Sustainability related disclosures
MERCURI GP LLP ("MERCURI") SUSTAINABILITY RELATED DISCLOSURES
Approved 4th November 2022
Disclosures under European Union Regulation 2019/2088 Sustainable Finance Disclosure Regulation (“SFDR”)
Sustainability risks are environmental, social or governance (“ESG”) events or conditions, the occurrence of which could have an actual or potential material adverse impact on the value of an investment. We believe that integrating ESG perspectives into our assessment of current and potential investments is an essential part of correctly assessing the long term value of those investments.
Mercuri’s approach to sustainability risks is set out in the Mercuri Sustainability Risk Policy and the Mercuri ESG Investment Policy both of which can be viewed below.
Mercuri - Sustainability Policy
Mercuri – Environmental, Social and Governance Investment Policy
Environmental and/or social characteristics of financial products
Mercuri does not have sustainable investment as part of its investment strategy, but does intend to promote, among other characteristics, “environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices” in accordance with Article 8 of Regulation EU 2019/2088 on sustainability-related disclosure in the financial services sector (“SFDR”). The investments underlying our financial products do not take into account the EU criteria for environmentally sustainable activities. Mercuri does not commit to invest in Taxonomy aligned investments.
Mercuri regularly assesses sustainable investments and conducts investments in companies that either actively promote environmental and/ or social characteristics or adhere to such guidelines, however, its products do not invest a fixed percentage of their capital commitments into such companies, nor do they have sustainable investment objectives within the meaning of Article 9 of SFDR.
Specific objectives include:
i) Responsible technology
We seek to invest in founders who embrace our values and whose ambition is to build technology responsibly and to contribute to the sophisticated tech ecosystem in a positive and responsible way.
ii) Social – Diversity and Inclusion
To maximise the potential performance of our portfolio company investments Mercuri is committed to broadening its funnel of potential investments by seeking out teams from underrepresented groups who may find it more difficult to access investment finance through traditional channels. Mercuri screens the business and team of each potential investment for values alignment and engages with them to improve their social policies and practice.
iii) Sustainability
Given our heritage, sustainability is at the heart of all we do. Prior to making an investment we assess founders for values alignment including in relation to sustainability. All potential investments are also assessed in relation to any environmental damage.
iv) Governance
Mercuri believes that effective governance (including sound management structures, employee relations, remuneration of staff and tax compliance) leads to better decision making and sets companies up for success. We engage with companies to support their journey towards best practice in terms of both transparency, reporting and accountability; and board governance.
These are the ESG characteristics of the fund in accordance with Article 8 in the Sustainable Financial Disclosure Regulation.
Mercuri expects the disclosures relating to its current products to apply equally to its future funds and related projects.
SECTION 1: Principal Adverse Sustainability Impacts Statement for Mercuri
Mercuri does not currently consider adverse impacts of investment decisions on sustainability factors in the manner prescribed by the EU SFDR due to the lack of information and data available from its potential investments to adequately assess such Principal Adverse Impacts. Mercuri does consider negative sustainability impacts of its investments using its own methodology and will consider compliance with Principal Adverse Impact assessment methodology as its practical application to early stage investment is clarified.
Under current Level 2 Regulations, Principal Adverse Impact reporting is not required of Mercuri on the basis that it employs fewer than 500 people.
SECTION 2: Policies and Procedures for Mercuri
Ownership and responsibilities
Ultimately the board is responsible for responsible investment, ESG and stewardship, the Finance Director is responsible for ESG reporting, governance and compliance matters. ESG objectives form part of job descriptions and these responsibilities are incorporated into the processes and policies that team members follow day to day. The Mercuri Remuneration Policy below discourages risk taking on sustainability aspects.
Methodologies
Currently, the methodologies applied comprise collecting information via a questionnaire completed by the founders or senior management at the portfolio companies both: prior to the investment, i.e. within the due diligence process; and, following the investment as part of formal quarterly engagement; and more regularly on an informal basis. Further research and investigation by Mercuri are conducted through the use of public information where available and through the use of consultants and data providers.
Mercuri will attempt to determine what it believes to be significant ESG risks related to potential portfolio holdings based on the probability of occurrence, severity of impact and potential to be irredeemable. Assessment of these risks is carried out in accordance with the screening and due diligence processes outlined on this page and set out in detail in the Mercuri Environmental Social and Governance investment Policy. ESG risks may include risks relating to environmental damage, social and political events or improper corporate governance.
Mercuri cannot guarantee that it will be in a position to uncover all ESG risks in respect of the positions it considers for a fund’s portfolio. The information collected via questionnaire as part of Mercuri’ due diligence is externally verified only if and to the extent that misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. As investments are typically held for a number of years, Mercuri considers it a priority to establish and maintain trust and a good working relationship with portfolio companies as a safeguard in light of the limitations described in this section. GMG supports portfolio companies from the outset to both integrate as well as operationalise sustainability. This is either through direct support of one of our team, through board meetings, or in some instances through external support via our extensive network.
Executing an investment as lead investor provides an opportunity to implement the legally binding elements of our ESG investment strategy. Mercuri will work to remediate any breach of these legally binding ESG characteristics in accordance with our escalation and divestment process.
SECTION 3: Stewardship and engagement
We are active shareholders promoting sustainable conduct. Mercuri invests as an influential minority investor and takes board seats (where possible) as part of its investment strategy. Should Mercuri determine any potential issues relating to the environmental, social or governance aspects of a current or potential investment, it will use this influence to engage the company’s board in discussions with a view to resolving, reducing or mitigating such effects, provided that such efforts will always remain within a scope considered by Mercuri in its absolute discretion to be proportionate in light of its respective bargaining position and the transactional context.
