Lots of VCs have spent the past few years baking environmental and social considerations into their investing. But, beyond self-declaration, there are limited ways to judge which funds are truly walking the walk.
It’s a problem that the European Union’s sustainable finance disclosure regulation (SFDR) hopes to fix. The SFDR, the first of its kind globally, mandates investors, private banks and financiers in the EU to classify their funds based on how embedded ESG is within their investments, regardless of whether or not they have a specific ESG focus.
The SFDR, which came into force in March 2021, has three categories for funds: Article 6, Article 8 and Article 9. Classifications are made on a fund-by-fund basis, meaning one VC firm can have funds under different regulations.
- Article 6 funds need to show that they are addressing sustainability risks in their investment decisions. They don’t need to actively pursue ESG investments. It’s the lowest level of disclosures and the default unless funds can prove they fulfil Article 8 or 9.
- Article 8 funds, also dubbed “light green” funds, must show that they “promote” ESG characteristics. The regulation is yet to set minimum thresholds for qualifying as an Article 8 product.
- To qualify as an Article 9 fund — or a “dark green” fund — investors must show that sustainability is an “objective” of a fund’s investments. This means they must make only sustainable investments (generally) and that managers must disclose how investments qualify as environmentally sustainable.
The EU has made a point of spelling out that Article 8 and 9 refer to the level of disclosure an investor has agreed to, rather than being ESG approval ratings.
At the start of this year, the EU implemented SFDR Level 2, upping the disclosure requirements for each category. According to Morningstar data, 300 investment products were downgraded from Article 9 to Article 8 by fund managers in anticipation of heightened reporting requirements.
What do VCs think?
Lena Thiede, partner at Planet A Ventures, which is in the midst of investing from an Article 9 fund, says the label has the potential to combat greenwashing and channel more funding into climate tech. She also says it can help VC funds to attract the right LPs.
“While the SFDR was not designed as a labelling scheme, our experience is that it is being used as one by market participants and that categorising a fund as Article 9 significantly improves chances of a successful fundraising with mission-driven LPs,” Thiede says. Planet A says it was the first VC fund in Germany to achieve Article 9 classification.
That said, Thiede points out that Article 9 is not entirely suited to investors backing early-stage companies whose emissions will by nature increase as they scale. Some Article 9 funds, those that comply with Article 9(3), must be aligned with the EU Climate Transition Benchmark or an EU Paris-Aligned benchmark — the goal set in the 2015 Paris Agreement, aiming to keep warming within 1.5C. The Paris benchmark requires companies to reduce its carbon footprint by 7% annually.
“But we want climate tech companies to scale to enable the rest of the economy to decarbonise. Key performance indicators could rather be based on potential for future impact, not historical emissions,” she says.
Critics say that much of the SFDR and its reporting requirements remain vague, leaving room open for greenwashing. Last year, Morningstar said that 23% of investment products labelled Article 8 don’t live up to ESG principles, as defined by Morningstar.
“Given that this system is still nascent, we have certainly run into some implementation issues, but we’ve always been able to resolve them,” says Anton Arts, managing partner at SET Ventures. SET is currently raising its latest fund, which will be Article 9-compliant.
“We consider the entire SFDR framework as a journey that LPs and GPs will have to navigate together in the coming years, as the regulation is further clarified, and precedents and best-practice examples emerge.”
Here’s a non-exhaustive list of Europe’s Article 8 and Article 9 funds. If we've missed your fund, email firstname.lastname@example.org
Article 8 funds
- HV Capital’s latest fund, its ninth, is Article 8-approved. HV Capital is a generalist fund based in Germany. Its latest fund is worth €700m, and 30% of it will go towards climate and sustainability-focused companies.
- Speedinvest, one of Europe's most active seed-stage investors, classifies its funds as Article 8 funds.
- Early-stage investor Antler, which has offices around the world, has given all its European funds an Article 8 classification. Antler's Nordics fund is an Article 9 fund.
- The latest fund from High-Tech Gründerfonds, also based in Germany, is an Article 8 fund. The fund is the investor’s fourth.
- All three of Amsterdam-based VC Rockstart’s funds are Article 8 funds. Rockstart invests in early-stage agrifood, energy and emerging tech startups.
- Project A, a VC firm based in Berlin, is currently investing from its fourth fund, which is an Article 8 fund. Project A invests in digital tech companies.
- Paris-based early-stage VC firm Elaia is also currently investing from its fourth fund, an Article 8 fund. Elaia invests in B2B startups, particularly in sectors like cybersecurity, cloud infrastructure, fintech and insurtech.
- Inven, a Czech climate tech VC, has two funds, both of which have Article 8 accreditation.
- Butterfly Ventures, a seed-stage fund focused on the Nordics, is currently investing from an Article 8 fund, targeted at a final close of €100m.
- B2venture, previously known as Btov Partners, is currently investing from an Article 8 fund. B2venture invests in digital businesses at seed and pre-seed stage.
- J12 Ventures, which is based in Stockholm and invests in early-stage companies in the Nordics and Baltics, is currently investing from an Article 8 fund.
- Wellstreet, a Swedish-based early stage VC firm is currently investing from an Article 8 fund, and raising another.
- Munich-based Possible Ventures, which invests in health, climate, energy and society, is currently raising its third fund, an Article 8 fund. Its second fund was also an Article 8 fund.
