preserves the 17 Sustainable Development Goals and contributes to an incremental sustainable change within the financial market. Therefore, the fund contributes within the five key areas to three impact objectives: Reduction of carbon emissions (measured in tonnes); Preservation, protection and recycling of finite resources (measured in tonnes); Creation of responsible workplaces (measured in number of workplaces created).
6. Investment Strategy
The Fund invests exclusively in early stage start-ups originating primarily in Europe and the United States that:
- have the potential to create positive impact in at least one of the following key areas: GHG reduction, resource conservation, biodiversity protection, health & welfare of living beings, responsible work. Impacts on the environment and/or human health must be quantifiable;,
- have a h4 team/founder with a vision to be future leaders in existing verticals or build products to create a new vertical; and
- have high growth potential.
GGF partners with sustainability pioneers with a special focus on emerging food technology, healthcare technology and green technology companies. The Fund intends to make its initial investments in the early stages of a company, i.e., pre-seed, seed and series A rounds.
The Fund’s focus on impact is anchored in every aspect of the investment process – from the initial screening, the establishment of impact KPIs at the closing of the deal, all the way to impact monitoring during the holding period and an impact evaluation as well as carry clawback at the time of exit. Green Generation Fund implements the Fund’s investment strategy in compliance with the Fund’s limited partnerships agreement and the Fund’s ESG & Impact policy.
7. Proportion of Investments
Green Generation Fund intends to invest 100% of the Fund’s resources in impactstart-ups striving to achieve a significant, positive, and measurable social and/or environmental impact, while not allocating capital to other asset classes.
8. Monitoring of Sustainable Investment Objectives
During the Investment process, the investment team is guided by the Fund’s five impact principles.
(1) Climate Stability: Companies which are substantially reducing, removing, or mitigating GHG emissions while preventing carbon lock-in, and increasing the resilience of systems to adapt to climate change.
(2) Resource Security: Companies that reduce waste, support a circular economy, promote sustainable water use or decrease the use of finite resources
(3) Biodiversity Protection: Companies that restore, protect, and enhance biodiversity and avoid soil erosion by restoring destroyed and degraded ecosystems.
(4) Health and Wellbeing: Companies that provide healthy and alternative nutrition for every living being and/ or promote physical and mental health.
(5) Responsible work: Companies that support social/environmental- economic balance including the creation of and increased access to economic opportunities for minorities, by increasing prosperity in harmony with the environment.
The Fund constantly monitors impact objectives by using questionnaires. Those ESG questionnaires are used initially within the due diligence process and, following an investment, at regular intervals. The ESG data are the building blocks of the Fund’s Impact framework that leads to materiality assessment, sustainability risk identification process and to the impact performance of each portfolio company. The impact performance provides data about the impact objectives, contribution and net impact and will be used to model LCAs for each investment. Results from the Impact Assessment will be provided to the Fund’s limited partners on regular intervals.
9. Methodologies
The Green Generation Fund implemented an Impact Framework consisting of widely accepted impact metric systems (e.g. non-financial reports, materiality assessment of the EU, Impact Management Project, Theory of Change) which assesses the environmental and social impacts associated with all stages of a product’s lifecycle. A dedicated Impact Team (consisting of the Head of impact, a Senior Associate and a working student) develops and executes these impact assessments together with the management team of the portfolio company, defines 1-5 impact goals to be continuously tracked by the portfolio company and reported on an at least annual basis, alongside financial KPIs. These KPIs are measurable and linked to the social and/or environmental outcome(s) the portfolio company aims to achieve. The calculations include about 500 ESG and impact indicators that will be analysed to identify each company’s key impact performance indicators.
10. Data Sources and processing
To forecast the impact assessment, data on the start-up’s product or service is sourced from the company itself. Where there is no specific data available on production processes and resources used, the data is modelled or sourced from peer reviewed scientific studies, real- world baseline data, and assumptions about the portfolio company’s growth. In exceptional circumstances, if portfolio companies are unable to provide this data, the Fund may estimate impact KPIs based on the portfolio company’s historic impact performance and company growth data. Impact assessment data and models are updated on a regular basis in consultation with the portfolio companies to reflect changes in the start-up’s processes or products. In addition, target markets of start-ups are being monitored to detect and include significant changes that might affect the environmental performance of a portfolio company.
11. Limitations to methodologies and data
The Green Generation Fund is implementing a science-based impact methodology for investments. Nevertheless, the assessment of the potential impact of a possible investment and its impact risk is limited by the quality of the information made available by the potential investment. Where low-quality or incomplete information has been provided, the Fund will look for suitable benchmarks and relevant external data points. In cases where impact cannot be easily defined and measured, the Fund will encourage the portfolio company’s management to define suitable proxies.
12. Due Diligence
The Fund conducts due diligence for financial, legal and commercial, intellectual property, technical, as well as ESG and impact matters. A full Impact Assessment and forecasting of the startup’s product or service is being developed by the Fund’s Impact Team and is included during the Impact Assessment.
13. Engagement Policies
We will actively communicate and publish our ambitions and findings. This will also include advocacy to strengthen social entrepreneurship, purpose companies, scientific impact measurement standards as well as more ambitious environmental legislation. We commit to adhere to ESG principles with regard to our own organisation as well as the Fund. As a venture capital investor, the influence we have on the Fund’s portfolio companies through shareholdings of our funds, including influence on sustainability matters, is typically limited. However, we shall apply our best efforts to encourage our portfolio companies to agree with our Impact & ESG Policy within the signing of the term sheet and shareholder agreements, and to commit to pursuing Impact & ESG targets. Where appropriate, we will conduct training sessions for portfolio companies on how to handle Impact & ESG related issues. Prior to placing an investment, evaluating founders’ attitude towards Impact and ESG is a priority for the Green Generation Fund.
Following an investment and during the holding period, the Fund intends to maintain trust and a h4 working relationship with the management and impact teams of its portfolio companies.
14. Attainment of sustainable investment objectives
As an impact venture capital firm and through its investments in early-stage companies, Green Generation Fund has the clear objective to reduce carbon emissions in line with long- term global warming objectives stipulated in the Paris Agreement. As a second objective, the Fund aims to preserve, protect and recycle finite resources to neither harm the ecological environment nor affect biodiversity. Creating responsible workplaces that fight inequality, preserve the 17 Sustainable Development Goals and contribute to better life quality is the Fund’s third objective. The first and second objective will be measured in tonnes, whilst the third objective will be measured by the number of living beings affected. To attain and improve these objectives, the Fund will measure, assess and verify them on a regular basis within our Impact Framework. By following our mission to support the transition to a global economy that operates within the planetary boundaries, we will not invest in companies that are not part of the solution to the climate crisis.
We tie our carried interest to achieving our impact KPIs.
This document has been uploaded on October 2023.
