We wholeheartedly believe in supporting founders who are building the breakout businesses of tomorrow. They have the potential to shape their industries and, in doing so, improve the way we live, interact, and consume. Throughout our 12-plus year history, over which time we’ve backed 50+ companies, we’ve remained steadfast in our mission to back talent from a region that’s often been overlooked by the capital markets. 

We encourage our portfolio companies, although very early in their journeys, to start thinking about how to build a sustainable and durable business from our first investment. We believe strongly that the true way to build an impactful company that diverse talent will want to be a part of and that contributes positively to the world is to embed these practices from the earliest stages.

ESG issues were first mentioned in the 2006 United Nations Principles for Responsible Investment (PRI). It stands for:

• Environmental. Impact on and conservation of the natural world
• Social. Consideration of people & relationships
• Governance. Standards for running a company

ESG to us means building companies that are ethical, responsible, and sustainable in the way they operate. While a plethora of detailed frameworks and definitions of ESG exist, most are not fit for usage in venture capital and for working with early stage technology startups. We are hence following the definition of ESG developed with and by VentureESG which defines ESG across eight (8) issue areas linked to E, S and G respectively.

•   Environmental

1. ( 1 ) GHG Footprint and Mitigation. Considering the environmental impact from Scope (directly caused by the company/VC, e.g. through facilities) and Scope 2 (indirectly caused, e.g. energy, electricity, waste) to Scope 3 (caused by upstream and downstream activities, e.g. business travel, transportation of the product, customers’ energy usage); targeting both measuring but most importantly reducing the impact across all scopes (at fund and portfolio level)

•   Social

2. ( 2 ) Employee/ Contractor Wellbeing. Building a strong culture and being a conscientious organization (e.g. offering considerate parental leave)
3. ( 3 ) Diversity, Equity, Inclusion (DEI). Integrating DEI practices across all areas of our business (e.g. diversity of the fund or the founding teams, inclusive hiring practices)
4. ( 4 ) Responsible Technology & Product Design (incl. use of AI). Designing and building products with consideration of the ethical implications on the end-user and society
5. Supply chain. Working towards an ethical and environmentally resilient supply chain

•   Governance

6. ( 6 ) Legal, Compliance and Ethics. Legal and regulatory. Being on top of and aligned to the latest laws, regulations and compliance standards (e.g. GDPR (and equivalent), UN Guiding Principles of Business and Human Rights, the eight core ILO conventions)
7. ( 7 ) Data Privacy and Security. Instilling a strong culture of trust, responsibility and best practice (e.g. with internal systems) around data
8. ( 8 ) Board/ Governance effectiveness. Having appropriate governance structures in place, according to the company’s stage (e.g. board structure, share structure); writing out a code of conduct (committing the company to high ethical standards)

Applying ESG principles is not only based on a comprehensive set of considerations specific to us as an investor and the startups we invest in; we also think through how ESG applies to the entire investment process from sourcing and screening to due diligence and portfolio management and exit.

A) Investment Philosophy

While from a regulatory perspective sustainability factors do not play a decisive role in our investment process across funds, we do believe that from a commercial perspective helping companies adhere to ESG principles once we invest makes them more robust and our portfolio stronger over the long term. 

Thematically, we tend to avoid “vice industries” (alcohol, tobacco, drugs, adult entertainment, etc.), human cloning, and any activities that would be deemed illegal by national or international laws and conventions. We also won’t invest in non-West aligned countries. To the extent military spending becomes a priority for the EU, we would strongly consider supporting the bloc’s objectives with our capital. 

Where the founder has any history of low-integrity behaviour, or the company has an ethically dubious supply chain, we would likewise disengage. A company’s awareness of and attitude towards sustainability is part of our holistic assessment of teams and markets in which they operate.   

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B) Portfolio Management

Our companies have to attend to a long list of to-dos and sustainability-aligned operations is one of them. We take a developmental approach towards fostering sustainability at our portfolio companies and our main goal is to guide them towards sequential improvement rather than “all or nothing” strict monitoring of compliance from Day 1.  

Once we have committed to invest in a company, ESG considerations shall guide our portfolio management with a focus on both risk mitigation and value creation. 

We share resources such as a code of conduct and parental leave policies, and health & safety incident reporting mechanisms. These are “low hanging fruits” that can be implemented quickly and adherence to which can be monitored on a regular basis. KPIs can be established where that is sensible and an ongoing raising of awareness and refinement of attitude towards sustainability is expected.  

The larger the organisation, the higher our demands would be for detailed tracking and reporting. We’re also cognizant that later-stage investor and eventual purchasers of our companies will be focused on our company’s approach to sustainability and we are keen to avoid any roadblocks in those processes.

