Over the last several years, ESG has become an increasingly important topic of conversation within the private markets. What started with screening and blacklisting of public equities has evolved into the view that investment decisions should be made with ESG issues having been considered.
At Hamilton Lane, we believe that ESG issues can affect the performance of investment portfolios, and that investing responsibly and maintaining accountability can have a positive impact on improved financial performance and value creation.
Hamilton Lane’s Responsible Investment Committee (“RIC”) was established in 2012 and is responsible for oversight, strategy and guidance on all ESG matters, including our ESG policy. The seniority of the RIC represents the importance of responsible investing and effective ESG risk management at Hamilton Lane.
The RIC meets regularly to determine relevant updates to our corporate policy and to ensure continued thought development. RIC members are also present at every investment committee meeting to monitor investment compliance with the corporate ESG policy. The RIC meets separately when an investment has significant ESG risk and/or when compliance with corporate policy is not straightforward.
The RIC has a few roles:
- to act as Hamilton Lane’s bridge between market developments as they relate to ESG and responsible investing (such as PRI and TCFD) and the investment teams’ process of ESG risk management within Hamilton Lane;
- to develop our corporate ESG Policy Statement;
- to approve investments for Hamilton Lane’s Impact Fund; and
- to hold our investment teams accountable to our corporate policy.
Evolving ESG Due Diligence
Risk management has been a core part of our investment due diligence process since our inception 30 years ago. In the mid-2000s, ESG emerged as its own category in the financial markets. Shortly after, we too began to incorporate ESG as a separate risk category into our underwriting processes and have continually made improvements along the way.
In 2008, we became a signatory to the United Nations Principles for Responsible Investment (“PRI”). In 2010, we formally integrated ESG into our investment diligence process as a separately defined risk category, on which we report to the investment committee within each final investment report. We do this by including ESG questions in our Request for Information (“RFI”).
In 2015, Hamilton Lane was recognized as an ESG leader by PRI and invited to contribute to the build out of the PRI’s LP Responsible Investment DDQ. At the same time, our investment team rolled out a separate ESG RFI, in conjunction with the LP Responsible Investment DDQ. We also developed and launched our initial version of our General Partner ESG Rating System.
Since 2015, Hamilton Lane’s approach to ESG during the underwriting process has continued to evolve. Questions related to Diversity, Equity & Inclusion now feature as part of our screenings, meetings and site visits. We added nine ESG questions to the information we request from GPs prior to screening any new investment opportunity. We also participated in PRI conversations around ESG-related fund terms, given our investment-focused lawyers are quite experienced at negotiating and executing complex ESG side-letters on behalf of our clients.
Looking ahead, our work is far from done. We have projects underway focused on leveraging technology to improve our ESG underwriting and risk-assessment process.
We're also proud to support the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Paris Agreement on Climate Change.
For Hamilton Lane, ESG is about much more than data collection, tracking and analysis. As one of the largest investors and allocators of capital within the private markets, we believe we must continue to play an active role. Therefore, we seek to be proactive in driving forward the standards for ESG risk-mitigation within our asset class.