daphni chronicles
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daphni chronicles

No more greenwashing, time for actions!

During a recent webinar organised for the daphni community, we had the chance to listen to the feedback of our 3 guests, on the theme ‘No more greenwashing, time for actions’. Because sharing is caring, we want to give you all the insights we had during this very interesting session. We hope it will help some of you to have a clearer view of this crucial subject. But first of all, let us introduce you to our sources of inspiration:

  • Antoine Msika is the Communications Manager of Shine. He participated in the B Corp labelling of the neobank, first with a social focus, then with an environmental one. Now trained to lead the ‘Fresque pour le Climat’ with Shine’s teams and their clients, he has explained to us how far they have come since their creation!
  • Isabelle Combarel is an investor and Head of Development & ESG at SWEN Capital Partners. She has been asking the same questions we are asking today for 15 years. ESG, CSR, SRI, B Corp… All these acronyms have no secret for her (and soon for you too)!
  • Paul Bazin has been an investor at daphni for almost 5 years. Green issues are no longer just a “trend” in venture capital funds, which must now also act and implement concrete actions to meet the environmental, social and societal challenges of tomorrow. Paul leads this key topic at daphni and he is THE reference for us (we may be a bit biased)!

Always start with the basics

Before diving deeper into the subject, let’s contextualise. In the 90’s, we used to talk a lot about the 3Ps (People, Profit, Planet), also known as the triple bottom line. It was the adaptation of the notion of sustainable development in business. Today, we clearly shifted as we talk about the so-called ‘ESG criteria’. The E stands for Environment, the S for Social, and the G for Governance.

But what are these ESG criteria? According to the UNPRI (United Nations Principles for Responsible Investment), the non-financial information — following the ESG criteria — concerns environment when related to pollution, gas emissions, climate change, waste management, biodiversity loss, stratospheric ozone depletion, renewable energy and natural systems; society when related to human well-being, good working conditions, human rights and similar and, finally, and governance when focused on board size, structure and independence, gender diversity, skills development, internal control, easy access to information, ethical codes, shareholder relations and engagement.

ESG was not born all at once by magic. Its growth is rooted in CSR (Corporate Social Responsibility. According to ISO 26000 regulations, published in 2010, CSR is ‘An organisation’s responsibility towards the impacts of its decisions and activities on society and the environment, resulting in transparent and ethical behavior that contributes to sustainable development, takes into account the expectations of stakeholders, respects current laws and is compatible with international standards, and is integrated throughout the organisation and implemented in its relationships.’

CSR has come a long way and marked the starting point for companies to take responsibility for their impact on society, morphing from a nice thing to do to what it is today: a necessity.

Nowadays, implementing a CSR strategy could be focused on the importance of ESG integration for the transition toward a more responsible and sustainable activity, as well as more sustainable development.

Before entering in the details, there is one golden rule you must know: a sustainable transformation cannot be possible if it is not empowered by the top management, carrying the project. Therefore, entrepreneurs, CEO, founders, co-founders, this all starts with you guys! Then, beyond the top management, project leaders will allow a sensational infusion in all the organisation and give this very special mindset to all the team. Look at the pioneers: Veja, Danone, Phénix, Patagonia… They all brilliantly succeed and now it’s our turn. Let’s get on track!

For the record, Shine’s co-founder Nicolas is a fan of Patagonia, and Antoine followed suit and highly recommends the book “Let My People Go Surfing” which was written by the brand’s founder, Yvon Chouinard. It’s kind of the Shine bible!

Anyway, you may ask yourself a question…

But how concretely initiate this sustainable transformation project?

Let’s dig a bit now into what we can do. Let’s focus on the social, environmental and governance issues.

Because we have to start somewhere. Remember that small steps lead to giant improvements. Shine is a great example, as they first start to work on the social pillar, and then focus on the environmental one.

Social. The social aspect is relatively simple to implement when you are a small company. The objective is to have a team that works in good conditions, that feels good. You know: having a team happy to wake up every morning is not that hard, but it has to be well organised and also well formalised. This is very important to structure and write clearly what you are able to do and follow what you are saying!

As an employer, we must be the guarantor of a healthy and stimulating work environment for all the employees, while respecting the dignity of each individual. Moreover, we must be committed to ensuring the safety and to protect health and well-being of the employees, in respecting the legal provisions in force, the monitoring of procedures, prevention of health risks and professionals, and by ensuring staff training.

This is achieved through many different actions — and we may have forgotten lots of them.

