Modern distributed systems have more complexity, components and data than ever before. Too many companies rely on inefficient and insecure middleware to connect their growing number of applications and microservices. Legacy solutions are falling…Read More
Environmental, Social, and Governance (ESG) refers to the three pillars of corporate sustainability that have become increasingly important over the past few decades – not only to major institutions and large enterprises but emerging startups. Organizations of all sizes realize that implementing ESG practices is not only good for people and our planet but can also yield significant material benefits and increase enterprise value. In taking our mission-driven approach to investing, Forgepoint has always grounded itself in diversity, equity, and inclusion in how we’ve built our team and work with the exceptional companies in our portfolio. As a result, we’re proud to have more Asian and Pacific Islanders, Blacks, Hispanics/Latinos, and Veterans represented than industry averages in VC, and multiple examples of how we’ve worked with our portfolio CEOs to diversify and augment their teams as their companies scale. We’ve also incorporated ESG into many other ways we invest and operate. Since we’re frequently asked how we approach ESG here at Forgepoint, I wanted to take a moment to share perspective on what we do and why.
Our ESG Journey and “Walking the Talk”: Eight Things We’ve Done, Still Do, and Why
1. Doing our (ongoing) homework. We began with industry research, to learn more about ESG, gather best practices across industries, and document helpful resources. This included informational calls with ESG experts across different dimensions, as well as other firms, companies, and associations. We continue to attend industry conferences and meetups on ESG and responsible investing.
2. Joining related associations and initiatives. First, we became a founding signatory for the UN Principles of Responsible Investment and the Institutional Limited Partner Association Diversity in Action Initiative. Then we joined the ESG Data Convergence Initiative, which was started by CalPERS and Carlyle Group along with over 100 leading GP’s and LP’s (with a combined $8.7T+ in AUM and more than 1400 portfolio companies) to align on a standardized set of ESG metrics and mechanism for comparative reporting. This helped inform what data to collect and how to collect it all, adapting our processes and tools then educating our teams on what actions we could take as a result.
3. Introduced a due diligence checklist. We soon realized the opportunities to improve ESG start pre-investment. We already proactively looked for startups founded or led by diverse founders. A due diligence checklist spanning company DEI as well as data governance, employee working conditions, community engagement has become an important part of our investment conversations when we meet with exceptional founders. While responses do not preclude investment, this checklist opens up discussion on how to make more ESG impact while helping us understand our shared values and how we might collaborate as partners.
4. Identified low friction ways to encourage ESG participation. Operationally, we knew where we stood on the E, the S, and the G. We opted to
- Adapt our portfolio monitoring solution for improved firm and portfolio visibility into key metrics, e.g. leadership and board diversity.
- Implement our own carbon offset program and employee reimbursement policy.
- Adopt eco-friendly practices, from buying sustainable office supplies to a recycling and composting program to using non-disposable dishware and utensils.
- Introduce a charitable matching program for employees to contribute to non-profit organizations of their choice.
- Include ESG as part of employee annual performance reviews.
5. Developed our ESG Handbook. In mid-2020, we synthesized everything we learned so far in the initial draft of a handbook for our firm and portfolio, including guidance by company stage based on our work with startups. Our ESG Handbook is now a digital PDF anyone can download and adapt for their company. We continue to update it with new industry guidance and resources as well as our own activities in case helpful.
6. Established a dedicated subcommittee. We set up an internal group (spanning investment, growth platform, operations) which meets regularly to coordinate plans and ensure we’re continuously improving. In addition to bringing new ideas and suggestions, each member has a focus area and reports back on plans and results.
7. Became more intentional in how we engage and raise awareness across the community. Representation matters and is part of what we do, from recruiting and hiring across our team and portfolio to the expert speakers we celebrate at events to the people and organizations with whom we partner. This includes being intentional about our pipeline, mentoring underrepresented talent, and bridging conversations across different stakeholders and groups.
8. Celebrate and come together around ESG, while supporting great causes. One of our team members took it upon herself to set up a holiday giving tree for a local nonprofit, while another is organizing a day of tree planting. We also incorporate charitable giving in our marketing programs, not just around specific holidays but in support of non-profit organizations whenever we request survey feedback after executive events.
So why now and what’s next?
Although there are major efforts to change this, cybersecurity is regrettably one of the least diverse industries out there. It is upon us to make that change for good reason. As many of the world’s most respected research organizations like Gartner, McKinsey, and the World Economic Forum have reported, companies with higher diversity scores (ethnicity, gender, and other dimensions) demonstrate stronger performance. They also tend to have better reputations with higher brand value, customer loyalty, and more positive public perception. We see this as well on the frontlines of our companies – that more diverse teams that anchor on ESG principles tend to do better – especially in attracting likeminded customers and investors, and recruiting talent within such a competitive market. We view ESG as our shared responsibility and commitment to humanity’s future, as well as a strategic advantage in creating high performing teams in the present. Though we’re like a startup ourselves in the size of our operations, we want to “walk the talk” and demonstrate ESG is possible, even if you have a small team.
Our ESG journey is far from complete, but step by step we are making progress. Have ideas on what else we could be doing? We’d love to hear them. Let us know.
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