At Karista, being ESG-conscious and focusing on our performance driven approach have been intertwined for over a decade as we became signatories ofPRI in 2011. Driven by our strong development in the recent years as well as the launch of new funds, we have decided to tackle this issue head-on and formalize our ESG practices with measurable commitments and what has been important to us for the past 20 years, such as job creation, for example. Once this decision was made, there were two possible ways to accelerate this process: either we recruited dedicated employees, or we called on a third-party specialist. After careful consideration and for greater efficiency, we chose to select experienced external experts to assist us in formalizing an ESG charter and policy, as well as in defining a framework for ESG data.
Even though current regulations have been placing a special emphasis on environmental criteria (such as the existence of a taxonomy, etc.), Karista has been intentional about focusing on the “S” of ESG while developing our internal framework. This framework will undoubtedly evolve. Its application within our newest fund (2nd HealthTech dedicated vintage at Karista)will allow us to move from theory to practice and generate highly advanced and relevant ESG reports. The landscape is constantly changing, and we will need to adapt to future constraints. In the short and medium term, regulations will evolve to encompass as many actors as possible. While some may view the implementation of ESG in a venture management company as a time-consuming task, we are thrilled to finally formalize what we’ve already been doing informally for over a decade.
Doing well by doing good has been part of Karista´s DNA since its inception. Having said that, we want to ensure all team members understand the importance of the shift we’re making by embedding a formal ESG-policy in our investment practice as we believe this will be critical for a successful implementation. In addition, ESG can mean different things to different people and it can often be a divisive topic as it is closely linked to personal convictions. In order to involve the whole team and do some level-setting, we allocated a full day for the "Fresque duClimat" (Climate collage), a sharing tool developed by the association of the same name. This collective workshop opened up debates, sparked reflection, and raised awareness of the ESG issues. On the other hand, gathering information from early-stage and often unstructured companies can be a major challenge.It involves educating companies about their own implementation of ESG criteria within their business. With this in mind, we plan an annual "ESG" meeting with them. The Karista investment team plays a critical role in the execution of our ESG strategy across the portfolio as they can be evangelists of the importance of ESG matters with our investees as well as provide them with the support they need to make process as seamless as possible. Ultimately, we believe leading by example is the best way to entice our portfolio companies o follow suit. As part of our soon-to-be-launched new HealthTech vintage, we have decided to make a significant portion of the team’s carried interest contingent on meeting ESG objectives. Ultimately, I believe it is also incumbent upon Karista’s senior management to champion the ESG policy and be true agents of change.
There is a global awareness of environmental, social, and governance issues that influence investment and management decisions -without hindering financial performance-, which remains a central aspect of investment firms. LPs, particularly institutional and public investors, are asking for more proactive collection of ESG data both from their fund managers and from the underlying portfolio companies of their managers.This is clearly a revolution in our industry, which has to constantly adapt to regulatory changes each year (see timeline). Additionally, the adoption of ESG criteria depends on the investment sectors. For instance, in the case of Karista's Healthcare funds, a sector where we have been investing for over 20years, we have always assumed that we were practicing ESG by design! Taking care of people, allowing them to live longer and in better health—what could be more socially impactful, right? Now that we’ve been working with experts to formalize our process and build deeper ESG knowledge internally, we understand that we need to adapt our approach to measure and demonstrate that our HealthTech investments actually meet ESG criteria. Other challenges have emerged for our Spacetechfund (CosmiCapital), which, to remain compliant with ESG criteria, must rule out investments with certain dual-use technologies (civilian and military). New constraints, new opportunities!
A fund that does not take some sort of ESG angle into account, albeit less stringent than Art-9 for instance, is no longer conceivable in Europe. We have intentionally elected to form our next HealthTech fund under best-in-classSFDR-article 9. While we are vividly aware of the significant commitment we’re making, it came as a natural choice to us. Financial players must instill a global consideration of these issues in the economy and promote these criteria.ESG has become essential because civil society is aware that the UN'sSustainable Development Goals must translate into concrete actions. The management of ESG issues is now part of Karista's body of procedures. As Chief of Compliance Officer, my role is to implement and monitor them. ESG is becoming increasingly top-of-mind for each and everyone in the team. The application of these principles in private equity, involving some form of selection of investment targets, allows the company to build on a solid ESG foundation and support its performance before seeking financing from new categories of investors.