- Teampact.ventures, a Paris-based impact investor, is raising an Article 8 fund.
- Paris-based XAnge's fourth fund is an Article 8 fund. It's a €220m fund for early-stage companies. XAngle also operates an impact fund, Mutuelles Impact, which is an Article 9 fund.
- Synthesis Capital, a London-based fund which invests across Europe, Israel and the US, is currently investing from an Article 8 fund. Synthesis invests in food tech.
- Sandwater, an Oslo-based seed and Series A stage investo, has a €100m Article 8 fund to invest in climate and health tech.
- Sofinnova Partners, a pan-European investment fund, classifies all its funds as Article 8. It also has one fund, which it invests into industrial biotechnology (agriculture, chemicals, food and materials) which is an Article 9 fund.
- ACE Swiss Tech Outliers, which invests in Swiss startups from seed to Series A, is investing from its fourth fund, worth CHF 105m, an Article 8 fund.
360 Capital, a VC based in Paris and Milan, has two funds which are Article 8 classified. 360 Capital focuses on deeptech.
- Revaia, a pan-European growth stage investor based in Paris and Berlin, has two Article 8 classified funds.
Article 9 funds
- AENU, an impact tech fund based in Berlin, is currently investing from its first fund, worth €100m, which is an Article 9 fund.
- Swedish fund Norrsken, which invests in early stage companies, has two Article 9 funds.
- Extantia, based in Berlin, is investing from an Article 9 fund at present. Extantia, which invests in decarbonisation technology, announced a €150m venture fund last year, plus a €150m fund-of-funds.
- Seaya Ventures, based in Spain, announced its latest fund, an Article 9 fund, last year. Seaya invests at Series A and beyond, focused specifically on southern Europe.
- World Fund, a Berlin-based climate tech VC, has just one fund, and it's Article 9-certified. World Fund is aiming to close €350m in total.
- Planet A Ventures, based in Berlin, closed its first fund, an Article 9 fund, in February this year. It’s got €160m to invest in climate tech.
- SET Ventures, based in the Netherlands, is currently raising its fourth fund, which will be an Article 9 fund. Its first three funds are all Article 8 funds. SET Ventures invests in software for the energy transition.
- 2150, based in London and Copenhagen, invests in solutions advancing urban sustainability from its €268m Article 9 fund.
- Malmö-based Pale Blue Dot announced a €93m second fund earlier this year which is an Article 9 fund. The firm's first fund was Article 8. Pale Blue Dot invests in early-stage climate tech companies.
- Aster, a Paris-based VC, is currently raising an Article 9 fund. Its previous funds are Article 8 funds. Aster invests in climate tech and recently acquired the entirety of TotalEnergies CVC portfolio.
- Global investor Lightrock has a climate fund, based in Europe and predominantly deployed in Europe, which is an Article 9 fund. The fund is worth €860m and tends to make Series B+ investments.
- Finnish fund Greencode Ventures, focused on climate tech Article 9 fund. The firm is targeting a €60-100m fund size. Greencode invests in early stage companies across Europe.
- Dutch fund 4impact, which invests in digital businesses focused on sustainable impact, is currently investing from its second fund, which is an Article 9 fund.
- Educapital, a French VC firm focused on edtech, has an Article 9 fund, its second fund overall.
- The European Circular Bioeconomy Fund (ECBF), which invests in solutions for a circular economy, is an Article 9 fund. The firm is based in Germany.
- Mustard Seed Maze, an impact investment VC based in Lisbon, has an Article 9 fund.
- Dutch venture builder NLC has four funds it invests from, including one Article 9 fund. The Article 9 fund is targeting a final close of €100m, with €20m raised.
- DeeptechXL, a Dutch fund focused on early-stage deeptech solutions like quantum and advanced materials, is currently investing from an Article 9 fund.
- Oslo-based impact VC Norselab is currently fundraising for its second fund, an Article 9 fund. The firm's first fund was an Article 8 fund.
- Future Energy Ventures, the VC arm of energy firm E.ON, is currently investing from an Article 9 fund.
- Stockholm-based Summa Equity, which invests in companies from the Nordics and Northern Europe, is investing from its third fund, a €2.3bn Article 9 fund.
- ETF Partners, an impact-focused fund based in London but investing throughout Europe, is currently investing from its fourth fund, which is an Article 9 fund.
- Tilia Impact Ventures, based in the Czech Republic, has a second fund which is an Article 9 fund. Tilia is focused on impact investing through central and eastern Europe.
- Rubio Impact Ventures, an Amsterdam-based investor has two funds, both of which are Article 9 funds.
- Ananda Impact Ventures, a fund based in Munich which invests across Europe, has a €108m Article 9 fund as its latest fund.
- Astanor Ventures, based in Belgium and investing in food and agriculture innovation, has an Article 9 fund.
- Spain's Axon Partners Group, an asset management firm which backs startups, has an Article 9 fund as well as an Article 8 fund.
- Serena, based in Paris, has an Article 9 fund worth €85m which is invests into tech health tech, climate tech and edtech.
- London-based Hambro Perks, an investment firm, is currently raising a fund which will be classed as Article 9 when it makes invests in the European Union. Hambro Perks is aiming to raise £200m to back companies focused on water, waste and energy at Series C level and beyond.
- Una Terra, a Zurich-based fund, is currently investing from its first fund, which is an Article 9 fund.