  • freedom to express disagreement and ideas
  • feedbacks culture implementation
  • inclusion of employees in structuring decisions for the organization
  • training rights
  • sponsorship, volunteer activity, freelance day(s)
  • public pay scale
  • telecommuting
  • benefits (transport, restauration, mutual, sport)

Environment. For the environment pillar, it all starts with raising the awareness of your team and clients. A committed team will have a greater impact because of its motivation. And it’s very important that people don’t see as constraints — protecting and saving our planet shouldn’t be seen as constraints at all. This is your role to educate as much as you can your team to respect the environment at least when they are in the office. To do so, there are several tiny actions to set up. Same that for the social, you won’t be PERFECT.

If we continue on the example of Shine, Antoine told us it started simply by setting up a cupboard full of tupperware so that the teams could go and get lunch while avoiding waste as much as possible. It raises a lot of awareness on a personal level as well. Then they decided to go further, and that’s where the carbon footprint came in, to really measure the company’s CO2 emissions, and find out where they were bad (and good), and what were the avenues for improvement. Always in this will of transparency, the carbon footprint is made public every year! At Shine, they actually do not offset their emissions for the moment. They are against it because they prefer to first measure and reduce. Once they have reduced as much as possible, they will be able to compensate. Shine’s environmental policy is based on 3 pillars: measuring and reducing emissions, raising the awareness of the teams, and raising the awareness of the customers.

Antoine shared his best practices in the office: anti-waste, waste management, attention to electricity and water consumption, employee transportation, avoid greenwashing at all costs… We could go on and on but we would rather explain one of Antoine’s hats: being animator of the ‘Fresque pour le Climat’ workshop. It is a playful workshop of about 3 hours composed of 42 cards to understand climate change. Its mission is to make as many people as possible in the world aware of the causes and consequences of climate change and its systemic nature. Antoine is responsible at Shine for facilitating this workshop for all new employees who arrive, as well as sometimes to their clients. He highly recommends it: check the online sessions here.

Governance. The governance criteria may appear to be the least talked about, but it is just as important as the E and S as you would expect. It ensures “the independence of the board of directors and the presence of an audit committee, transparency in the remuneration of executives and actions to combat corruption”. Indeed, governance covers a broad range of corporate activities including board, management structure as well as audit, compliance, standards and company’s policies.

Investors can screen for governance practices, as they would for environmental and social factors. Positive ones can enhance companies with transparent strong governance policies practices, whereas negative screens can be used to rule out companies whose governance policies and practices expose them to unacceptable levels of risk.

For example, investors would like to know that an organisation’s accounting is transparent, accurate and that its business practices are ethical. They also like to invest in companies with an accountable and diverse board of directors and see policies that encourage shareholder engagement.

‘But first, you need to find your “raison d’être” which is a guide. A guide that allows us to be even more effective, and ultimately even more straight in our shoes in all our management decisions as business managers.’ said Isabelle from SWEN Capital Partners.

We might have named some labels or initiatives you’re not familiar with — and far be it from us to lose you along the way! — so here is a clearer picture with a non-exhaustive list:

Labels for all

B Corp label — It is an American label that recognizes the “best companies for the world”. This label judges 5 points: governance, impact on the community, environment, customers and employees. In each category, there is a certain number of points and to obtain the label you need to accumulate 80 points. It is quite demanding but it helps a lot to improve in the long term.

LUCIE label — LUCIE is the French reference CSR label developed in partnership with VIGEO and AFNOR Certification. The LUCIE label is a simple, cost-effective process adapted to different types of structures, enabling a company to assess, structure and promote its CSR actions and commitments to all its stakeholders, in line with the ISO 26000 standard.

Finance focused labels

ISR label — A French label created in 2016 whose objective is to offer greater visibility to French investment funds that respect the principles of socially responsible investment.

Greenfin label — The Greenfin label guarantees the green quality of investment funds and is aimed at financial players who act in the service of the common good through transparent and sustainable practices. It has the particularity of excluding funds that invest in companies operating in the nuclear and fossil fuel sectors.

To go further

1% for the planet — This worldwide movement is led by companies that have decided to donate 1% of their sales to environmental protection associations. More than 2,500 companies are members of this movement, including Shine, that wrote an article about it.

Time for the planet — This is a nonprofit fund that wants to create and finance 100 companies to fight against greenhouse gases. This mission-driven company plans to reach €1 billion within five to ten years.

Surfrider Foundation — This non-profit association is in charge of the protection and the development of lakes, rivers, ocean, waves and coastline, active in three specific areas: aquatic waste, water quality and health, coastal development and climate change.

Now that you have all the knowledge needed, there is one question left:

And how to infuse and irrigate it?

The ESG/CSR strategy is intended to infuse all levels of the company to make it truly work. To accomplish this mission, several stakeholders operate.