Mercuri monitors ESG compliance at the investment level on an ongoing basis as part of its formal quarterly meetings with the board and management of portfolio companies as well as more regular contact on a less formal basis. We aim to be available to the founders and management of our portfolio companies to provide support when needed. Mercuri collects information including ESG KPIs as part of this quarterly engagement process as well as through public data sources, consultants and data providers. This information supports our efforts to assess any potential or existing sustainability risks, to monitor sustainability indicators and to measure the success of our ESG characteristics. Mercuri has not designated a reference benchmark for the purpose of measuring the environmental and social characteristics of its products.
The investment process
In accordance with the Mercuri Environmental Social and Governance Investment Policy, Mercuri (“Mercuri”) actively assesses and addresses ESG sustainability risks as part of its investment due diligence and decision‐making processes and during its stewardship and management of portfolio companies.
Mercuri pursues a venture capital strategy; investing in early stage companies within the MediaTech sector. We deem that the major identifiable risks for this strategy and sector reside within responsible use of data and artificial intelligence (“AI”), energy use and carbon intensity. Additional risks reside within the gender and diversity aspects of board and portfolio company management composition and in effective governance and prevention of corruption.
Mercuri promotes certain minimal environmental and social standards through exclusionary criteria as well as proprietary scoring. Mercuri uses a red/green scoring system whereby any misalignment with our ESG investment criteria leads to a red flag and rejection of the investment opportunity. The exclusion policy and proprietary scoring form part of the binding elements of our ESG strategy.
a) Exclusion list
There are certain business models and sectors we do not invest in which include companies engaged in the production or trade:
of products or services deemed illegal under host country laws or regulations or international conventions and agreements
produce / trade in tobacco (and other addictive substances), munitions, pesticides/herbicides (subject to international phase outs / bans), sex work, pornography, casinos
produce / are involved in the production of fossil fuels, including unconventional extraction of fossil fuels, such as oil sands and deep-sea drilling
We will also exclude companies who / whose:
do not comply with international standards and conventions regarding human rights, the environment, anti-corruption or labour laws
product / service / business model is rooted in / reliant on exploitative tactics, either of a certain demographic or an at-risk group
product / service / business model misaligned with our values and ESG strategy
To screen against this list we perform a review of each potential investment’s business model and product, primarily using information provided directly by the company’s founders and/or senior management. We may also use information from consultants and or third party data providers where appropriate.
b) Due diligence
Initially, an assessment of a potential investment’s environmental or social characteristics is carried out as part of the due diligence process prior to any investment using a questionnaire. The questionnaire requests qualitative statements on environmental, social and corporate governance aspects of the business. The questionnaire is designed using the Mercuri due diligence toolkit which incorporates a series of industry standards encompassing considerations across responsible technology (including safe AI, data protection and humane technology), diversity and inclusion, climate protection and robust governance; as well as any health, safety and social issues associated with target companies.
Mercuri prepares an assessment of sustainability risks as part of its due diligence process. The results of this assessment are documented and taken into account when the decision is made whether to invest. Where sustainability risks are present, Mercuri may apply measures to reduce or mitigate them. At all times, Mercuri will apply the principle of proportionality, taking due account of the potential impact of any sustainability risks.
C) Investment closing process & ESG
Executing an investment, particularly as lead investor provides an opportunity to implement the legally binding elements of our ESG investment strategy. Any breach of these legally binding ESG characteristics can be remediated in accordance with the escalation and divestment process outlined in our ESG Investment Policy. The legally binding elements of our ESG investment strategy we seek to have signed are:
A founder anti-bullying and anti harassment warranty
Adoption of workplace policies on diversity and inclusion, dignity at work and grievance
Information rights including in relation to ESG KPIs / sustainability indicators
Post closing conditions if required to target any specific issues through our maintaining regular communication with companies, combined with legally binding information rights and post closing conditions (where appropriate), Mercuri can pursue its ESG strategy and measure success.
SECTION 4: International Standards
Mercuri invests in the UK and US; locations which are subject to a high degree of regulation including environmental and social regulation and legislation.
Mercuri is authorised and regulated by the UK Financial Conduct Authority (the “UK FCA”) https://www.fca.org.uk/
Mercuri is a member of the BVCA and abides by the BVCA code of conduct which is set out here: https://www.bvca.co.uk/Membership/Code-of-Conduct
Our investment valuations policy is aligned with the IPEV valuation guidelines set out here: https://www.privateequityvaluation.com/Valuation-Guidelines
We are proud to be signatories of the UK government’s Investing in Women Code. https://www.gov.uk/government/publications/investing-in-women-code
Mercuri aims: to adhere to the highest standards of conduct to avoid even the appearance of negligent, unfair, or improper practices; to proactively comply with applicable national, state, and local labour laws in the countries in which it invests; to support the payment of competitive wages and benefits to employees; to provide a safe and healthy workplace in conformance with national and local law; and, consistent with applicable law, respect the rights of employees to decide whether or not to join a union and engage in collective bargaining.
Mercuri strives for continuous improvement on ESG topics including through its co-founding of VentureESG (also having a directorship): https://www.ventureesg.com/
Furthermore, dialogue with LPs and other stakeholders is sought to improve our reporting and disclosures and the way we manage ESG issues.