Cambridge Innovation Capital Environmental Social and Governance (ESG) Investment Policy (Issued: January 2023)
Since its inception, Cambridge Innovation Capital Limited and its subsidiaries, including Cambridge Innovation Capital Manager Limited and its managed funds, (together “CIC”) have been aligned with positive environmental, social and governance (ESG) goals. With the implementation of this policy CIC is further strengthening and formalising this position with additional commitments to evaluate ESG risks and opportunities in its internal operations and investment practice.
This policy was approved by the board of Cambridge Innovation Capital Limited and will be reviewed periodically.
CIC was founded to support the development of innovation and entrepreneurship in the Cambridge ecosystem. CIC, and funds managed by CIC, invest in entrepreneurial founders building category leading, global businesses based on intellectual property developed in, or connected with, Cambridge.
CIC seeks to achieve strong financial returns for its shareholders, and the investors in funds managed by CIC, by investing in best-in-class companies and supporting the growth of those companies with resources available to CIC. Incorporating ESG principles into CIC’s investment practice aligns the investment activities with the core values of the CIC team and broader societal objectives. CIC believes that evaluating ESG risks and opportunities in its internal operations and investment practice will enhance financial returns for shareholders over the long term.
As an anchor institution in the Cambridge ecosystem, CIC seeks to demonstrate leadership in its investment practice, including the consideration of ESG issues in its investments. CIC works with partners and co-investors in Cambridge, and the broader innovation ecosystem, to accelerate the incorporation of ESG issues into portfolio company operations.
CIC is a signatory of the United Nations Principles for Responsible Investment. These principles advocate for a transparent and evidence-based investment and stewardship process that incorporates ESG issues.
By enabling the transition of innovation and entrepreneurship into global businesses, CIC’s investments are expected to deliver a positive impact, both in terms of the goods and services produced and in terms of the businesses themselves. CIC’s focus on life science and technology solutions delivers real benefits for stakeholders: CIC seeks to understand and capture this positive impact. Where appropriate, CIC also explores opportunities to enhance this impact in line with commercial imperatives. In addition, CIC’s investments generate employment. This policy outlines how CIC will identify and report on these positive impacts. At the same time, all businesses have the potential for negative ESG impact. This policy outlines how CIC will identify, mitigate, manage and report on ESG risks.
Overview of the process of identifying ESG risks and opportunities
As part of its due diligence process, CIC seeks to identify any ESG risks associated with a company’s activities. This includes risks relating to the company’s own operations as well as potential risks in its supply chain. Where CIC considers that the ESG risks could be material (either currently or when the business is scaled up), CIC works with the portfolio company on an action plan to manage the risks.
This process also recognises that many portfolio companies are at an early stage. CIC requires portfolio companies to put action plans in place to ensure mitigation, management and reporting on any immediate ESG risks, and provides guidance for them to put processes in place to manage ESG risks that may emerge as they scale up.
The CIC investment process incorporates consideration by the Investment Committee of these ESG issues in each investment decision, including new investments, follow-on investments and exits.
In terms of the opportunity for positive impact, the CIC investment process incorporates an assessment of the potential reach and depth of impact of the innovation, including the anticipated number of customers and the likely effect of the innovation on people and (where relevant) on the low-carbon economy and the environment. CIC also estimates the expected impact on employment (including the quality and diversity of employment where relevant). Given the early stage nature of CIC’s investment, these can only be broad estimates based on expected growth and market share, but the assessment provides an indication of the potential for positive impact. CIC monitors progress against these expected impacts.
CIC will use this information to produce an annual assessment of how its activities are contributing to the achievement of the UN’s Sustainable Development Goals (SDGs).
CIC seeks to demonstrate environmental leadership in both its internal operations and its investment practice.
Within its internal operations, CIC adopts best practices to reduce its carbon footprint and protect natural resources. These include managing energy use within CIC company buildings, supporting sustainable commuting for CIC employees, and minimising the carbon footprint of CIC corporate travel.
Within its investment practice, CIC does not invest in companies whose principal activity requires the extraction of fossil fuels. Instead, CIC proactively seeks investment opportunities in companies that accelerate the transition to a low carbon economy.
CIC encourages all its portfolio companies to incorporate an assessment of carbon impact and natural resource security into business decisions, including product design, manufacturing, distribution, consumption, and end-of-life product disposal. Where material ESG risks are identified, CIC works with the portfolio company to implement an action plan to address the risks over an appropriate timeframe.
CIC will facilitate the sharing of best sustainability practices between its portfolio companies and the broader Cambridge innovation ecosystem. This includes developing lists of recommended vendors and partners who uphold environment best practices and providing workshops for the CIC portfolio on identifying and reducing environmental risks.
CIC seeks to demonstrate leadership on social issues in both its internal operations and its investment practice.
CIC recognises that the human capital within the CIC team and its portfolio companies is its most valuable asset. CIC’s social policy is focused on growing and strengthening this human capital base. Advancing diversity, equality and inclusion in its recruitment and people management policies is central to CIC’s core values and culture. Furthermore, it is essential that the CIC investment team reflects the demographics and cultural mix of the entrepreneurs leading our portfolio companies and the customers and partners of those companies.
CIC requires gender and ethnic diversity on all shortlists for recruitment to new internal CIC positions.
CIC encourages all its portfolio companies to undertake an assessment of labour standards within their supply chains to identify any areas of potential concern in terms of workers’ rights either with the current sources of raw materials or component parts or with potential future sources as the business scales up.
CIC requires all portfolio companies to annually report to CIC the diversity profile of their workforce and engages with portfolio companies on strategies for improvement.
CIC tracks how compensation is distributed in each portfolio company. CIC provides benchmarks for appropriate cash and equity compensation required to recruit and retain world-class talent within its portfolio.
CIC requires all portfolio companies to have in place clear strategies and processes for consumer protection.
CIC promotes best practices for board governance in all its portfolio companies. As a Series A investor, CIC is often the first institutional investor to invest in a company. This provides CIC with the opportunity to instil best governance practices at an early stage. CIC pays particular attention to the following governance issues.
CIC requires all its employees, and those of its portfolio companies, to comply with all relevant laws and regulations and uphold the highest standards of business integrity. CIC employees, and those of its portfolio companies, must accept no bribes and declare any conflicts of interest.
CIC portfolio companies must comply with all appropriate regulations for employee health and safety, GDPR, consumer data protection, and cybersecurity.
CIC regularly reviews the board composition of each portfolio company to ensure it is appropriate for the needs of the company. CIC encourages all portfolio companies to set diversity targets for board composition and report annually on these targets to CIC.
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