As ESG and Impact Investing Enters the Mainstream, Investors Strive for Measurable Metrics

7.10.2018

By Jay Rosenberger, Principal

Recently, Apex Fund Services and Broadridge Financial Solutions hosted a panel discussion and networking event that brought together a diverse group including investment managers, institutional asset allocators, consultants and advisors to discuss trends and issues in ESG – Environmental, Social and Governance – and impact investing.

Esther Pan Sloane, Head of Partnerships, Policy and Communications for the United Nations Capital Development Fund (UNCDF) opened the event with a summary of the UNCDF’s origins and objectives and a thoughtful review of some of the practical challenges of putting impact capital to work. She explained to attendees the 17 UN Sustainable Development Goals (SDGs) and their related 169 measurable targets, which were agreed upon in 2015 following a collaborative effort by all 193 participating countries. The UNCDF was formed to unlock public and private capital targeted at achieving SDGs in the 47 least developed countries in the world. One of the key challenges faced by the UNCDF is facilitating private institutional investment – for which there is high demand from institutional investors around the world – into countries that in many cases do not have the political, legal and regulatory framework to support it.

With this as a backdrop, the event moved into panel discussions, where a common thread developed around how to define and distinguish ESG practices within a portfolio, or at a particular company from the perspective of impact investing. Participants generally agreed that incorporating ESG factors into due diligence and ongoing monitoring was simply a matter of good risk management, and not doing so was asking for trouble. But how exactly ESG issues are researched, measured and implemented may vary across organizations. In any event, it was agreed that implementing ESG best practices and measuring results should lead to better business outcomes (lower costs, fewer accidents, more productive workforce, etc.).

Less clear was the answer to “what is an impact investment?” Panelists generally agreed that intentionality, or purposefully targeting an impact goal -- preferably one of the SDGs -- was important to defining an impact investment. But intentionality can be implemented at either the company/project level (this business does something good) or at the investment level (an investment in this business will do something good for this region/population), or both. The word “convergence” came up frequently to describe the evolution of impact investing from at least partially philanthropic (i.e., below market returns) to something appropriate for any investor seeking market rate returns in a business well positioned for sustainable, long-term growth. With that said, going back to the UNCDF’s focus on the 47 least-developed countries in the world, there is still a large gap to fill before enough private capital can be delivered to truly meet all of the SDGs.

Another common thread was the growing need for better standardized measurement and reporting. Without standardized measurement, it is difficult to compare results and trends across institutions, industries, geographies and time. As a signatory to the UN Principles for Responsible Investment since 2008, Hamilton Lane was part of the working group that developed the PRI Limited Partner Due Diligence Questionnaire covering ESG efforts. In the hope of increasing standardization in the private markets, Hamilton Lane has adopted the PRI LP DDQ for its own investment selection process.

In an unusual and notable twist to a panel interview, members of the audience also began to chime in during the Q&A session to share their experiences and continue the dialogue along new dimensions. It is encouraging to see the strong appetite for furthering the dialogue around how specifically to define, measure and report on ESG and impact investments. As these topics become increasingly familiar terms, we look forward to continuing the discussion.

 


7/2/2018
Hamilton Lane Partners with Drexel University to Bring PE Experience to the Classroom
« previous
8/14/2018
Real Asset Redux: Diversifying Beyond Just Real Estate
next »