Making Responsible Investing Mainstream

Date: 05 Jun, 2023

With the world struggling with extreme environmental disruptions, a business’ growth is no longer measured in traditional metrics like profit, user growth, and market share only. 

In the last few years, companies have become conscious of putting less stress on the environment, promoting diversity and inclusion in the workplace, and ensuring their internal governance practices are strong and in line with being environmentally and socially responsible. 

Managing risks and opportunities related to Environmental, Social and Governance (ESG) factors has become integral to every company’s policy-making strategy. Not only that, but ESG is also a strong indicator of how VC firms see a company’s growth. 

Globally, limited partners (LP) are keen on value creation via responsible investing. This, in turn, is leading to VCs focusing on investments through the inclusive lens of growth as well as impact. This largely consists of emission reduction and carbon neutrality principles; the social well-being of employees and stakeholders; corporate governance driven by inclusivity rather than the traditional growth-only mindset. 

Rockstud Capital is one of the few such VC firms from India that take responsible investing seriously. As an early-stage Fund that focuses on the Yuva Bharat theme and invests at PreSeries A stage, it actively engages with its founders who can create a positive impact on select ESG parameters. 

“We echo the sentiments of today's young Indians who want to make a difference to the overall ecosystem of being environment friendly, believe in social change, and expect strong governance,” says Abhishek Agarwal, Managing Partner at Rockstud Capital.

All Think Green 

Smartvizx, a portfolio company of Rockstud Capital, is solving a crucial problem that so many fail to see. Most people are ready to fly from one city to another without thinking about the fuel spent on the trip. This is more prominent in the building industry, where designers and building product manufacturers have to meet clients and do physical mockups to showcase their offerings. 

If most of these meetings could be done virtually, it would help reduce carbon emissions greatly. Smartvizx’s virtual reality (“VR”) offering called Trezi empowers companies in the building industry to do just that. It essentially provides an immersive experience for the architecture, design, and builder community to meet, demonstrate, and discuss designs and layouts in a virtual environment. 

Fabheads is another portfolio company whose business model is rooted in reducing the carbon footprint. This Chennai-based startup manufactures composite materials like glass fibre, carbon fibre, kevlar and carbon nanotubes at affordable prices using 3D printing techniques. Fabheads’ products have the potential to reduce the fuel consumption of aircraft and automobiles by making them lightweight. 

Last year, the company started recycling the manufacturing waste produced in-house. It reprocesses its own manufacturing scraps, along with other plastic waste, by blending them with composite materials to make functional, high-strength components. And it doesn’t just repurpose the waste but also upcycles the value of the recycled materials. 

Another portfolio company Knorish, which enables people to create and sell courses online, has taken an unconventional approach to reduce electronic waste. Knorish has implemented BYOD (Bring Your Own Device) for all its employees. It believes that increasing the number of electronic devices is not environmentally responsible. That’s why it has created a system that keeps data security and data privacy in control while giving people the ability to use their own devices. 

“ESG considerations have been found to have a significant impact on a company's long-term performance and resilience. Companies that prioritise ESG factors are more likely to attract customers, employees, and investors who are similarly aligned with these values,” says Gaurav Thakkar, Vice President at Rockstud Capital. 

Rockstud Capital’s focus on responsible investing also reflects in other startups it has backed. One such startup is BigHaat, an agri-tech business, operating an online platform for farmers to purchase farm inputs like seeds and fertilisers. 

BigHaat also runs a community platform and works with farmers to help them grow quality products without pesticides that harm the soil. 

By collaborating with BigHaat, farmers have been able to implement integrated pest management practices, which include doing soil testing, spraying exactly what is required, and using only green chemicals. This has allowed them to reduce water wastage and keep a check on their carbon footprint. 

Driving Social Responsibility 

While a company’s environment-related goals can be clearly established and measured, when it comes to being socially responsible, the opportunities are wide and there is hardly any playbook available. 

