With our #ESGinVC initiative, we want to foster a discussion around ESG and help each other develop and improve our frameworks. As part of this initiative, we spoke to leading managers and LPs about their ESG frameworks. The long-form interviews will be published in a reader on our website, while we will regularly post interview extracts on our social media channels (Linkedin — Twitter — Medium).
The interview below is with William McQuillan, Partner at Frontline Ventures.
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How do you tackle ESG responsibility at Frontline Ventures?
ESG responsibility means very different things to different people and the acceleration of change surrounding this meaning has been rapid over the past few years. Unlike most normal companies who just focus on ESG for their own operations, in a fund like Frontline we need to consider it in both our fund operations and our wider portfolio companies as well.
Frontline views ESG as a constantly moving and evolving strategy. We can always improve and be better in all aspects of it. We have an ESG Strategy and Policy document that is reviewed on an annual basis to ensure we are living up to our goals and also in case there are new ways and targets we could use to improve certain aspects of it.
“…when we are structuring legals and sitting on boards, we are able to influence companies to improve ESG in a number of areas.”
In our portfolio, it is slightly less direct. Frontline usually leads the investments in our seed portfolio, so when we are structuring legals and sitting on boards, we are able to influence companies to improve ESG in a number of areas. That said, we rarely force our portfolio companies to do something and so at this level it is more influence than necessarily directive.
Overall, the responsibility for ESG within Frontline falls to the Partners. To make it easier from an operational perspective, we have one Partner (currently me) and Elaine Collins our CFO/COO, who lead it. That means making sure we have an ESG strategy, that we are living up to that strategy and are also a touchpoint for any internal or external queries from employees, LPs, or others may have about it.
As you can imagine, having such a wide berth of stakeholders from employees to portfolio companies to LP’s, this strategy is an evolving one and the importance of this continues to be emphasised not only from an EU regulatory perspective, but also to improve standards within our organisation.
Do you have a framework in place to measure the impact of your portfolio companies? Beyond sustainability, do you also monitor other ESG metrics?
Frontline surveys our portfolio on certain ESG areas. These surveys are not compulsory but I think most portfolio companies are happy to support the collection of data, as it also provides them with additional data points for their own strategy development as well reference points for wider reporting that they may be required to complete.
Overall, the main ESG analysis we do is prior to investing in our commercial due diligence phase. We analyse the potential ESG impacts of that company, integrate this analysis into our investment committee documents and commercial due diligence process and take it into account for our investment committee decisions.
We appreciate that the collation of this information is challenging and it is essential to have good comparable and consistent figures where relevant to ensure accurate reporting, especially with the legislation coming down the track. These are all challenges that we hope to support our companies with when it is required.
What conversations do you have with your LPs around ESG? Is attention to ESG driven more by them or by the GPs?
It varies a lot per LP. Back when we were raising our first fund in 2012/2013, ESG did not come up in conversations with LPs. However, with the growth of increased statutory reporting around this area, we have seen a noticeable uplift in interest from a reporting point of view. When we raised our latest Seed Fund in 2020 it was a frequent question from new potential LPs and an important section they required from us to have in our data room.
“…our LPs do care about ESG now and continue to push us to always improve as well.”
Frontline has always cared about ESG and been part of many different initiatives to try and improve it in our field. That said I think our LPs do care about ESG now and continue to push us to always improve as well.
You invest in both Europe and North America. What differences in approaches to ESG do you see between the two different markets?
The main difference is that our European strategy focuses on pre-seed and seed stage companies. In those companies we usually are leading the round and joining the board. Our North America strategy invests at the growth stage and does not lead or take board seats. The result of this is that we have a lot less control or input for the companies we invest in when it comes to ESG. I’ve found that if a company is to do anything in this space it needs to be CEO, board or maybe lead investor-led.
“…for some European institutions it has now become a deal-breaker not to have at least a base level of ESG reporting…”
While I saw European large LP institutions move earlier on caring about ESG in their portfolio, many of the larger endowment and pension funds in the US are taking note and also questioning these areas. The difference lies that for some European institutions it has now become a deal-breaker not to have at least a base level of ESG reporting, we have not seen that in the US, it is still largely nice to have.
In terms of ESG reporting while the CSDR and SDRF regulations within the EU has provided quite a bit of reporting and guidance; it will be when the ESG IFRS standards are established and they will provide a more global approach especially with climate disclosures etc so there can be a unified set of guidance between the two geographies.
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About William McQuillan
William is a Founding Partner at Frontline Ventures, Frontline is an early-stage venture capital fund with €250m under management and over 80 investments across Europe and the US. He was the youngest Partner of a European VC fund when Frontline was founded. After leaving university, William was one of the founding employees of Ondra Partners, a start-up investment-banking boutique. William is a keen adventure traveller and lover of art.
He is based in London with his partner Marine, who is an entrepreneur herself, and their son Atlas.
Linkedin – Twitter
About Frontline Ventures
Frontline Ventures is the venture firm for globally ambitious B2B businesses on both sides of the Atlantic. Based in both Europe and the US, Frontline has created a multi-fund, multi-location franchise that evolves at the pace of the most ambitious US and European entrepreneurs, and their challenges; Frontline Seed strengthens ideas at inception across Europe and accelerates them into the US market. Frontline X is a growth-stage fund, for fast and frictionless US to Europe expansion.
Today, Frontline has €250m funds under management and has had numerous successful exits, including Boxever (acq. Sitecore), Pointy (acq. Google), Logentries (acq. Rapid7), and Orchestrate (acq. CenturyLink).
Website – Linkedin – Twitter
About Marco Cesare Solinas
Marco is an Investment Professional at Blue Future Partners. He is passionate about Technology and Venture Capital and focuses on both direct and indirect investments. Previously, he has built an international and multicultural background across Italy, US, Germany, Turkey and Malaysia. Marco holds a CEMS Master’s in International Management and a Bachelor’s in Economics and Finance from Bocconi University.
Linkedin – Twitter – Medium
About Blue Future Partners
Blue Future Partners is a Fund of Funds with decades worth of experience in investing in Venture Capital. We specialize in backing Emerging Managers focused on early-stage technology investments. We are people-centric and relationship-driven. We have a global mandate and existing relationships with Emerging Managers in the US, Europe, Israel, China and South East Asia.
Website – Linkedin – Twitter – Medium
