Echelon: How increased emphasis on ESG elements in fund management will affect early stage startups

Echelon: How increased emphasis on ESG elements in fund management will affect early stage startups

Susli Lie, Partner, Monk’s Hill Ventures

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As awareness about the climate crisis continues to increase, we begin to see investors considering elements of ESG (Environmental, Social, and Governance) in deciding a potential investment. One example of such an investor is venture capital firm Monk’s Hill Ventures.

Speaking to e27 in an interview, Susli Lie, Partner at Monk’s Hill Ventures explains ESG as having origin in the public equity side as a way to identify “a basket of companies” that have ESG-related components to it. Later on, the language also permeated the fund management space, including venture capital, as a way to describe “a broad stroke approach” to capture environmental and social sustainability as well as social and governance issues.

“We view ESG as an additional layer of consideration that will be on top of our existing investment process, how we engage with founders and companies,” she explains.

“In addition to financial and commercial considerations, we think that it’s actually value-adding to have non-financial considerations as well, as it relates to the planet, the people, how things are done, how organisations are grown, and how companies are run, from a governance standpoint. It’s something that we’ve always thought about.”

Monk’s Hill Ventures formalises this approach with its latest fund, and Lie is ready to explain more about how they view this issue at Echelon Asia Summit 2023. Set to be held at Singapore Expo on June 14-15, Lie will appear on the Forward Stage on the second day of the event in a fireside chat with e27 Co-Founder and CEO Mohan Belani.

Also Read: ESG empowerment: Fueling Malaysia’s SMEs for a sustainable future

The shift towards ESG

So how do Monk’s Hill Ventures’s LPs react to this approach? According to Lie, while the LPs welcome the new ESG policy, for many of them, it is yet to become a requirement for a potential investment. This is because the LPs themselves are coming up the learning curve in terms of their role as an LP with an ESG approach.

“Broadly speaking, I think people and organisations who allocate to VCs are becoming more aware that this is something they need to look out for. That this is something that they should encourage the organisations they invest in to think about,” Lie says. “If you look at the trend, we’re seeing regulations come out; we’re seeing all kinds of accounting standards that are related to ESG that companies have to comply with.”

While a lot of these requirements and tools are mostly targeted at large public companies, it has started to trickle down to private equity and VC firms, the space that Monk’s Hill Ventures operates it.

“We understand as fund managers that the world is moving in a certain direction, where these things are becoming more important. In some ways, we’re anticipating a particular industry trend that’s already pushing in that direction. Simultaneously, we also believe that this is the right approach to consider as we scale and grow companies.”

Also Read: Why Quest Ventures believes that the human-centricity of ESG investing will be more apparent

How this impacts startups

“We’re by no means an impact investor … [but] I want to make sure that the companies understand that there are investor resources available to help them get educated about this, to help them translate what that means in the way they run their companies, to help them communicate what they’re doing,” Lie explains.

Certainly, we would like to understand how this policy is going to affect the companies that Monk’s Hill Ventures are looking to invest in.

“Traditionally, people care a lot about managing and mitigating risks. So what damage are you doing to the environment? How much greenhouse gas emissions, waste are you producing? What are you doing with that, and how do you treat your people? Those things are all very important, and we track those as well. But we also understand that when we work with companies, there are sometimes ESG-related opportunities that could also lead to commercial success,” Lie says.

For Monk’s Hill Ventures, their role as an investor is to help and partner with its companies to begin thinking about what their approach to ESG should be.

“From an investment process standpoint, the entry point where I begin engaging companies to talk about ESG is once we are seriously considering an investment opportunity. Many of them may be somewhat unaware or have a very minimal ESG mindset. For some, they are a bit more evolved or may have created functions within the organisation to think about ESG. They may be a bit further ahead,” Lie explains how they are introducing the ideas of ESG to companies.

Also Read: Why these startups focus on informal plastic waste workers in the fight against climate crisis

“Our job as an investor is to help them establish a baseline of how they’re performing on the ESG front and help them think about how they may want to improve that over time. After we’ve offered a term sheet and before closing, I typically run an internal process on ESG to do the baselining. For many companies, there is no expectation of right or wrong or where they need to be because every company is different. But what I do with them is, at least, socialised the idea of what ESG means, how it can potentially be helpful for them.”

Once these companies become a Monk’s Hill Ventures portfolio, the firm will work with them to track specific quantitative metrics. Over time, it hopes to work together with them to identify patterns and use that information to develop products or new revenue streams based on the information that they have.

Echelon Asia Summit 2023

This year’s Echelon is a great opportunity for you to meet experts such as Lie and learn from them!

Echelon Asia Summit 2023 is happening on June 14-15 at the Singapore EXPO. Featuring a slew of speakers, exhibitors, business matching sessions, pitching stages, and more, the event enables participants to connect, network, and engage with the larger tech startup ecosystem.

At the Echelon Asia Summit, participants get the chance to attend a diverse range of sessions, including keynote speeches, panel discussions, and workshops, all exploring exciting topics like AI, blockchain, e-commerce, fintech, and marketing. You’ll also have the opportunity to join networking sessions and meet-ups where you can connect with fellow entrepreneurs, investors, and industry leaders.

To learn more about Echelon Asia Summit 2023 and sign up for the event, visit the official page here.

Image Credit: Monk’s Hill Ventures

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