Message from our Executive Management Committee
One tenet that has served us well for 40 years is focusing not only on what we do but how we do it. Results matter, and the way we produce them matters too.
When it comes to investing responsibly, we have always believed that our ability to invest well from a performance standpoint goes hand in hand with a need to invest well from a societal standpoint. Today, with reminders of the world’s fragility all around us, more investors are showing the same commitment by allocating capital to funds offering positive environmental or social impacts. Through December 2021, sustainable-focused funds with integrated ESG objectives had amassed $2.7 trillion in total assets.
According to the data, sustainable assets have stood up better than most in 2022 – particularly across the euro area and Canada. But we are mindful of what we are seeing in terms of 2022 public market performance. Net inflows into sustainable mutual funds and ETFs have dropped significantly and asset values are down approximately 20% since the end of 2021.¹ Thankfully, we are seeing and hearing a very different message across private markets; however, it is clear that 2022 is no time to rest on our laurels, or we risk backsliding against the tremendous progress made to date.
The global rise of ESG funds
Assets ($T)
Source: Morningstar Direct, Manager Research. Data as of June 30, 2022.
Where we are today
While ESG has become a bona fide investment strategy, we learned in 2020 how interconnected the ‘E’, ‘S’, and ‘G’ really are, particularly the social inequities that exist but aren’t always evident. Progress has been made and investors are trying to make a difference with their capital. Our industry is coalescing around the big issues like climate change and diversity, equity, and inclusion. More companies are being mindful of the effect that their operations have on the environment. And with the growth we’re seeing in ESG-focused assets, regulators and industry bodies will hopefully establish some much needed uniformity around standards and definitions soon so investors can accurately research and compare products.
To some, the progress hasn’t been enough. For others, aspects of ESG have gone too far. An undoubted challenge is the lack of convergence around labelling, data, and performance which causes confusion and provides fuel to accusations of greenwashing and return tradeoff.
Leaning in
We are responding the only way we know how – engaging, learning, and understanding how we can make a difference. We joined the Sustainable Markets Initiative (SMI) in 2022, and co-CEO Peter Wilson serves on the SMI’s Private Equity CEO Task Force. As part of our commitment to the SMI, we have confirmed our support for the Terra Carta, which provides guiding principles to put 'Nature, People and Planet' at the heart of global value creation. We also support the ESG Data Convergence Initiative because we know that standards will help reduce the reporting burden and provide more meaningful information for investors to make better decisions. Seven years on from the Paris Climate Agreement, the focus on climate risk has never been higher. Our ESG team lead Natasha Buckley is serving as the global coordinator of the Initiative Climat International (iCI) for 2022 and 2023, a GP-led collaboration to develop metrics and standards around climate risk and measurement. We also continue to focus on our own climate strategy, and have included our second TCFD progress update in this report.
The work goes on and we will continue to be in the arena. We hope you find this update on our ESG activities informative and encouraging, and that we are continuing to meet your aspirations and needs.
As always, thank you for your partnership.
John Toomey and Peter Wilson
HarbourVest Executive Management Committee
1Morningstar, Global Sustainable Fund Flows, Q2 2022.
Managing Directors John Toomey (left) and Peter Wilson
“It is not the critic who counts, not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better… the credit belongs to the man who is actually in the arena….”
– Theodore Roosevelt, 1910