HOW WE INVEST
Our direct co-investment team assesses and monitors ESG risks and considerations for lead sponsor GPs and underlying companies, both at the time of investment and throughout its life. In doing so, we work closely with lead sponsors to fully understand their ESG policies and how they communicate and prioritize issues with their key stakeholders.
For each investment, we work with the lead sponsor to analyze company-specific ESG considerations based on business models, geographies, stages, and other metrics. Post-closing, we continue to monitor the ESG status of companies in which we invest directly.
In cases where we have board or observer seats with portfolio companies, we have additional influence around ESG visibility and advocacy. At the end of 2019, HarbourVest held 21 active portfolio company board seats (9% of active companies) and 20 active portfolio company observer seats (9% of active companies). Our teams engage with the majority of these companies and their management teams to increase discussion around ESG monitoring and other related activities. Our goal is to ultimately engage in board-level discussions with all portfolio companies where we have a board presence.
As part of its ESG due diligence process, the co-investment team tracks each GP and company through a “traffic light” scale and assigns grades on key ESG metrics. The optimal outcome is for all active investments to fall within the green or yellow category, meaning both the GP and the company actively monitor and consider ESG issues.
While measuring the effectiveness of ESG-focused investments remains an inexact science, we believe firmly that conscientious investing and strong performance do not have to be mutually exclusive. In fact, some recent studies show that companies with higher ESG corporate ratings tend to be more positively related to valuation and profitability, and negatively correlated with volatility.⁵
Exhibit A for HarbourVest in 2019 was our successful exit from a company that specializes in providing sustainable business management solutions to help companies improve their environmental, safety, risk, governance, and other social impact programs.
Over a four-year period beginning in 2015, HarbourVest was instrumental in helping to drive value for this company, its clients, and its stakeholders, including playing a key role in transforming the company’s business from a license maintenance model to a software as a service (SaaS) distribution model – a shift that allowed for durable, recurring revenue streams. Our dedicated team also helped the company navigate its product life cycle, from perfecting its go-to-market strategy to assisting in key acquisitions to expanding the company’s presence within enterprise companies.
The company’s software-based solutions are positively impacting society, and at the same time the firm’s growth enabled it to generate a 4.3x return for its investors upon exit. In other words, a win-win all around.
The company’s solutions have resulted in:
lives saved in past five years
reduction in carbon emissions
health and safety cost savings
5 Statistics provided by profile company, January 2020
To view the public version of HarbourVest’s 2019 PRI Transparency Report click below. To access our 2019 Private Transparency Report and corresponding Assessment Report, please log on to HarbourVest’s secure Investor Log-in website using your e-mail address and password. Once logged in, go to the ‘News and Update’ tab and select ‘Market Updates’.