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C) Community and Communications

We are committed to ensuring a high level of accessibility to us and diversity of our community. Concretely, we have put in place the following mechanisms:

Open application process: to counteract the need for ‘warm introduction’, we have installed a simple form on our website for founders to send us their pitch documentation. All applications are screened by at least one member of the investment team

Partnerships with universities (MFF UK in Prague, for example) and open invitation events in key cities (Prague, Warsaw, Budapest, etc.)  

Usage of accessible language: On our website as well as in all communication, we are careful to use accessible language (e.g. gender inclusive)

Our fund is part of the international VentureESG initiative and community, a group of over 150 VC funds between the US, Europe and Israel driving the industry towards more consideration of ESG principles. We intend to further contribute to this development by both embodying the ESG principles set out in this memo within our fund and helping our portfolio to do the same. We aim to work towards a global ESG ecosystem by sharing and encouraging our practices across the VC landscape. In addition, we were the founding sponsors of Included VC which is actively driving diversity and inclusion in the venture capital industry.

Sustainability does not only apply to how we help our portfolio companies flourish and grow but it is also part of how we internally manage our fund. Being in a strong position when it comes to ESG ourselves not only makes our demands to portfolio companies more believable, it also strengthens our position as a VC firm.

• ESG responsibility: while every member of our team is concerned with ESG when supporting portfolio companies, we have assigned the overall responsibility for ESG to Martin Rajcan (martin.rajcan@kaya.vc). Our approach to ESG will be discussed regularly in our partner meetings (at least once a year) and any material issues will be brought up during our Quarterly Portfolio Review session, or sooner as needed.   
• Hiring and working environment: we are committed to hiring a diverse team and providing an inclusive working environment.
• Good governance: all our decision making in both the LP Advisory Committee  and the investment committee is committed to good governance principles.
  

These disclosures are relevant at the entity level and relate to KAYA VC GP S.à r.l (the “General Partner” or “KAYA”), which is registered as a Luxembourg AIFM. They are based on requirements of the Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“SFDR”) and its accompanying Commission Delegated Regulation (EU) 2022/1288 (“Regulatory technical standards” or “RTS”).

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Integration of sustainability risks in the investment decision making process (Article 3 (1) of SFDR) 

According to Article 3 of EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”), financial market participants shall publish on their websites information about their policies on the integration of sustainability risks in their investment decision-making process. 

A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment (recital 14 of SFDR). We at KAYA have developed our own Sustainability and ESG approach that uses a set of environmental, social and governance indicators to evaluate ESG risks and opportunities of potential investments. Our Sustainability and ESG approach is described in the section "Sustainability and ESG" and is kept up to date based on current regulatory and market developments.

The Sustainability and ESG approach is applicable throughout the whole investment process. Based on data collected in due diligence, we formulate an ESG evaluation conclusion as needed, that we work with in the subsequent portfolio management. We apply a risk-based approach and where there is suspicion we would perform anti-bribery and anti-corruption due diligence on the target companies and examine the company’s alignment with relevant regulations (GDPR, labour law, corporate law).

During the holding period, we discuss potential opportunities with the start-up leadership team. Later we perform an annual assessment to detect progress in the risk and opportunity areas that we have discussed.

To keep our ESG approach up to date we are partnering with leading global communities such as VentureESG group.

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Statement on principal adverse impacts of investment decisions on sustainability factors (Article 4 of RTS) based on Article 4 of SFDR

According to Article 4 of SFDR, financial market participants shall publish a statement on their websites on whether they do or don’t consider the principal adverse impacts of their investment decisions on sustainability factors.

From a regulatory standpoint, we do not integrate quantified sustainability risks in the investment process and our investee companies are selected based on other characteristics. This is mainly due to the fact that we currently lack the capacity to assess sustainability risks in a comprehensive and consistent manner. Similarly, at the moment we do not consider Principal Adverse Impacts (PAIs) on sustainability factors due to the lack of consistent ESG data and the resources required for such detailed assessments. In summary, our investments do not consider the EU-defined criteria for environmentally sustainable economic activities. Decisions and disclosures regarding Articles 6 and 7 of the SFDR and Article 7 of the Taxonomy will be made as required by their respective deadlines and published on our website.

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Transparency of remuneration policies in relation to the integration of sustainability risks (Article 5 of regulation (EU) 2019/2088, i.e. SFDR)

According to Article 5 of SFDR, financial market participants shall publish on their websites information about how their remuneration policies are consistent with the integration of sustainability risks. KAYA’s remuneration policies, procedures and practices have not been specifically designed to promote sound and effective risk management and discourage risk-taking which is inconsistent with the risk profiles and investment strategies of KAYA’s funds. However, as general risk management is an integral part of our investment strategies, it is also incorporated into our remuneration policies.

We are committed to complying with applicable data protection law and following best practise data guidelines to safeguard all data that we collect, process and hold. For these purposes, “Data” means any information which relates to an identified or identifiable person. If at any time you have a query about how your Data is used, please contact hello@kaya.vc 

Please note Fund specific privacy notices for existing investors in our Funds have been distributed directly to the nominated contact of each investor.