At Norwest, we incorporate environmental, social and governance (ESG) considerations into our investment analysis, decision-making and portfolio services.
We take pride in helping our companies enhance their value and long-term sustainability while managing and mitigating risk. We also recognize the value of strong ESG management in our internal operations as a firm and hold ourselves to the same standard as our portfolio companies.
We believe that optimizing ESG performance can drive value creation, while ignoring ESG performance exposes a company to material risks. This has been reflected in how we do business for decades.
Our ESG policy defines our approach to integrating the consideration of ESG value creation opportunities and risks into our affiliated investment funds.
We commit to consider material ESG issues in our due diligence and investment processes and in the monitoring of portfolio investments.
For the purposes of this policy, we deem as “material” those ESG issues that we believe have the potential to have a direct substantial impact on a company’s ability to create, preserve or erode economic value, as well as environmental and social value for itself and its stakeholders. The purpose of ESG integration is to improve financial performance, manage risk and optimize value for Norwest, its portfolio companies and stakeholders
This policy is intended to help us:
Norwest follows a definition of ESG adapted from the Venture ESG initiative, incorporating our cross-cutting view of Diversity, Equity & Inclusion (DEI).
We seek to take a responsible approach to investment throughout our investment cycle. Our ESG policy is supported by an internal framework designed to help us recognize the potential impact of portfolio companies on the environment, workers, communities and society, as well as the potential impacts of ESG issues on the companies in which the firm invests.
This framework is based on Norwest’s values and firm culture, and represents a formalization of our long-running commitment to responsible investing. The framework establishes a strategy for engaging with targets and portfolio companies on relevant ESG topics, meeting companies where they are and encouraging a gradual and thoughtful ESG progression. It is summarized in four stages below.
Before a company can be considered for investment, it must pass through our screening process. We will exclude from investment any company that we are reasonably able to determine to be in direct and knowing violation of UN Global Compact Principles. We will screen deals through our own Dynamic Materiality Framework and a company that is not in direct and knowing violation of these principles may still pass through the screening process with specific risks flagged. These flagged risks will indicate what forms of ESG portfolio services may be most valuable to the investee over time.
We will also seek to discover during the due diligence process whether the target is willing or unwilling to engage on ESG topics.
We hope that companies we invest in will share our commitment to ESG integration. As such, we will seek to include an ESG clause in term sheets that expresses our mutual intent to improve the company’s ESG credentials over time.
Once invested in, we will use all resources at our disposal including our leadership role on advisory boards and our suite of ESG portfolio services to engage with all companies will have access to the full suite of ESG portfolio services:
We plan to ask willing companies to disclose quantitative metrics, but recognize that this is not appropriate or relevant for many early stage companies. For this reason, our framework includes a stepped approach to disclosure. Early stage companies will be expected to have limited understanding of ESG, and we hope that they will be open to ESG discussions during due diligence and later during portfolio management, and as they scale.
Companies that are later stage (e.g. those under consideration or currently managed by our Growth Equity team), are expected to be more willing to consider ESG topics, and to move their ESG processes along at a faster rate given their growth and size. The longer-term our relationship with a company, the more we will seek to encourage that company to consider ESG factors, and to take steps towards disclosure. For greater detail on our approach to climate disclosure in the Climate Supplement.
Upon an exit, we will seek to report on the company’s ESG progress at the time of exit. Over time we will also seek to formally measure and analyze the impact of our ESG engagement on investment performance.
Norwest and its affiliated investment funds will make reasonable efforts to encourage all portfolio companies to consider relevant ESG-related principles. In certain investments, factors such as our ownership stake or influence may affect our ability to assess, set or monitor ESG-related performance goals.
We and our affiliated investment funds will also apply the policy to our internal operations, based on the belief that effective ESG management begins with diverse and inclusive governance and team environments.
Norwest will entrust the function of undertaking key ESG matters under this policy to a qualified member of our team or to an external consultant appointed for this purpose (Head of ESG).
Our investment team, with the assistance of the Head of ESG, is responsible for ensuring that the consideration of ESG issues is integrated into investment decisions and management in the manner described in this policy (in collaboration with the legal team).
The Head of ESG is responsible for the following:
This policy has been approved by the Managing General Partners and will be reviewed and updated annually.
We will engage our portfolio companies to encourage their progress first towards understanding the drivers of their GHG emissions, then to measuring those emissions, and finally towards net zero strategies aligned with the Science Based Targets Initiative (SBTi). There are three key reasons why:
We plan to focus on helping our portfolio companies to understand, measure and manage their GHG footprints in part so that we can measure and manage our own. We have selected the SBTi as our goal for target-setting and disclosure given their rigorous scientific approach to climate target-setting.
Over time, as we gain greater experience addressing GHG emissions, we will increasingly focus on other environmental issues, including water pollution, plastics reduction and ecological issues.