Aqua Capital has become a signatory to the Operating Principles for Impact Management, and is also proud to announce its support for the Task Force on Climate-related Financial Disclosures
Since its founding, Aqua Capital has been at the front and center of the evolution from a more traditional view of ESG as compliance, towards ESG and Impact (ESG+I) as a key driver of value creation. Our topnotch ESG+I program goes beyond established sustainability best practices, and actively seeks to identify and build on multiple dimensions of positive impact, welding together ESG+I with enhanced investment returns. Throughout this letter we aim to shed some light on our overall ESG+I philosophy, which has placed as a leading program in Latin America, and share our most recent advances on this front.
First, we are proud to share that Aqua Capital has become a signatory to the Operating Principles for Impact Management (OPIM, www.impactprinciples.org), a framework of principles to ensure that impact considerations are purposefully integrated throughout our investments’ lifecycle, delivering a positive impact on society, without trading off financial returns for our investors. The OPIM were launched in 2019 and developed by the International Finance Corporation (IFC) with the collaboration of asset owners, financial managers and development financial institutions among others. As of today, the initiative counts with 149 signatories from 37 countries representing assets of over US$ 422 billion.
Additionally, Aqua Capital is also proud to announce its support for the Task Force on Climate-related Financial Disclosures (TCFD, www.fsb-tcfd.org), and that we will adhere to its recommendations and disclosures going forward, confirming our commitment for the climate change agenda through our investment and managerial decisions. The TCFD was created in 2015 by the Financial Stability Board and sets recommendations that help evaluate climate-related risks and opportunities associated within the investment cycle. As of December 2021, the initiative counts with 2,700 supporters from more than 80 countries.
The agenda against climate change is becoming ever more urgent, and we believe there will be increasingly an “impact divide” – just as digitalized business models receive higher valuation multiples for offering better future prospects, so will companies adhering to the highest ESG standards, and even more so, those driving impact. At Aqua Capital we believe that it is our responsibility to uphold the highest ESG standards by working proactively and creatively within our investment strategy. These new initiatives continue to build on our ESG program and add momentum towards driving impact.
Over the past decade, we have aimed to implement industry-leading ESG standards. This has resulted in substantial industry recognition: Aqua Capital ranks as one of the highest recipients of ESG-related awards by the Latin American Venture Capital Association (LAVCA) in the past six years. Over the past two years, however, our thinking and execution further evolved and led us to articulate a vision of change that marries an impactful “planet and people” agenda with financial returns. We would like to share this philosophy and
strategy with you as described below:
1. Force for Good Investments
Agribusiness & Food are at the heart and soul of the agenda to reduce emissions and improve input efficiency. Our investment strategy is therefore naturally prone to investing in companies that can drive positive-impact outcomes as they maximize profits. For instance, with every dose of biological inputs that Biotrop sells, it manages to offset a large carbon footprint by replacing crop chemicals and/or fertilizers, e.g., reducing the emissions of nitrous oxide, which has a global warming potential (GWP) 265 times higher than CO2. In the case of Yes, it is by replacing antibiotics. For Puravida, it is about reducing carbon footprint through alternative proteins and providing healthier, traceable, nutritious foods. New Ag & Food business models (or strategically revamped existing ones) can grow fast and profitably, and can generate strong returns as they deliver additional positive externalities.
2. Direct positive impact
As company builders, a natural by-product of our stewardship is to create jobs – high-quality ones, and mostly in rural areas. Over the past three years, we created approximately 400 new jobs per year – even throughout the pandemic. Furthermore, we believe that a focus on diversity and inclusion can create even better teams and outcomes, so we go beyond just creating jobs. Through initiatives to grow the talent pool, we increase gender diversity from Aqua Capital to each company’s BOD to the senior leadership. We are working to transform companies and to ensure gender parity equalization and parental leave benefits across all companies. Our “Programa Ypê” internship program launched in 2021, focuses on promoting racial diversity by recruiting outside the traditional talent pools. At Aqua Capital, we do all this because we believe it is the right thing to do, and because it produces better results.
3. Positive bottom-line projects
We seek opportunities to tie profits with environmental preservation. Our approach is to promote the execution of resource efficiency and emission-reduction projects, bringing experts into the field to systematically execute this across our portfolio. In 2021 we implemented five projects generating $2.0 million of Ebitda and over 100% IRR. We are currently analyzing another eleven projects expected to generate over $11.2 million of Ebitda with a projected IRR in excess of 40%. These projects are saving energy and water and reducing tons of emissions while generating great returns. This approach also helps drive change management, by showing management teams there always are at least some lowhanging fruits to be systematically pursued. As technology and knowledge evolve, new opportunities are created, and we can go even further.
4. Cross-portfolio ESG best practices
Since 2011, we have adhered to the highest ESG standards, adopting the IFC Performance Standards as our benchmark to manage ESG risks and having subsequently adhered to the UNPRI. Our recent adherence to the OPIM and support for the TCFD will further help us stay up to date with the best practices on the subject and provide external scrutiny to our investment program.
Finally, we would like to share two closing thoughts on the matter. First, we are a learning organization and, as such, have a long way to go in this agenda. In fact, the existing body of knowledge is rapidly evolving, and we are prepared to rapidly adjust. Second, we pursue this rich but demanding agenda because we believe in it, from the first to the last Aqua Capital team member. We remain uncompromising in our fiduciary responsibility of maximizing returns and believe we can do so in ways that naturally attain additional stakeholder objectives.