DeepTechXL invests in companies that have an impact on the United Nations Sustainable Development Goals, by using key enabling technologies (deep-tech) to address the key societal themes as defined by the Dutch Government.
The key societal themes are: (1) Health and Care, (2) Energy Transition and Sustainability, (3) Security and (4) Agriculture, Water and Food. In its investment decision making, DeepTechXL considers the Principal Adverse Impacts (“PAI”) on sustainability issues as outlined in the Sustainable Finance Disclosure Regulation (“SFDR”) as input for assessing the Do No Significant Harm (“DNSH”) indicators.
DeepTechXL aims to invest 100% of its capital in sustainable investments with an environmental or social objective. A minimum of 30% of the invested capital of DeepTechXL will contribute to an environmental objective and a minimum of 30% of the invested capital of DeepTechXL will contribute to a social objective.
DeepTechXL regularly assesses Fund indicators with the portfolio companies through standardised questionnaires, informing impact maturity levels and influencing the annual impact plan to ensure alignment with sustainable investment objectives, providing additional support when necessary. However, DeepTechXL faces inherent challenges in assessing sustainability impact and risk in early-stage deep-tech ventures due to limited data, uncertainties in technology evolution, and difficulties in comparability. DeepTechXL addresses these challenges by asking ESG-related questions from the start, viewing progress in answering as advancements in impact maturity, and maintaining a commitment to its sustainable investment objective despite data collection limitations.
Monitoring the attainment of the sustainable objective is done in monthly, quarterly, and annual engagements and annual reporting. DeepTechXL currently does not use external benchmarks for early-stage deep-tech ventures and emphasises continuous learning to enhance its sustainability investment methodology.
Dutch DeepTechXL investeert in bedrijven die impact hebben op de Duurzame Ontwikkelingsdoelen van de Verenigde Naties (VN), door gebruik te maken van sleuteltechnologieën (deep-tech) om de belangrijkste maatschappelijke thema's aan te pakken zoals gedefinieerd door de Nederlandse overheid.
De vier maatschappelijke thema's zijn: (1) Gezondheid en Zorg, (2) Energieovergang en Duurzaamheid, (3) Veiligheid en (4) Landbouw, Water en Voedsel. Bij het nemen van investeringsbeslissingen overweegt DeepTechXL de Principal Adverse Impacts (“PAI”) op duurzaamheidskwesties zoals uiteengezet in de Sustainable Financial Disclosure Regulation ("SFDR") als input voor het beoordelen van de Do No Significant Harm (“DNSH”) indicatoren.
DeepTechXL streeft ernaar om 100% van zijn kapitaal te investeren in duurzame investeringen met een milieu- of maatschappelijk doel. Een minimum van 30% van het geïnvesteerde kapitaal van DeepTechXL zal bijdragen aan een milieudoel en een minimum van 30% van het geïnvesteerde kapitaal van DeepTechXL zal bijdragen aan een maatschappelijk doel.
DeepTechXL beoordeelt regelmatig de fonds indicatoren met de portfolio bedrijven via gestandaardiseerde vragenlijsten, informeert over het impact volwassenheidsniveau en actualiseert jaarlijks het impact plan om afstemming met duurzame investeringsdoelstellingen te waarborgen, waarbij indien nodig aanvullende ondersteuning wordt geboden. Desondanks staat DeepTechXL voor uitdagingen bij het beoordelen van duurzaamheidsimpact en risico's in vroege stadia van deep-tech ondernemingen vanwege beperkte gegevens, onzekerheden in technologische voortgang en moeilijkheden in vergelijkbaarheid tussen ondernemingen. DeepTechXL pakt deze uitdagingen aan door vanaf het begin ESG-gerelateerde vragen te stellen, vooruitgang in het beantwoorden van deze vragen te beschouwen als voortgang in impact stadium, en vast te houden aan haar duurzame investeringsdoelstelling ondanks beperkingen in gegevensverzameling.