“The adoption of ESG has become crucial for companies at every stage of business lifecycle to meet stakeholders’ expectations, protect their reputation, attract and retain talent by incorporating diverse hiring practices, create a culture of inclusion and promote work-life balance,” says Ritesh Bhagwati, Head of Research at Rockstud Capital. 

Rockstud Capital likes to bet on companies and people who show their social responsibility by doing more than what convention dictates. 

For example, Lilac Insights, a Mumbai-headquartered genetic health assessment and diagnostic chain has many employees from the LGBTQ community. This makes its workspace inclusive and at the same time gives this section of society job opportunities. For its efforts towards maintaining equality and inclusivity in the workplace, Lilac Insights received a Bronze award in 2020 from India Workplace Equality Index (IWEI), an LGBTQ workplace inclusion benchmarking tool. 

Other companies from Rockstud Capital’s portfolio have put special stress on employing more and more women and people with special needs. AI-powered content platform Instoried is one such company that has 80% women employees. 

Another portfolio company Everest Fleet, a fleet management firm providing over 10,000 CNG and electric cabs to aggregators like Uber, has 23% women employees in the male-dominated transportation industry. Additionally, it has hired people from the National Association for the Blind and people with cerebral palsy. 

Rockstud Capital-backed MoneyClub believes that making people financially inclusive is a great way to weave social responsibility into the company’s business model. The company offers a group savings product to lower-middle-class citizens that they can tap in to get money in emergencies. This is a segment that is almost in crisis every other day. When these people, who are mostly the breadwinners, go into crisis, their whole family is affected. So, the moment the company is able to build a safety net for this individual, it is creating a positive impact. 

Similarly, for Everest Fleet, uplifting the lives of its driver-partners by providing better earning opportunities is as important as creating value for its investors. The company also assists its drivers with child education scholarships and micro-loans. Driver-centricity has been a part of its thought process from day one. 

Doing Governance Right 

Governance is at the core of responsible investing, as it defines the company’s internal policies and how it complies with the law of the land. There are certain governance practices that every company has to follow simply by virtue of being a corporate entity. But there are additional practices that a company adopts or lays out, voluntarily. 

BigHaat is one such outlier. At a time when companies are using different tricks to collect users’ data including their mobile numbers, BigHaat is creating a system where even its employees who need to call customers regularly will not have access to their numbers. The calls would go automatically through the system without the team needing to worry about the numbers. It is also encrypting customers’ numbers so that they’re not misused.

As far as customers’ safety is concerned, MoneyClub has made strong governance policies so that none of its customers fall prey to con men. Ponzi schemes are prevalent in offline chit funds, which has given them a bad name. MoneyClub has made its platform completely transparent wherein one can log into the app and see who are the other people that the user is putting the money with. In fact, if someone is going to default, or if someone defaults, every group member gets informed. 

Samir Kapadia, Chief Operating Officer at Rockstud Capital believes that in a fiduciary relationship wherein investors entrust their hard-earned money to a VC fund, it “not only needs to have an effective corporate governance practice at the firm level but also has to ensure it is investing in companies that are environment friendly, socially responsible and has an effective governance framework.” 

Being Future-ready with Responsible Investing 

Rockstud Capital believes reviewing ESG practices is as important as following them. Lilac Insights is one of the rare companies that undergo the annual ESG review willingly. 

In its first ESG audit by Environment Matters six years ago, Lilac received a score of 1.5 out of 5 on the environmental front, 1.3 on social, and 2.2 on governance. By last year, its scores improved to 3.2, 3.5, and 2.9, respectively.

 “I see a lot of investors who want to have ESG as part of their investment thesis provided there is a good business case to it,” says Rockstud Capital’s Abhishek. 

By finding and backing companies that value ESG, Rockstud Capital is setting standards on how to best practice responsible investing. Identifying founders and working with them to make ESGconscious businesses is the key to being future-ready.