VentureESG-Emerging Markets-Universe of Issues.xlsx

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1	Emerging Markets Universe of Issues - Version 1.0 This due diligence questionnaire, produced by VentureESG in partnership with British International Investment (BII) and the Dutch Entrepreneurial Development Bank (FMO), serves as an ESG Due Diligence Framework for Venture Capital ("VC") Fund Managers operating in emerging markets. It describes a series of issues for consideration when incorporating ESG into due diligence of investee companies and related investment decisions, alongside further guidance and resources in these areas to enable guided improvement for the companies in question. It is intended for use by VC fund managers as a framework proportionate to startups that can be used primarily as a guidance designed for due diligence, as well as a useful reference for portfolio management and internal fund management. Three filters are added as part of the due diligence framework as an indicator of material relevance of each question: 1. What investment stage?: indicates for which investment stage of the company each question is relevant 2. Rely on physical operations?: labels questions that are specifically applicable for companies that rely on physical operations and/or assets, thus optional for companies whose product/service is purely digital or asset-light. Startups with physical operations or assets may need to identify and manage higher ESG risks. 3. Work in FCAS?: labels questions that are particularly relevant for companies operating in fragile and conflict-affected (FCAS) countries due to potentially higher risk profiles, though also useful for other companies. Definitions: “ESG” covers environmental and social sustainability, corporate governance and business integrity matters. "Risk" means a combination of the probability of certain hazard occurrences and the severity of impacts resulting from such an occurrence. "Impact" means any change, positive of negative, potential or actual, to (i) the physical, natural, or cultural environment, and (ii) impacts on surrounding community and workers, resulting from the business activity to be supported. This framework was developed through conversations with a range of VC funds and relevant LPs working in emerging markets in order to establish the most relevant ESG issues for venture capital investiments in a wide-range of emerging economies. VentureESG welcomes the feedback from users. The feedback will inform continuing efforts towards the development of this framework and other fit-for-purpose tools for VC and startups in low and lower-middle income countries. As part of the development, we will release a web-based or software version for more user-friendly interface beyond the spreadsheet format at a later stage. This work was generously funded British International Investment (BII) and Dutch Entrepreneurial Development Bank (FMO).
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3	Question	Multiple Choice Answer options	Filter: What investment stage?	Filter: Rely on physical operations?	Filter: Work in FCAS?	Reference and further guidance
4	Interrogating a particular aspect of a material issue, which may cover topics under environment, social, or governance (including business integrity). This issue may or may not be relevant for the particular activity of a company/fund.	When available a drop down of choices are provided for a clearer starting point to evaluate best practices.	Helps filter questions based on the chosen investment stage of the concerned company.	Helps filter in additional questions that are specifically relevant for companies that rely on physical operations and/or assets (e.g. e-commerce with warehousing and distribution operations).	Helps highlight questions that are particularly applicable for companies working in a fragile and conflict-affected (FCAS) countries.	Supplementary information including industry/international standard from which elements of the questions are referenced, as well as elaboration on best practices to support the companies in question.
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6	Sections	Definitions and Explanatory Primer	Main Sources of Reference	Number of questions
7	1. Context and General Filtering questions	This section provides some basic context to filter down and narrow focus on the most materially relevant questions with subsector, business model, and the country or region's income-level being key risk dimensions. The low versus lower-middle income is the key proxy for many endogenous market-level risk considerations as the ease of conducting business, fragilty of the state, rule of other, and other analogous factors will be bidirectionally related (at a minimum).	Compliation of economic and sector level research	7
8	2. Environmental Management	These questions focus on risk mitigation of adverse environmental impacts through tracking, analysis, identification, and tailored solutions. Some tech-specific considerations have been included.	IFC Performance Standard 1	11
9	3. Working Environment and Team Culture	These questions address features of the working environment, the culture of the team, and its related infrastructure for managing these matters. The extension of this section focuses on risk mitigation more likely to be pervasive in an emerging market context. It also aims to help companies achieve compliance with Peformance Standard II.	IFC Performance Standard 2	24
10	a) Employment Policies and Labour Regulations
11	b) Compensation and Benefits
12	c) Health and Safety, Well-being, and Performance
13	4. Diversity and Inclusion	This section is more open-ended to reduce the likelihood that some identities are ecilpsed, yet uses some basic considerations as a starting point to ground converstions e.g. socioeconomics, gender, local demographics, etc. Discretion should be used to expand other identity-based categorizations depending on context of application.	BII Gender Toolkit; VentureESG Universe of Issues DM	11
14	5. Social Risks and Community Engagement	Evaluating how companies audit and risk-assess vulnerable third parties and assess their impact on exacterbating local problems	IFC Performance Standard 7	12
15	6. Supply Chain and Third-Party Risk	These questions address environmental, social and governance (including business integrity) risks that my arise via suppliers and other third parties like partners and customers.	IFC Performance Standard 1, BII’s Policy on Responsible Investing and bespoke guidance on specific topics	13
16	7. Data Privacy and Security Practices	This section covers topics in data governance, data privacy, cyber security more wholistically across the entire firm's technical infrastructure. Topics of responsible data use and collection, and responsible use of artificial intelligence, are also addressed.	Compliation of International Standards notably from ISO and ILO	23
17	a) Data Privacy
18	b) Cyber Security
19	c) Responsible Artificial Intellegence (AI)
20	8. Business Integrity and Corporate Governance	This section covers compliance with national and international law, regulatory requirements, and the management of business integrity risks. These include financial crime risks such as corruption and fraud, money laundering and terrorist financing, sanctions breaches, tax evasion, whistleblowing, conflict of interests, political interference etc. These risks also cross-over with governance topics, including corporate governance.	IFC Performance Standard 1; BII’s Policy on Responsible Investing and bespoke guidance on specific topics.	45
21	a) Regulatory and Tax Compliance, and Compliance Capacity
22	b) Anti-Bribery and Corruption
23	c) Fraud and Financial Risk Management
24	d) Anti-Money Laundering and Sanction Compliance
25	e) Corporate Governance
26	f) Incidents
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