De voortgang in het bereiken van het duurzame doel wordt gemonitord in maandelijkse, driemaandelijkse en jaarlijkse betrokkenheid en jaarverslaggeving. DeepTechXL maakt momenteel geen gebruik van externe benchmarks voor deep-tech-ondernemingen in de vroege fase en benadrukt het belang van voortdurend leren om haar duurzame investeringsmethodologie te verbeteren.
DeepTechXL ensures that its investments do no significant harm by (1) excluding unsustainable investments,
(2) endorsing and adhering (where possible) to best practices, and (3) assessing the do no significant harm indicators detailed below based on an ESG analysis.
Based on the Principal Adverse Impacts, the following DNSH indicators will be considered by DeepTechXL:
Green house gas emissions
Biodiversity
Water
Waste
Social and employee matters
Emissions
Social and employee matters
When assessing an economic activity against the DNSH indicators set out above, both the environmental impact of the activity itself and the environmental impact of the products and services provided by that activity throughout their life cycle shall be considered, by considering the production, use and end of life of those products and services. DeepTechXL ensures that the DNSH principle is considered through (i) the application of exclusion criteria that include the sustainability indicators stated above,(ii) a due diligence process (see chapter 9) for selecting prospective investments, and (iii) making sure that the portfolio companies include theDNSH indicators into their policies and procedures.
DeepTechXL considers the 14 mandatory indicators and two voluntary PAIs as input for the Do No Significant Harm assessment, of which one relates to the climate and the environment, and one relates to the social and employee level, in DeepTechXL’s proprietary questionnaire. The portfolio companies are requested to report on the 16 Principle Adverse Impact indicators once during due diligence, and periodically (once per year). As DeepTechXL mainly focuses on early-stage companies, it is not expected that all required data is always available with portfolio companies (even to make estimations). Nonetheless, the indicators are also a means to track the progress of the company in its ability to answer indicators, and thereby contribute to the impact maturity level of the portfolio companies.
When assessing an economic activity against the DNSH indicators set out above, both the environmental impact of the activity itself and the environmental impact of the products and services provided by that activity throughout their life cycle shall be considered, by considering the production, use and end of life of those products and services. DeepTechXL ensures that the DNSH principle is considered through (i) the application of exclusion criteria that include the sustainability indicators stated above, (ii) a due diligence process (see chapter 9) for selecting prospective investments, and (iii) making sure that the portfolio companies include the DNSH indicators into their policies and procedures.
On portfolio company-level, DeepTechXL will make an assessment on its maturity and decide which internationally renowned practices fit best. DeepTechXL will base its assessment on the following international standards:
The OECD guidelines for Multinational Enterprises
The OECD Due Diligence Guidance for Responsible Business Conduct
The OECD Principles of Corporate Governance
The ICGN Global Governance Principles
The UN Global Compact Principles
The UN Guiding Principles of Business and Human Rights
Leading principles for Sustainable Shareholder Return
Moreover, DeepTechXL is a signatory of the United Nations Principles for Responsible Investment (UN PRI).
DeepTechXL Fund I has a sustainable investment objective. This means that DeepTechXL will:
- Exclude companies that are active in sectors or use technologies that we consider as unsustainable. Unsustainable investments do significant harm (according to SFDR article 2, sub-17), the positive impact cannot compensate the negative impact, or are active in fossil gas and/or nuclear energy.
- Exclusively invest in purpose-driven companies that use key enabling technologies (following the framework of the Dutch Research Counsel) to make an impact on the key societal themes (following the framework of the Dutch mission-driven innovation policy). We actively seek investments that make an impact within the scope of these four key societal themes:
Health & Care (Social objective)
Energy Transition & Sustainability (Environmental objective)
Security (Social objective)
Agriculture, Water, and Food (Environmental objective).
Next to that the target company has the potential to make a significant impact through 1-3 impact indicators which are defined per investment in order to be able to measure the defined targets. Besides the fund-level indicators, DeepTechXL also applies a tailor-made approach specifically relevant to its portfolio companies. Since each portfolio company has its own impact objectives, they all have their own impact metrics, which they report frequently.
