Last year, in collaboration with Dealroom, this report proposed a methodology to measure entrepreneurial activity and capital invested into purpose-driven tech companies across Europe. This was based on a simple framework aligned with the United Nations Sustainable Development Goals (“SDGs”).
The first iteration in 2019's report focused on a subset that started with seven of the 17 SDGs. Since last year's report, Dealroom has continued to develop the methodology and build out its coverage of purpose-driven tech companies to enable an analysis that is now extended across all 17 SDGs.
For each of the individual SDGs, Dealroom's team has manually assigned keywords to tag companies in its platform with relevant categories. Each company is then individually reviewed and assigned to either “core” or “side” depending on the business model alignment with the SDGs, in other words whether it is core to a company's business model, or simply a peripheral or indirect aspect of the business model. By extending the analysis in this way, Dealroom has grown the dataset from 528 unique venture-backed, purpose-driven tech companies analysed in the 2019 report to over 3,000 in this year's report. As always, we understand the methodology has limitations and welcome feedback both in terms of scope and methodology in future iterations. The dataset and methodology are accessible on the 'Impact & Innovation' section of their website.
On climate specifically, we see a lot of forces at play in making this one of the most attractive investment opportunities in Europe, both in terms of profit and impact. Multiple European countries have committed to going carbon neutral before 2030, and there are notable changes in policies and regulations forcing businesses to shift gears and come up with new ways to operate in more sustainable ways. At the same time we see a raised awareness in consumers demanding change and more founders are moving to climate as being the most urgent problem for us to solve. All of these are contributing in giving Europe a competitive advantage in becoming the leader in climate tech.
Being purpose driven is not an advantage anymore: it’s a must! For consumers, investors, talents, and companies altogether. Nowadays, entrepreneurs cannot launch a company without a strong purpose driven mission. In France, we even modified our law with « La loi Pacte » to encourage companies to be more purpose driven and integrate their social and environmental issues in their business model. It is a radical change which shows how serious environmental and social issues are to us.
On the financing front, a look at some of the biggest amounts raised in 2020 show how attractive purpose driven Tech companies like Ynsect, Ecovadis, Backmarket or Alan have become. Tech for good founders have no problem raising big rounds in order to scale their companies. They are brilliantly demonstrating that profits and impact are compatible. In the Galion project we are thrilled to help scaling Tech for good founders: the first Impact Unicorns will be European!
Pictet has developed its own ESG assessment framework that we consistently use to evaluate GPs on the same basis. The assessment has three pillars: what is the commitment of the GP towards ESG; how ESG is taken into considerations in the investment activity; how does the GP report its ESG activity to LPs. We provide feedback to the GP based on our assessment and how they compare within our internal benchmark. Over time, as the assessment is reviewed, we track progress and continue to provide feedback.
Absolutely, we see LPs consistently developing greater sophistication across sustainability. We engage in a two-way conversation with our LPs, with both parties pushing the other to think more deeply about sustainability and our respective roles as advocates. For example, our Growth Equity team weaves sustainability into term sheets, mandating quarterly reporting of financial metrics alongside impact metrics. To us, measuring the full value of a company includes considering how value will accrue to all company stakeholders. We report on these metrics to our LPs, including through an annual sustainability report, portions of which we make public and house on our website.
We are deeply committed to measuring outcomes against our sustainability objectives of planetary health, people health and financial inclusion, and work diligently alongside our portfolio companies to do so. We measure not just what a company does (i.e. the products and services they deliver) but also how a company operates (i.e. the sustainability of their organisation and practices). In turn, our portfolio companies find this process valuable to help embed sustainability KPIs into their core product, management systems, and long term goal setting.