3one4 Capital ESG Report 2024 - Download Report

ESG Report 2024: Responsible Investing at 3one4 Capital

April 16, 2024
8 mins

India stands on the brink of surpassing the $10 trillion GDP milestone, positioning itself as only the third country, following the United States and China, to achieve this economic feat. 3one4 Capital is acutely aware of India’s immense potential to realise this ambition within the decade. Favorable demographics, evolving consumption patterns, and rapid tech adoption position India for explosive growth.  Beyond its sheer scale, India's unique diversity presents an opportunity to redefine the future of emerging markets globally.

Today, India, a nation re-engineering itself, stands at a crossroads. A burgeoning middle-income category, accelerating urbanisation, and widespread internet access are fundamentally changing how India interacts with the world, both as a producer and consumer. This rapid transformation presents an opportunity to establish a new paradigm of technological development, one aligned with forward-looking principles like Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) practices.

At 3one4 Capital, we act proactively, support early standard-setting, and invest in durable technological assets that will solve for the needs of the future. This lends momentum to our philosophy of building long-term oriented positions in disruptive, category-creating, home-grown startups that will define the new era of India’s growth story in ways that are sustainable, inclusive, and resonant with India’s unique opportunities and contexts.

3one4 Capital’s ESG Report 2024 documents our commitment to implementing ESG principles across the firm’s functions, focus areas, and portfolio span. We have found that alignment with ESG parameters from the early stage ensures that we incentivise the promotion of technology that is durable, inclusive, and seminally consequential for scores of Indians.

ESG in the Early Stage

Investing in the early stages is crucial for setting a company's fundamental values and practices, which become challenging to alter later on without significant upheaval. It's crucial to integrate ESG considerations early on to create responsible companies ready for public markets. However, the tech startup scene currently lacks a cohesive ESG framework for early-stage investing, leading to a knowledge gap and misalignment with frameworks designed for larger corporations. This gap is further complicated by challenges in measuring ESG impact, navigating reporting requirements, and leveraging ESG credentials for valuation. Despite criticism over ESG's effectiveness and calls for refinement in its measurement and application, the need for responsible investing and the role of capital in addressing global challenges remain paramount. The "Doughnut Framework" by economist Kate Raworth is proposed as a model for capital providers in India, emphasising a balance between social foundations and ecological limits to ensure sustainable prosperity.

3one4 Capital’s Theory of Change

3one4 Capital outlines its Theory of Change, highlighting its commitment to partnering with mission-driven, early-stage companies. The firm uses a pragmatic deep-involvement model grounded in consumer behavioural patterns taps into non-traditional growth paths to help founders on the path to market leadership. The rapid transformation we witness demands a firm foundation of core values. These guiding principles ensure our actions and decisions consistently support our mission. Our Theory of Change (TOC) is directly built upon these values and organizational objectives, ensuring every step we take contributes to positive and lasting impact.

These principles, when integrated into 3one4 Capital’s investment and management strategies, equip the firm to support founding teams more effectively. 

3one4 Capital’s ESG Approach

3one4 Capital embeds ESG principles both within its firm operations and in its engagement with portfolio companies, treating it as a continuum of sustainable practices rather than a binary. The firm enforces compliance and regulatory standards, while also institutionalising ESG practices across its investments. ESG for 3one4 Capital involves operational practices established in partnership with invested companies, covering areas like product design, data privacy, supply chain management, workplace culture, and environmental practices, tailored to each company's unique context. 

Impact, though distinct from ESG, measures the positive socio-economic and environmental outcomes of portfolio companies' activities, with a focus on measurable, quantifiable, and intentional impact aligned with the SDGs. 3one4 Capital integrates ESG across all operations and investments, encouraging portfolio companies to identify and align with impact objectives from the outset. The firm's commitment to ESG and transparent disclosures has earned it recognition as India’s first venture capital signatory to the United Nations Principles for Responsible Investment (PRI) and high ranking for ESG transparency by Preqin.

ESG Report 2024 emphasises the firm's commitment to leading change through responsible capital investment and ESG integration into their operations and portfolio companies. Specialist functional teams at the firm ensure that it resolutely meets its compliance obligations and successfully adheres to prevailing regulatory standards, while going above and beyond to institutionalise ESG compliant practices within the firm’s portfolios.

Teams at 3one4 Capital

Investments and Deal Selection

3one4 Capital evaluates 7,000+ investment opportunities on an annual basis, with a large number of those aimed at building ESG-compliant and SDG-aligned solutions for an aspirational India.

Governance, Business Integrity & Closures (GBIC)

The Governance, Business Integrity & Closures (GBIC) practice at 3one4 Capital is dedicated to converting signals into actionable insights. This includes understanding the evolving dynamics among innovation, capital, and policy, bridging gaps between them, and identifying the emerging standards for the digital economy.

Portfolio Management and Finance (PMF)

The PMF team ensures ESG principles are considered throughout an investment's lifecycle, from due diligence to exit, while guiding the firm’s zero fault tolerance toward regulatory commitments and other ESG-related commitments.

Growth and Capital Development (GCD)

The Growth and Capital Development function at 3one4 Capital actively deploys playbooks to cultivate global capital networks with investors with similar ESG alignment and to help early-stage companies align with sound practices from inception.

3one4 Capital's Portfolio Impact

Through case studies of portfolio companies like Dozee, Licious, and Yulu, the report illustrates the tangible impacts of focusing on sustainable growth, from improving healthcare outcomes with technology to setting sustainability benchmarks in the food industry and promoting electric vehicle adoption.

3one4 Capital's portfolio demonstrates significant impact across industries, marked by environmental conservation, generation of employment opportunities, financial inclusion, and expansion of healthcare accessibility in numerous communities, all while accommodating a diverse range of linguistic needs, showcasing a commitment to both social responsibility and environmental stewardship.

The report introduces a novel Early Stage ESG Score (ES2), designed to evaluate and quantify ESG performance at the pre-investment stage, demonstrating the firm's innovative approach to integrating ESG considerations into valuation processes. The report also delves into 3one4 Capital's thematic investment thesis on climate tech and digital public goods, emphasising India's role in the global transition to sustainable and digital economies.

Finally, the firm's contributions to policy development and its perspective on India's sustainable growth trajectory are outlined, underlining the crucial role of technology and startups in driving India towards becoming a $10 trillion GDP economy. This comprehensive approach reflects 3one4 Capital's belief in extending its mission beyond financial returns to encompass societal benefit and environmental stewardship.

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