We believe it is crucial to invest in deep-tech innovations which address the grand challenges societies are facing, but also to contribute to a sustainable future, securing the continuous creation of new high value-add employment. Moreover, we think that this can only be fulfilled with diverse teams. We are convinced that with our fund and the strong support of our partners, we are going to make a positive impact on the creation of new, fast-growing deep-tech companies. By doing so, DeepTechXL contributes to SDG#5: Gender Equality, SDG #8: Decent Work and Economic Environment, and SDG #9: Industry, Innovation, and Infrastructure through its investment in its portfolio companies.
DeepTechXL has set up a strategic framework to assist itself in finding the right early-stage ventures. It consists of three layers. First, DeepTechXL aims to invest in purpose-driven deep-tech ventures. That means that these ventures have the purpose to contribute to the UN SDGs. Second, these ventures need to use key enabling technologies. These are engineering and fabrication technologies, advanced materials, photonics and light technologies, quantum technologies, digital technologies, and nano technologies, as acknowledged by the Dutch Research Council (Nederlandse Organisatie voorWetenschappelijk Onderzoek; NWO) based on a report of Elsevier ResearchIntelligence (ERI) (2018). In the third place, these technologies, in turn, positively impact and contribute to one (or more) of the key societal themes which are linked to SDGs.
DeepTechXL has created a set of sustainability-focused selection criteria that are binding.
These binding selection criteria are:
1. The target company adheres to the DeepTechXL exclusion criteria.
2. The target company adheres to the DeepTechXL investment guidelines.
3. The target company does not do significant harm and is not active in sectors that we consider inherently unsustainable.
DeepTechXL’s key indicator to adhere to its own sustainable investment objective is:·
A minimum of 80% of its portfolio companies use a key enabling technology, split per KET·
A 100% of its portfolio companies target a global environmental or societal problem, split per key societal theme·
A100% of its portfolio companies are aligned with the United Nations Sustainable Development Goals, split per SDG
DeepTechXL will ensure that the portfolio companies of DeepTechXL follow good governance practices through (i) the application of exclusion criteria, (ii) a due diligence process for selecting prospective investments and (iii) making sure that the portfolio companies include (good governance principles and procedures. The execution of good governance will be monitored yearly throughout the ESG questionnaire and through (bi-)weekly interactions with the management team. Finally, DeepTechXL has operationalised its vision on the good governance also through several clauses in its standard shareholders’ agreement.
DeepTechXL will only invest directly in portfolio companies. All investments will have a sustainable objective. The Fund is investing a minimum of 30% of its sustainable investments with a social objective and a minimum of 30% of its sustainable investments with an environmental objective. The Fund invests for 100% in sustainable investments. It is ex ante not possible to specify the asset allocation between both environmental and social objectives. Ultimately, 100%of its investments will either be allocated in environmental or social objectives.
DeepTechXL regularly assesses Fund indicators with the portfolio companies through standardised questionnaires, informing impact maturity levels and influencing the annual impact plan to ensure alignment with sustainable investment objectives, providing additional support when necessary. The results a rediscussed and used as input for the impact maturity level re-assessment. In turn, this serves as input for the impact game plan for the coming 12 months.Where and when needed, additional support is provided. Moreover, periodic measurement of the sustainability indicators is a means to monitor how the Fund adheres to its own sustainable investment objectives.
DeepTechXL monitors the Fund indicators by means of periodic re-assessment via the proprietary questionnaire. The results are discussed and used as input for the impact maturity level re-assessment. In turn, this serves as input for the impact game plan for the coming 12 months.Where and when needed, additional support is provided. Furthermore, periodic measurement of the sustainability indicators is a means to monitor how the Fund adheres to its own sustainable investment objectives.
In creating andupdating an impact hypothesis, DeepTechXL aims to triangulate data from threekey sources: management information, desk research, and reference calls (ifpossible). As part of the management information, we collectinformation through our periodic ESG questionnaire, including principle adverse impact, do nosignificant harm, and ESG performance,. The companies fill in the questionnairethemselves. Thus, data is directly obtained from management information.
