July 7, 2022
As a family office we invest our capital in sustainable investments and solutions for planetary and social challenges, preferably in innovations and new technologies, with the aim of making them affordable and accessible enough to be applied on a large scale.
To ensure that the companies we invest in, or the donations we make, have a positive impact, we have developed a methodology to make impact measurable. This ‘impact score’, which measures to what extent an investment or donation contributes to the solutions of tomorrow, provides a tangible and visible measurement of impact and allows us to see what, and how, we can improve. For years VP Capital has been striving for Sustainable Progress. Although the most sustainable path is not always the easiest, we are 100% committed to it. We do this because we see the need, feel the responsibility, and believe in the opportunities that sustainable progress offers. We want to contribute to solutions that are needed, both on an environmental and a social level.
How our Progress Score is structured
To make our efforts measurable and ensure that we are using our capital for positive impact, all our investments and donations undergo an extensive ESG and impact screening, resulting in a Progress Score, on a scale of 1-10, with a list of potential follow-up steps to improve the score. In this way, we can accurately monitor to what extent our capital is making progress on a social and planetary level.
We screen all our companies, funds and charities. In doing so, we check to what extent they take ESG in account and to what extent an investment or donation contributes to solutions for planetary or societal challenges.
To determine the ESG score, we look specifically at how well ESG is integrated into the policy of a company or fund. A high ESG score means that there are long-term commitments, that policies have been drawn up, that progress is reported and that responsibility for ESG is guaranteed in an organization.
We want to bring the ESG score more explicitly into balance with the actual contribution a company makes to solving a social or ecological problem (key challenge). This created the Impact Score. With our impact scores, we are anticipating the rules that the EU is making to combat greenwashing. They ensure that a fund or company can only claim the label 'sustainable' if it actually contributes to a 'solution for a key challenge'. These were drawn up for our investment areas by consulting firm Sinzer. MJ Hudson, then applied to analyze the extent to which our companies, funds and their underlying assets contribute to solutions for these key challenges. All companies are then scored on an axis from 'causes harm' to 'contributes to solutions'. In this way, we identify the extent to which companies offer solutions to specific domain challenges.
We give each investment points on a scale of 1-5 for ESG management and 1-5 for impact, specifically for each asset class. We add these scores together to give each investment a total score out of 10. We weight the scores of all our investments according to their market value in relation to the value of our total investment portfolio. This weighting results in an overall Progress Score for VP Capital. By measuring this score annually, we can monitor our sustainable progress.
Is impact the same for every sector?
Our investments and donations are situated within eight domains: Agrifood, Energy Transition, Smart Industry, Media, Textiles, Health, Real Estate and Water. In each of our eight investment domains, there are different challenges and possible solutions. For example, in Agrifood it is necessary to work on healthier soils, while in the media landscape independent journalism is particularly important.
For each of our investment domains, the consultancy Sinzer drew up the most important challenges and investable solutions. All companies in which we invest directly or indirectly were screened according to an impact ladder. The impact of a domain is represented by an impact score. The impact scores of individual funds, donations and companies reveal the extent to which they contribute to solutions for key challenges through their products and services. The more companies contribute to solutions for key challenges, the higher their impact score. The impact score per domain is the weighted average of the impact scores of all companies and funds within a domain.
We deliberately invest more and more in impact companies and impact funds that intrinsically contribute to such solutions, and in this pillar we monitor how far our capital has already gone in this respect. The extent to which we use our capital for innovations or donations is also monitored in this pillar.
Curious about the challenges per sector? You can find them in the full report starting on page 34.
What do we do with the results?
At VP Capital we have several ways to further improve our Progress Score. The most efficient way is to keep talking to our direct investments and, as an active owner, we want to encourage them to make changes. After all, most of our capital is in direct investments. For all direct investments, we make a screening on the basis of ESG and impact. We follow up on the actions of the past year, help to draw up roadmaps for the short and long term, and record actions for the following year. For direct investments, we also monitor various negative and positive impact KPIs.
For all fund investments, we make a screening based on ESG and impact. We discuss the overview with our funds and adjust it if necessary. This enables us to discuss points for improvement. We can work with our other investments to improve their ESG and impact scores.
Finally, we can select new investments which create a positive impact and as such contribute to a higher score. Conversely, we can say goodbye to investments that (continue to) underperform.
How do we improve our approach?
Various new European directives will come into force in the coming years. There is the Sustainable Finance Disclosures Regulation (SFDR) for more transparency in the financial sector. The Corporate Sustainability Reporting Directive (CSRD) must ensure compulsory and uniform sustainability reporting for companies, and the EU Taxonomy will be introduced to classify sustainable activities.
As a result of all these regulations, a large amount of information will soon be available. We want to use this information to better map out the impact of our investment decisions. In the coming years, for example, we will report on the proportion of our fund investments that fall into the categories of Articles 8 and 9, and in time we will also link targets to this.
We are well aware that the landscape of impact investing and the knowledge of sustainability is constantly changing. Therefore, we remain critical of our approach and adjust it when necessary.
Read more in our Progress Report: Progress Report - VP Capital