INTEGRATING ESG INTO OUR INVESTMENT DECISIONS
HarbourVest has robust ESG due diligence and monitoring procedures in place for each of its investment strategies. These procedures support sound investment decision-making, which is at the core of how we seek to create compelling, risk-adjusted returns for our investors.
Our investment teams rely on two primary tools, our internally developed ESG Scorecard and RepRisk®, an external database, to perform due diligence, monitor ESG and business conduct risks, and collect relevant data.
ENHANCEMENTS TO OUR INTEGRATION PROCESS
KEY SCORECARD INDICATORS
ESG MANAGER SCORECARD
We believe that the ESG policies and processes of the GPs we invest with can be indicators for fund excellence. Accordingly, we use our ESG Manager Scorecard to evaluate a GP’s approach and capabilities on a range of ESG factors, compile the results to generate an overall rating, and consider this input in our decision-making process.
In addition to being a valuable research and data tool, the Scorecard serves as an engagement catalyst with our GPs. Many of those with lower-than-average scores reach out to us seeking guidance on how to add or strengthen policies, and we have successfully influenced several to formally adopt ESG principles.
- Quality of ESG Policy and ability to execute on commitments
- Commitments to areas such as climate change and diversity and inclusion
- Sophistication and mechanics behind GP's processes for considering ESG factors in their investment decision-making and portfolio engagement processes
Reporting & Transparency
- Quality of GP's reporting and incident monitoring
- Commitment to proactively and transparently engage with LPs on ESG activities
2020 ESG SCORECARD PROCESS UPDATES
- Evolved ESG Scorecard from a due diligence tool to a live monitoring tool that is regularly updated and tracked over time.
- Modified format of the Scorecard, allowing our investment teams to record information more objectively; updated indicators to capture advanced practices and investment themes.
- Re-engineered the weighting criteria according to investment strategy.
- Incorporated climate change and diversity and inclusion indicators in alignment with industry standard disclosures proposed by the TCFD and ILPA; these factor into the overall ESG Scorecard rating and generate individual ratings on climate change and diversity and inclusion for the GP.
"Last year was a major flashpoint for investors…they began to think more holistically about ESG and investing. They’re more focused than ever on understanding GPs’ level of commitment and ability to address major societal issues such as climate change and diversity and inclusion.”
- McComma (Mac) Grayson
Managing Director and ESG Lead Primary Investments
RepRisk® INCORPORATED ACROSS ALL STRATEGIES
We strengthened both our ESG analysis and incident-monitoring capabilities by implementing RepRisk across all of our investment strategies in 2020. We also spent time establishing and updating internal processes and procedures around this new resource. RepRisk is a global online database that helps us track ESG issues for thousands of portfolio companies and GPs daily.
Bank of America Securities research published a report in 2020 that found RepRisk data to be an effective alpha signal for investors, demonstrating the use case for controversy data to better assess current and emerging ESG risks. We have found it to be a useful tool in particular when screening assets for our direct strategies, and as a monitoring tool it has enhanced our dialogue with GPs and allowed us to better understand their ESG risk management capabilities.
All of our investment teams are now utilizing RepRisk as part of ESG due diligence, and our entire portfolio is uploaded and tracked through RepRisk. We have instituted bi-weekly meetings involving ESG and investment team members to check for potentially material ESG incidents, and have protocols in place for deal leads to reach out to GPs when issues are considered relevant and material, and to record the outcomes of those engagements.
“In a year in which it was challenging to stay in touch with clients, RepRisk served as an important bridge for us…one GP we invest with contacted us after we were one of their first LPs to ask about an incident with a healthcare company that was flagged by RepRisk. They were interested in adding the resource as well to strengthen their own monitoring abilities.”
Vice President, Primary Investments