The results of the questionnaire is assessed by theresponsible deal team and a do no significant harm assessment is made orupdated. The results are discussed with the companies’ management board,DeepTechXL’s Sustainability Officer, and the deal team to ensure accuracy ofthe data. Based on the information collected from the management, DeepTechXLwill fact-check the information through desk research, and if needed, referencclls. Via this triangulation principle, DeepTechXL aims to ensure proper dataquality
DeepTechXL has created a proprietary tool that is sent out to the portfolio company during due diligence. The deal team and the sustainability officer will perform a deep dive with the company to fill the assessment and determine the data quality.
Data is captured through a proprietary excel sheet. This excel sheet is shared with the portfolio company and is documented in a secure environment within the DeepTechXL intranet. Upon creating the annual reports, DeepTechXL aggregates the data via a proprietary excel sheet to be used as input for the different reports.
As DeepTechXL invests in the early-stage and typically (several) years before initial revenue, data is often not readily available or non-existent. Sometimes, it is even disproportionate to estimate the data. Therefore, we have decided to also report on the percentage of portfolio companies able to answer a certain question.
There is limited data on which an early-stage company can be assessed. Moreover, the quality of the data that is available is often not good enough and the data can often not be scaled. Second, it is uncertain how the early-stage companies will evolve in the future. Also, it is not known if the early-stage venture will ultimately reach commercialisation. Besides the known uncertainties, unknown unknowns which are inevitable at early stages of technological development make the outcome an assessment less reliable, such as rebound effects. Third, early-stage companies can often not be compared to existing, more mature companies. Furthermore, a challenge that applies to sustainability impact assessments in general, the heterogeneity of the various dimensions of and indicators for sustainability impact and risks (environmental, social, and economic) are difficult to compare or trade-off to each other. Also challenges that are inherent to early-stage companies complicate the execution of an assessment. Early-stage companies lack resources, financially, as well as time wise, as well as human capital-wise. For the latter, the problem is that an early-stage company team is often understaffed and not all relevant knowledge is available in house. The consequence is that these early-stage companies do not always measure all required ESG and sustainability data or have the right policies in place.
During the investment process, several actions arepursued to assess and analyze the societal contribution a company makes(impact), as well as the ESG precautionary principles a company has been takenito consideration. DeepTechXL has developed a science- and evidence-basedimpact investment process in collaboration with the Universityof Technology Eindhoven toensure the implementation of the sustainable investment objective of the Fund. Thisimpact investment process consists of four phases: 1) screening; 2) preliminaryassessment; 3) final assessment; and 4) post-investment. Each of these phasesconsists of multiple assessment activities. Some of these activities, in turn,also consist of various steps. Thus, it is a layered process where phasesconsist of activities and activities consist of steps. The impact investmentprocess rests on two key pillars: positive sustainability impact andsustainability
DeepTechXL believes that making a positive sustainability impact starts with building an impact hypothesis. DeepTechXL builds this impact hypothesis by combining the Theory of Change and the Dimensions of Impact. The impact hypothesis is mainly qualitative of nature. The quantitative part of the impact hypothesis is operationalised in the impact KPIs which are created per portfolio company. By combining these strategies, DeepTechXL can assess the significance of the sustainability impact of a company. DeepTechXL creates 1-3 impact KPIs per portfolio company.
The Theory of Change is a framework that helps explain how a startup’s activities lead to large-scale impact. It helps illustrating the causal linkages of shorter-term outputs, intermediate outcomes, and longer-term impacts. The result is an impact pathway showing how the companies’ activities eventually lead to sustainability impact. If information is unknown, the framework allows to make assumptions, making it suitable for early-stage companies.
DeepTechXL uses the Dimensions of Impact to refine the Theory of Change. The Dimensions of Impact are based on the Five Dimensions of Impact, developed by Impact Management Project (IMP) to measure impact, and three impact criteria as described by sustainability impact scientific literature.
