Responsible Investment Policy

Overview


DN Capital has recently upgraded its ESG framework. The investment professionals at DN Capital will be conducting pre-investment due diligence for each new portfolio company, using a questionnaire, to ensure compliance with ESG standards.

DN Capital’s new ESG questionnaire can also enable the DN Capital team to identify and understand how strategies can be implemented in order to improve the ESG scores of existing portfolio companies. The ESG topics can be included on board agendas of boards as areas of possible value creation or to manage potential threats to the portfolio company’s business.

DN Capital’s investment mandate together with the firm’s focus upon the governance of the business, including an active engagement with the firm’s strategic direction, have enabled DN Capital to manage the ESG factors to date.

The DN Capital processes regarding responsible investment and compliance with Environmental Social and Governance (‘ESG’) policies includes a number of stages covering:

1) Compliance with the Investment Mandate
2) Due diligence processes and completion of an ESG checklist
3) Active Board involvement with larger investments and monitoring diversity

1) Compliance with Investment Mandate - excluded investment sectors

The investment mandate imposes investment restrictions prohibiting investment in any activities which:

(a) Are illegal under the laws or regulations, including without limitation, human cloning for reproduction purposes);
(b) Involve the production of and trade in tobacco and distilled alcoholic beverages and related products;
(c) Involve the production of and trade in weapons and ammunition of any kind, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;
(d) Are casinos and equivalent enterprises;
(e) Involve the research, development or technical applications relating to electronic data programs or solutions, which:

(i) Aim specifically at:

- supporting any activity referred to under items (a) to (d) above;
- internet gambling and online casinos; or
- pornography, or which:

(ii) Are intended to enable to illegally:

- Enter into electronic data networks; or
- Download electronic data.

The geographic mandate is wide, in practice, the firm restricts investments to countries that have measures in place to combat financial crime.

2) Due diligence processes and completion of an ESG checklist

DN Capital is rolling-out a checklist to measure relevant factors before making an investment commitment including:

• pollution risk;
• fairness, diversity and integrity of the company, its board and employees;
• policies towards data security; and
• the extent to which the business contributes to society

The majority of DN Capital’s investments are at Seed and Series A stage and are minority interests. The questions are generally less relevant to businesses at this early stage of development. However, DN Capital intends to take a more active approach for Series B and later investments.

If the analysis identifies any red flags, the firm will either decline to invest (if a new investment) or take remedial action (where an existing portfolio company).

3) Active Board involvement with larger portfolio companies and monitoring diversity

DN Capital’s policy is to take an active involvement in its portfolio companies to accept Board seats wherever possible. It is not feasible to take this approach on all investee companies given that a typical investment portfolio will comprise over forty companies.

The involvement includes:

• monitoring the performance of the Board;
• influencing the strategic direction of the firms;
• ensuring that employees are appropriately rewarded and making availably option pools employees; and
• input upon the purpose and culture of the businesses.

The firm also monitors key financial metrics of its portfolio companies and reports back the social impact of its investing activities measured in terms of increasing revenues and employment.

DN Capital acknowledges the benefits of workforce diversity. The firm provides equal opportunities regardless of background, gender, disability and ethnicity. Gender diversity has been recognised as a challenge that the private equity sector faces and the firm is committed to implementing measures to support gender diversity within the company and industry. DN Capital’s team currently has a near equal split of females and males and consists of seven different nationalities. DN Capital believe that all employees are entitled to work in a setting which offers equal opportunities and the firm will continue to ensure all efforts are made to design and sustain such an environment. DN Capital demonstrates its approach through its involvement with the likes of Level 20 and Diversity VC which promote equality of opportunities in the venture capital world. The firm also monitors the gender split of the portfolio company senior management teams as part of its initial data collection phase on all potential investments.

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