Do VCs and investors have a role?

We can see a growing importance that investors place in environmental, social and governance criteria. All VCs consider the subject as a hot topic, even if they think about it with more or less conviction, thinks Paul from daphni. Since the beginning of the year, everyone in the VC community has been doing this, driven by LPs asking for more accurate information. This year is a breakthrough year, there are a large number of VCs who have been certified B Corp. ‘There is a real traffic jam to get the label today!’ said Isabelle. However, ‘It is not necessarily those who are certified B Corp who are the most active in supporting these issues’ adds Paul, ‘but at least we’re all going in the same direction, so it will make it easier to provide support.’ As an investor, we have real leverage on this.

Today, less and less VCs can continue without an ESG strategy. The covid crisis has contributed to this change of pace and mentality by forcing investors to question the impact of human activities on the environment. This context has reinforced an awareness in society to create a more sustainable society. All the VCs, by nature close to startups, cannot stay away from this movement and thus participate in initiatives such as Leaders for Climate Action.

‘At daphni, we are primarily active in our investment choices, but we have also always asked our future investments to include an ESG reporting clause in their shareholder agreement, which has been reinforced since the launch of our second fund, Yellow, in September.’ says Paul

Project leaders and top management have also their role to play

A few years ago, there was an explosion of Chief Digital Officers, whose mission was to manage the entire digital transformation of a company. However, we quickly realised that their mission was to prepare their disappearance. Indeed, their position was equivalent to making digital so natural and omnipresent that it would become superfluous.

Today, CSR is becoming a transversal subject, like digital, and must be everywhere and irrigate the whole company. This is why, according to Antoine, we don’t need a single person responsible for its implementation, but rather many project leaders to manage these subjects. Just like digital, CSR must make its way to the heart of a company’s strategic concerns. Paul says: ‘We need to put extra-financial criteria in strategic committees.’ Isabelle agrees ‘Today, financial performance and numbers must take a back seat to a company’s values and purpose.’ Another interesting element is that large groups are putting CSR at the level of the financial department and their governance. There are now CFOs of major structures who speak out on ESG/CSR issues, and today more and more boards are appointing ESG advisors and even setting up ESG/CSR committees, which shows that we are facing a strategic challenge!

What about regulations, in all this?

The collective consciousness has emerged

‘Today, companies must respond to the notion of double materiality: they are no longer solely responsible for themselves, but also for their impact on society,’ writes Gwendal Bihan, co-founder of Axionable, in his article Responsables RSE, par ici la sortie! for Les Echos

In recent times, entrepreneurs, investors, and policymakers have engaged into a lively debate about the need for an urgent global transition toward sustainable development. This transition involves a rapid collective reorientation and restructuring of institutions toward more effective governance and with a stronger emphasis on planetary concerns in economic governance, therefore also in investments and finance. It emphasises how much the role of finance has changed the last past years, moving from the focus on profit maximisation and wealth to a growing attentiveness about environmental and societal issues such as climate change becoming fundamental in the transition toward sustainable development.

In fact, a well-developed and ethically oriented financial system can contribute to the achievement of the global goal of sustainable development and to build a more sustainable society to live in.

The shift from nice-to-have to must-have

Isabelle believes for 15 years that those responsible strategies should emanate from compagnies as it is a powerful mechanism to help them set their goals for further improvement, create positive impact (socially and environmentally), and track the performance over the time. In addition to the fact that organisations are expected to build a sustainable world, sustainable development is a strategic axis for those who aim for the long term.

Actually, there is no better way to attract and engage mission-aligned talent and to make a company built on a solid legal foundation for the long term. Indeed, on the subject of employer branding, addressing societal and environmental issues is no longer an option to meet the aspirations of young talent. Isabelle taught us how crucial it is to have a clear CSR strategy and even beyond having one, having leaders to empower it!

Isabelle adds that if we don’t do it ourselves, we will be forced to do it by the regulations that are coming. ESG will become central to future regulation. We have to prepare for the day when it will be much more important and this is already happening.

The end (of this article, but the beginning of our actions!)

For several years, we can see emerging the need for a better and more standardised communication of the environmental and social impact of ESG as well as a CSR strategy, together with the settlement of better ways to measure this impact, to stimulate investors choice and, in so doing, to push finance toward sustainability.

This article contributed to better understand the potential of ESG integration and the related communication for the transition of investment behavior toward a more responsible and sustainable approach (micro-level), which can add long-lasting sustainability to the whole society (macro-level).

If you wanna discuss the topic, do not hesitate to ping us!

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Daphni is a Venture Capital mutant