What We’ve Learned So Far: Year 2 of SixThirty’s ESG Report

by Molly Hoffmeyer

Now more than ever, ESG is important for startups — not just because it’s the right thing to do, it’s the right thing to do for the success of the business. With competition more fierce than ever for talent, capital, and customers, one can truly differentiate themselves through commitment to ESG principles.

For SixThirty, ESG has always been at the heart of our investment thesis. Our diverse founder representation of >50% has been a natural outgrowth of our thesis, and we’re proud to support women and minorities who are building companies that will redefine fintech, insurtech, digital health and privacy.

In 2021 we launched our ESG report for three reasons: to expand our own understanding of the ESG footprint & focus of our portfolio, to track trends over time, and to help our founders have a greater, more intentional impact in their ESG efforts as they build their companies.

In 2022, we have our first look at the longitudinal data. For consistency, we kept nearly all of the questions consistent from year-to-year, while beefing up our cybersecurity & privacy questions. In 2022 we had 52 startups complete the questionnaire, a 90% response rate, with 38 based in North America, 11 based in EMEA & 3 based in APAC.

Now, with 2 years of data, we are able to identify early trends. We’re excited to share the key takeaways from the 2022 ESG report, and the actions that Founders can take now to continue to intentionally improve their ESG metrics.

1. Overall, we saw the largest improvements in “Social” focused areas, especially for women & minorities in management, and women & minority representation on Boards. The percentage of companies who have a women or minority on the Board increased by 9 percentage points, from 60% to 69%, and the percentage of companies with 50%+ women or minorities in management increased by 11 percentage points, from 26% to 37%. We think these are strong improvements in only one year, and they reflect an area where focus can yield immediate results — hiring and board representation. While we didn’t ask specifically, we also expect that more work-from-anywhere opportunities may have an impact on women and minorities in management, as location has become a less critical factor in hiring.
2. An area for improvement that we identified is in diversity of company ownership by women and minorities. Only 12% of companies reported >50% of company ownership held by women and minorities combined, essentially flat compared to 2021. This is coupled with a large decrease in companies reporting 25%-50% minority and women ownership, from 36% to 26%. As Carta writes in their 2022 Equity Compensation Report, there is significant opportunity to improve access to equity compensation for women and minorities across the board. While there is somewhat less control over ownership when VCs invest, we believe that company ownership is one area where there is opportunity to improve, particularly through employee participation in ownership.
3. Governance remains top-of-mind. With startup governance & integrity again being in news headlines at the end of 2022 and the beginning of 2023, we are proud that SixThirty has always considered these critical in our startup investments, and a part of our due diligence processes. We saw the percentage of companies with an independent auditor or accountant increase from 83% to 90%, and the percentage of companies with employee handbooks increase from 70% to 86%, both marked improvements. We did see a small decrease in the percentage of companies with an independent board member (63% to 60%), however, expect that this is a function of newer investments in younger companies who either haven’t formed a board yet or don’t yet have a board large enough for an independent seat.
4. Core to SixThirty’s thesis is privacy and cybersecurity, and we’re encouraged to see that our Founders also take this seriously. In 2022 we beefed-up our questions related to cybersecurity, and found that over 90% have processes to protect sensitive information, data leakage protection controls, and regular validation/testing of these controls. Additionally 89% have an information security management system and 77% have an information security policy that has been approved by the board. SixThirty’s CISO-in-residence program is a valuable tool for Founders looking to improve their privacy & cybersecurity practices.
5. One area where we didn’t see improvement was in climate-related initiatives and actions. Overall, less SixThirty portfolio companies have environmental policies than did in 2021 (16% vs. 23%) and less companies are offsetting their carbon usage (6% vs 13%). With more companies working remotely, this is an area where FinTech, InsurTech, Cybersecurity and Digital Health companies may find it harder to have an impact, and because we invest in software, environmental initiatives often aren’t as top of mind as other sectors. As best practices continue to evolve, we will encourage our Founders to consider and act upon their environmental footprint.

We are encouraged that our Founders continue to be leaders across ESG, and to take their role as leaders in this space seriously. In 2022, we saw some strong improvements vs. 2021, and still areas for improvement remain. We believe that Founders can start to take action today to consider & improve their impact in the environment, society and governance.

If you’re a Founder who is interested in learning more, or an investor who is passionate about investing in companies that have a positive ESG impact and strong return potential, please check us out at www.sixthirty.co, and don’t hesitate to reach out to learn more.