SUSTAINABILITY-RELATED DISCLOSURES

Financial product: MAKI.VC FUND III KY (“The Fund”)
Date of publication: 1.2.2024

a) Summary

The MAKI.VC FUND III Ky (“the Fund”) promotes, among other characteristics, environmental and social characteristics (E/S characteristics) in accordance with Article 8 of Sustainable Finance Disclosure Regulation (EU 2019/2088) (“SFDR”) in its investments and the target is to make at least 50% of the initial investments (number of Investee Companies) to companies that fit into this criterion.

The Fund assesses the investment opportunities on ESG-related risks and opportunities as well as for the promoted E/S characteristics in the following way:

  • No investment is made if the Investee Company is active in the excluded industries described in the Funds exclusion criteria (further elaborated in section g))
  • Before making an investment, the Fund conducts an ESG Due Diligence -assessment on each Investee Company, assessing the company alignment with promoted E/S characteristics as well as evaluating ESG-related risks and opportunities.
  • Any major ESG-related issues identified through the ESG Due Diligence are added to post-closing actions in the legal documentation, which must be addressed as soon as possible. A mitigation plan should take place for the longer-term sustainability risks identified.
  • During the ownership of the portfolio company, the Fund assesses ESG-related risks and opportunities through an ESG Questionnaire, the results of which are reported to investors annually. ESG-related considerations are integrated into portfolio work through active ownership, and ESG topics will be addressed by the board of each portfolio company at least annually. Furthermore, the Fund will provide continuous support to the companies on ESG-related topics.

b) ‘No sustainable investment objective’

This financial product promotes environmental and social characteristics, but does not have sustainable investment as its objective.

c) Environmental or social characteristics of the financial product

The Fund promotes following environmental and social characteristics in its investments:

  1. Innovations with potential to reduce directly or indirectly greenhouse gas emissions, promote circular economy and improve resource efficiency.
  2. Societal wellbeing including, but not limited to, increased and non-discriminatory accessibility to services, scientifically proven advances especially in the health care and wellbeing industries.
  3. Employee wellbeing including, but not limited to, management and employee diversity and pay equality, and workplace health and safety.

In addition to the E/S characteristics, The Fund requires that the companies in which the investments are made follow good governance practices.

d) Investment strategy

Sustainability is a central focus area, in line with the Fund’s mission to partner with founders who want to have a positive impact on the world and build companies that stand the test of time. Furthermore, within the deep tech and brand-driven thematic focus, the Fund seeks exposure to i.e., artificial intelligence, quantum computing, new materials, fintech, food, health, Web3 and commerce technologies.

The Fund promotes environmental and social characteristics in accordance with Article 8 of Sustainable Finance Disclosure Regulation in its investments and the target is to make at least 50% of the initial investments (number of Investee Companies) to companies that fit into this criterion. The promoted environmental and social characteristics are assessed during the Due Diligence process at pre-investment analysis and ESG-related indicators are monitored through an annual ESG Questionnaire as well as through active board work. Furthermore, the Fund has a set criteria excluding specific industries from all investments.

Additionally, The Fund assesses the governance practices of a potential Investee Company in the Due Diligence process and continues to follow the development in the annual ESG Questionnaire as well as through board work. The ESG Due Diligence includes questions on governance on issues such as some of those mentioned in OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. More specifically, these include checking that sound management structures, employee relations, remuneration of staff and tax compliance are in place.

e) Proportion of investments

The target for investments that promote either environmental or social characteristics or the combination of those characteristics is at least 50% of the Fund’s 25-30 initial investments.

f) Monitoring of environmental or social characteristics

The attainment of environmental and social characteristics promoted by the financial product is assessed in Due Diligence through an ESG checklist. During the evaluation, industry benchmarks and data reported by the company serve as key indicators for the assessment of company’s alignment to the characteristics. Additionally, relying on data reported by the company provides valuable transparency and accountability, allowing the Fund to evaluate the company’s alignment with sustainable goals and track its commitment to positive change.

The Fund monitors ESG-factors through an annual ESG questionnaire. The ESG Questionnaire is sent to Investee Companies after the fourth quartile. Furthermore, the Fund will apply best efforts to ensure that ESG aspects are promoted and monitored continuously through active board work. This refers to the ongoing efforts of a company’s board of directors to ensure that the company is meeting its sustainability goals and fulfilling its social and environmental responsibilities.

g) Methodologies, data sources and processing

Methodologies

1. Exclusion criteria

The Fund will not invest in companies operating in fossil fuels, weapons, pornography, alcohol, tobacco or gambling industries, companies conducting illegal activities or companies, which the Fund or General Partner determines to operate unethically. In addition, the Fund does not invest in companies with founders or co-invest with investors, which the Fund or General Partner determines to have serious reputational issues, such as a criminal record. However, most ESG considerations are more nuanced than the previously listed and therefore require careful evaluation.

