How East Ventures adopts materiality-driven ESG strategy for its portfolio companies

East Ventures, a venture capital (VC) firm operating in Indonesia and Southeast Asia, recently unveiled its East Ventures Sustainability Report 2024. The report showcases the firm’s ongoing commitment to integrating Environmental, Social, and Governance (ESG) frameworks throughout its operations and ecosystem. It highlights the firm’s strides in generating positive societal impacts while ensuring responsible business practices.

East Ventures has crafted policies that underpin its investment decisions, emphasising sustainable investments. It integrates ESG and impact management principles, serving as a guiding principle in fostering responsible investing practices and enhancing corporate governance within its portfolio companies.

In an email interview with e27, East Ventures Partner Melisa Irene explains the firm’s approach to ESG and how it is promoting it to its portfolio companies.

East Ventures’ investment strategy fosters positive impacts and mitigates ESG risks. Through its ‘Doing Good’ approach, the firm evaluates its investments’ potential positive environmental and societal outcomes using a Theory of Change framework. Simultaneously, the ‘Avoiding Harm’ aspect focuses on risk mitigation, incorporating ESG standards into the selection process and ensuring ongoing compliance with regulations and best practices.

Also Read: Former MD of Temasek Lifesciences Accelerator Sang Han joins East Ventures Korea

To understand the process, check out an edited excerpt of the conversation.

What particular challenges do you face in promoting ESG in your work? How do you tackle them?

ESG risks and opportunities cover broad topics, including greenhouse gas emissions, diversity and inclusion, and business ethics. Each topic adheres to various standards and frameworks that outline the highest level of ESG performance for companies. Aligning to all these standards and frameworks requires extensive effort and resources; hence, prioritisation is essential.

Our approach is tailored to the unique characteristics of our business and portfolio companies. We utilise a materiality-driven strategy, which means that by engaging collaboratively with our portfolio companies, we define the priority of ESG topics most relevant to respective companies’ verticals. This allows us to focus on the most critical ESG risks and opportunities rather than addressing them all indifferently.

Moreover, we also consider the maturity level of our portfolio companies when implementing ESG. We do not demand that our portfolio meet the full criteria of ESG immediately while disregarding the companies’ financial sustainability. The bottom line is that the company needs to comply with all relevant ESG regulations. Beyond compliance, we collaboratively develop an ESG and impact action plan with our portfolio companies, laying out immediate and long-term improvements. Consequently, ESG becomes not just a compliance exercise but a value-adding initiative that fosters company growth.

What steps do you take to promote sustainability in your portfolio companies?

Our investment team and ESG Specialists actively work with our portfolio companies to map out their ESG integration and maximise opportunities for sustainable growth and impact creation.

For example, we work with our portfolio company in the agriculture sector to identify their detailed ESG risks and opportunities for improvement. The project’s outputs include recommendations on aligning with sustainability best practices to minimize biodiversity risk and improvements in Environmental and social management practices.

Also Read: East Ventures launches US$30M fund to back Indonesian startups

Following the project, we worked with the company to develop a strategy to improve internal processes and address respective ESG risks better.

Let us get back to the basics: How is implementing sustainability good for businesses?

Sustainability is a long-term goal that can be achieved through ESG implementation. ESG elements are becoming more crucial in influencing global business and investment choices. This trend stems from the realisation that sustainability and responsibility are vital for mitigating risks and fostering opportunities, leading to enduring value creation.

As a venture capital firm, our role in shaping the future involves supporting innovative firms that drive positive change. By incorporating ESG criteria in our investment strategies, we aim to generate value for our investors, portfolio companies, and the broader society.

We proactively look for investment prospects in companies aligned with our ESG commitments. Our investment emphasises enterprises tackling local challenges, enhancing efficiency and effectiveness, and making a significant positive impact. Our sustainable investment approach is designed to build a portfolio with meaningful impact, contributing to long-term value.

What aspects do you wish to improve on in your sustainability journey?

We have been launching our annual Sustainability Report for the last three years. It helps us better understand our efforts and serves as an assessment of our operation and initiatives for long-term sustainability/ESG goals.

We have gained some insightful insights/findings that help us strategise our operation better, and they have been implemented in our operation recently. We believe that if we do well, we want to do good, too. So, we are looking to create more initiatives and collaborate more with the relevant stakeholders to further create impacts and promote sustainability.

Also Read: East Ventures, SV Investment launch US$100M fund to bridge SEA, Korea startup ecosystems

What is your big agenda regarding sustainability this year?

We are dedicated to continuously enhancing our sustainability initiatives and upholding our principles and pledges. From an investment perspective, we will continue making investments that align with our ESG commitments.

Moreover, we remain committed to creating and supporting this space’s initiatives; for instance, we have again launched the Climate Impact Innovations Challenge with Temasek Foundation to empower climate-tech solutions in Indonesia and Southeast Asia.

We also launched a free web-based emission calculator for companies in Southeast Asia called ECOVISEA.

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Image Credit: East Ventures

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