The final part of the impact hypothesis is the development of the impact KPIs. Impact KPIs are based on the output section of the Theory of Change. It helps to operationalise the potential impact of a company and helps to track its performance on its journey to create large-scale impact. If possible, the impact should be translated into monetary terms. DeepTechXL aims to develop one to three ‘Impact KPIs’ per company.
DeepTechXL has installed an independent Impact Advisory Committee at the level of the Manager who can advise on the impact objectives of the Fund.
We monitor and engage with portfolio companies in the following manner:
- Frequent and periodic meetings with the portfolio companies·
- The sustainability impact and sustainability risks are periodically re-assessed (via the ESG questionnaire and ESG questionnaire), whereafter the results are discussed with the portfolio company, the deal team, and the sustainability officer, leading to an action plan for the coming 12 months.
- Possibility to have a seat in the supervisory board or non-executive board.
- If needed: Brain storm sessions with subject matter experts on key strategic topics.
DeepTechXL incorporates in its legal investment documents a clause stating that the portfolio company signs of on DeepTechXL’s sustainability policy and that they integrate it into their own processes.
We monitor and engage with portfolio companies in the following manner:
- Frequent and periodic meetings with the portfolio companies·
- The sustainability impact and sustainability risks are periodically re-assessed (via the ESG questionnaire and ESG questionnaire), whereafter the results are discussed with the portfolio company, the deal team, and the sustainability officer, leading to an action plan for the coming 12 months.
- Possibility to have a seat in the supervisory board or non-executive board.
- If needed: Brain storm sessions with subject matter experts on key strategic topics.
DeepTechXL incorporates in its legal investment documents a clause stating that the portfolio company signs of on DeepTechXL’s sustainability policy and that they integrate it into their own processes.
For the time being, no external reference benchmark is used. So far, DeepTechXL has not yet found a benchmark relevant for the data group of early-stage deep-tech ventures.
DeepTechXL acknowledges that it is of vital importance to embed continuous learning in both its own processes and procedures and their portfolio companies processes and procedures. Hence, it is expected that improvements on the sustainability investment methodology will be made in the coming years. Learnings are crucial to improve the assessment capabilities and drive efficiency in the process.
DeepTechXL aims to disclose the following elements of its ESG impact policy:
- Pre-contractual disclosures of the SFDR (Article III)
- Website disclosures
- Annual progress report of the SFDR (Article V)
- Annual impact reports
IMPACT RESPONSIBILITY REPORT 2022
BUILD BUSINESS RESILIENCE TO ENVIRONMENTAL AND SOCIAL CHALLENGES
CREATE SOLUTIONS TO ADDRESS GLOBAL GOALS
DeeptechXL’s approach to interpretation of SFDR article 9
While SFDR Article 9 provides a framework for integrating sustainability risks and factors into investment decision-making and disclosure, there is some level of interpretation freedom for DeeptechXL. Dealing with EARLY STAGE deep-tech ventures, creates opportunities to pave the way for making a positive impact on the grand challenges societies are facing. At the same time, we need to apply a practical approach while guiding these ventures in defining their impact strategies, KPI’s, monitoring, control and reporting. The regulation sets out high-level principles and requirements for assessing and disclosing sustainability risks and factors, but it does not prescribe a specific methodology or approach for doing so yet. This allows DeeptechXL to choose the most appropriate methods for our specific circumstances, taking into account factors such as the nature of our business, the types of investments we make, and the sustainability issues that are most relevant to our investment candidates and portfolio ventures. We de realize that we are expected to follow a principle-based approach and to apply the requirements of SFDR Article 9 in a consistent and transparent manner. This means that we should be able to explain our approach to integrating sustainability risks and factors to our investment candidates and portfolio companies and other stakeholders and provide evidence to support our disclosures. In addition, SFDR Article 9 is subject to ongoing regulatory guidance and interpretation, and we are expected to stay up to date with any changes and updates to the regulation and adjust our practices as needed to ensure compliance.