2. ESG Due Diligence and ESG risk assessment (further elaborated in section i)

3. Attainment of the environmental and social characteristics (further elaborated in sections c & f)

Portfolio companies report their ESG data on a yearly basis. Furthermore, ESG KPIs are set individually for each Investee Company, as they are tied to different industries and operate under unique business models. Each investment manager in the Fund is responsible for reviewing the data and following up on the progress towards achieving ESG-related targets.

Data sources and processing

To obtain the environmental and social characteristics, various data sources are utilized. During the Due Diligence phase, the main data source is the reported data provided by the potential portfolio company. The Maki team aims to ensure the accuracy and quality of the data through its own assessment conducted in collaboration with the company. Maintaining data quality and processing is a shared responsibility of the team and the investment lead. In Maki’s annual ESG Questionnaire, the data reported by portfolio companies serves as the sole source. The ESG responsible at Maki team gathers and assesses the data to uphold a reasonable quality standard. The ESG data is reported to the Fund investors on an annual basis. While the Fund strives to use objective, quantitative data, in situations where the data collecting is impossible or unfolds to be overly burdensome, the Fund and Portfolio companies will use estimations as part of its calculations.

h) Limitations to methodologies and data

Due to the nature of the Fund’s investment scope, focusing on early-stage companies leveraging innovative technologies, the described methodologies and data has limitations, including the reliability of estimations and the lack of historical data of the portfolio companies. Also, the Fund relies on data collected from the portfolio companies, meaning that the data is usually not verified by an external third party. Despite the limitations, the Fund trusts that the measurements are directionally right to ensure that the portfolio companies will attain the promoted environmental and social characteristics. To mitigate the limitations of the measurement methodologies, the Fund seeks to continuously improve and develop its measurement methodology and implement new and improved standards, data sources and methodologies as they become available.

i) Due diligence

In the Due Diligence phase, an analysis on sustainability risks is conducted. ESG Due Diligence covers environmental, social, and governance risks the Fund finds relevant considering the investment stage. Issues that arise from the ESG Due Diligence are added to post-closing actions, which must be addressed as soon as possible by the case responsible. A mitigation plan should take place for the longer-term sustainability risks identified.

As ESG-related opportunities and risks vary in different industries, markets and countries, the Fund and General Partner analyze them on a case-by-case basis, focusing on the issues that are relevant to the potential Investee Company and its operating environment.

Because of the Fund’s investment stages, the General Partner expects the potential Investee Companies to usually have little or no historical burden regarding social or governance issues as the companies are founded recently and, in some cases, do not employ any employees besides the founder team. However, the General Partner acknowledges that the Investee Companies rarely have any established governance processes either. This enables the Fund and General Partner to support the Investee Companies in establishing good policies and processes from the beginning. Talented personnel and their well-being are key assets of any early-stage software-driven company. Therefore, the General Partner expects to find opportunities by encouraging the Investee Companies to promote diversity and to become a responsible employer. Implementing sound governance processes from the very beginning also helps the Investee Companies to succeed in their follow-on investment rounds and exits.

The General Partner expects that startups operating in regulated industries (e.g., in finance, healthcare or other regulated profession) are the ones that require significant attention during the analysis process. There is a fine balance between disrupting an industry with pushing the regulatory envelope and breaking the rules of regulation in a negative manner. The Investee Companies must always operate in compliance with the regulations and legislation and have their governance issues on an acceptable level before the investment decision.

j) Engagement policies

At Maki.vc, we take an active approach to investing. Each Investee Company from the Fund has a Maki.vc board representative and/or board observer, who’s duty and responsibility is to outline post-investment action plan, ensure proper priority of ESG actions and follow-up the ongoing activities. This allows us to be closely involved in the decision-making process and ensure that our values and priorities are reflected in the operations of the companies in which we invest.

Upon closing a new investment, a discussion on the ESG-related issues takes place between us and the Investee Company. Any findings from ESG Due Diligence are discussed as well as requirements on financial and ESG reporting and continuous ESG work. With support from us, ESG related goal(s) and KPI(s) are set for each Investee Company.

Each Investee Company will create its own Corporate Responsibility Policy (or ESG Policy or equivalent), which best fits the operations of the company, while the Fund provides support for the process. The Fund acknowledges that there are certain systematic sustainability issues, such as climate change or human rights, that occur at scale greater than a single company.

One of the key priorities for us is the integration of ESG considerations into the operations of our portfolio companies. As such, we ensure that ESG topics are discussed at the board level on a continuous basis. This helps to ensure that ESG considerations are integrated into the strategic direction of the company and that progress is being made.

In addition to discussions at the board level, we also engage with our portfolio companies on an ongoing basis to provide guidance and support on ESG matters. This may include sharing best practices, connecting them with relevant resources, and working with them to identify and address any areas for improvement.

Overall, our engagement policies are designed to ensure that ESG considerations are integrated into the operations of our portfolio companies and that we are able to effectively support and guide them in their efforts to improve their ESG performance.