Core values fundamental to Responsible Investing

Steven Dunne

Steven Dunne
Senior Partner

Core values fundamental to Responsible Investing

Frog Capital sees Responsible Investing (“RI”) as a best practice framework relevant to the whole of our business activities from new investment assessment, portfolio management through to exit and including our own internal operations. We always walk the talk; often testing new ideas on ourselves before we will recommend them to portfolio companies. 

RI is a natural fit with Frog’s scale-up methodology; building capabilities and competencies for the long term, supporting businesses with a meaningful purpose. Our approach has always been to partner with management teams that have aligned values and engage in a dialogue on best practice development of governance and business practices as a means of value creation. RI is integrated into our decision-making, investment strategy and portfolio management. RI covers meaningful purpose of investments as well as the ESG agenda that largely focuses on how businesses operate. 

At the firm level, our longstanding values, culture, governance processes and measurements are aligned with the RI agenda. This is genuine, robust and continually improving through challenge. The recent rise in profile of ESG in the investing community has been an excellent motivation to formalise and better articulate many aspects of these values alongside the practical scale-up methodology that naturally fits well with an ESG agenda. This fit has previously not been explicitly stated but by articulating what we were already doing, we are better positioned to assess what additional steps we could take to be even better.  

According to a 2019 PWC survey* most PE houses see ESG in the light of either risk management or corporate values.  We agree these factors are important but also believe that responsible investing can drive better performance and ultimately value. The link between good practice and good performance is now better understood than ever with more evidence building all the time across industries and geographies.  According to RBC research in 2020** 68% of institutional investors in Europe think ESG integrated portfolios will perform better than non-ESG integrated investments. Diversity is probably the best researched area and the conclusions are clear;  

“Diverse and inclusive cultures are providing companies with a competitive edge over their peers.” The Wall Street Journal – S&P 500 ranking 2019. 

This evidence makes it easier as a minority investor to educate and influence management teams and, indeed other investors, that doing good in the right way does not require compromise with long term value creation. An agenda that in the past needed to be approached subtly and slowly can now be pushed more assertively from the start and with an expectation that it will resonate strongly with most of the founders and CEOs that we partner with. 

Independent review

In line with the general ethos at Frog, we set out to build a body of evidence from which to make a decision on our next steps. We therefore engaged MJ Hudson’s ESG consultancy arm to review our current position. This included full disclosure of the investment process and documentation, team workshops, benchmarking us against other VC and PE firms and advising on a new RI policy that replaces and broadens the scope of our longstanding ESG policy, whilst still being appropriate for the size of our organisation and our portfolio companies.        

The MJ Hudson assessment outcome was broadly supportive of our self-assessment, we scored particularly well on investment criteria (e.g. sector exclusions) and the method of integration of ESG into the investment process. We were weakest on our process to demonstrate post investment improvement in portfolio companies. The workshop also highlighted different perspectives within the team. It became clear that more discussion and a higher profile for RI was required to ensure consistency of approach within Frog and through the portfolio.  

With MJ Hudson input, we set out to produce a new policy and iterate within Frog to ensure total buy-in. The policy pushes us beyond past behaviour, particularly in being explicit about addressing issues such as social impact and diversity that may previously have been assumed as uncontentious, aligned values.  We also intend to be clearer in our dialogue with portfolio companies on the expected development path, rather than relying on influencing after investment.  It is also critical that the objectives set are realistic and relevant for the size and maturity of the business.  We will agree target areas that make the most difference identified through the due diligence phase in order to avoid a long shopping list of requirements which can overwhelm and lead to inaction.   

We are now in the RI policy implementation phase and again are using some outside expertise to inform the process. Over the next month we will have another workshop and set out the RI implementation roadmap.  This includes setting practical objectives, reviewing current processes and upgrading documentation to make RI judgements explicit through the portfolio company lifecycle. Monitoring RI policy implementation will be part of quarterly portfolio reviews and our own board meetings. 

It is gratifying to see values intrinsic to Frog’s approach becoming more mainstream but the challenge is not to rest on our laurels but to keep pushing for better. 

Steven Dunne


Steven Dunne