We consider ESG at three levels: the Board, HarbourVest and investee companies. We are dedicated to promoting the highest standards which we believe foster higher-quality investments and improved returns.
Responsible Investing, Meaningful Results
From energy and climate to diversity, health, and human rights, the world continues to face challenges that are only intensifying. Current events continue to deepen HarbourVest’s understanding of ESG issues, bringing more clarity to the
important role private markets can play in helping to secure and shape our collective futures. HarbourVest is committed to being a true steward of capital:
using its influence to raise standards on ESG, diversity and inclusion (“D&I”), and climate action in private equity through collaboration, engagement, and investment. The Investment Manager’s goals are supported by the systematic integration of ESG factors across all the investment strategies, from the ways in which it partners with GPs and LPs to help shape and further their own ESG objectives, through to research and feedback.
Programme Governance
HarbourVest’s Executive Management Committee is responsible for overseeing the implementation of the ESG Policy. In 2021, HarbourVest updated its policy to reflect the evolving ESG practices and deep commitment to responsible investing. The new policy (available at www.harbourvest.com) includes more detailed information on HarbourVest’s ESG integration processes and includes its strategic commitments to climate change and diversity and inclusion.
Signatory of Principles of Responsible Investment
HarbourVest has been a proud signatory to the Principles for Responsible Investment (“PRI”) since 2013. It strongly believes that ESG factors can affect the performance of investment portfolios to varying degrees, across companies, sectors, and time periods. The Investment Manager also recognises that applying these principles may better align investors with the broader objectives of society. HarbourVest strives to adhere to both the letter and spirit of the PRI: it considers
the potential impacts that its investment and operational decisions could have, encourages the GPs it invests with to adopt the PRI, and has experience in helping clients achieve their ESG objectives through customised investment solutions.
Incorporating ESG into our Research
HarbourVest has instituted robust ESG due diligence procedures across each of the investment strategies. It believes these procedures support timely and sound
investment decision-making, which is at the centre of how it seeks to create compelling risk-adjusted returns for investors.
An ESG Manager Scorecard is used to evaluate the ESG capabilities of fund managers that it invests with. HarbourVest’s evaluation criteria is aligned with industry standards, including the PRI, Taskforce for Climate-related Financial Disclosure (“TCFD”), and Institutional Limited Partners Association’s (“ILPA”) Diversity in Action initiative. The Manager Scorecard results are generated by proprietary weightings and provide an overall ESG rating for the GP, plus individual ratings on climate change and diversity and inclusion. HarbourVest’s approach is grounded in the conviction that the ESG policies and processes of the GPs that it invests with can be an indicator for fund excellence.
HarbourVest’s ESG due diligence and monitoring practices are supported by RepRisk, an online database that helps the Investment Manager track negative ESG reports globally for thousands of portfolio companies and GPs daily. RepRisk has been a particularly useful tool when screening assets for the direct strategies and as a proactive incident monitoring tool for the entire portfolio, which is uploaded and tracked through RepRisk.
HarbourVest’s monitoring team meets on a bi-weekly basis to review the RepRisk data and determine courses of action. In 2023, it screened 255 reports and selectively engaged with GPs on 36 reports which it considered to be potentially
material (i.e. concerning potential litigation, environmental impacts, data security breaches). HarbourVest has found that these engagements through transparent dialogue have demonstrated the quality of its partnerships with GPs and allowed it to better understand its ESG risk management and incident response capabilities.
Moving Forward: Increasing Demand for ESG Investment Solutions
Investor demand for ESG-focused investment solutions is only rising. How does HarbourVest know? Its LPs told it so. In 2021, HarbourVest took the opportunity to survey 133 of its LPs in an effort to learn more about their adoption and commitment to responsible investing and their allocation plans for these types of targeted solutions going forward. Nearly threequarters (72%) told HarbourVest that they expect to increase their average allocations to sustainable and/or impact-focused solutions over the next two years. Their feedback will be invaluable in helping HarbourVest identify and develop solutions that can help meet its clients’ evolving ESG-focused investment goals.
The Board recognises the critical importance of ESG considerations to many investors. It acknowledges that ESG issues can present both opportunities and threats to long-term investment performance. The Board also believes that HVPE will benefit from the continued evolution of HarbourVest’s ESG practices and standards.
The Board is aware that, as an investment company, its approach to ESG matters is materially informed by the strategy of the Investment Manager and accordingly the Board is committed to ensuring that it has appointed an Investment Manager that is incorporating high standards of ESG practice, and has the skill and vision to respond to ongoing developments. It is confident that in HarbourVest it has such an Investment Manager.
The Board is reliant on the Investment Manager’s screening processes, controls, and priorities to address ESG matters within the investment portfolio in both the selection and oversight of investments. The Board believes that engagement with management of investee companies and funds is an effective way of driving meaningful change and takes comfort from the extent of the Investment Manager’s activity in this area, which is described on pages 46 to 47 of the 2024 Annual Report and Accounts.
The Board receives regular updates from the Investment Manager on the development and implementation of its ESG policies and processes, and the Board has established a framework for monitoring its continuing progress. Updates include information on the levels of engagement with investee companies and ESG issues in respect of their monitoring and selection of holdings in the Company’s portfolio. This provides a valuable opportunity for the Board to challenge the Investment Manager to demonstrate that it is applying high standards of ESG practice within its investments and operations.
As an investment company with no direct employees, the core of the Company’s ESG initiatives is derived from its oversight of its service providers, most importantly the Investment Manager. However, the Board also considers the application of ESG standards to its own activities as an Investment Company, including the following:
- Carbon Footprint: The Board initiated a project to calculate its own carbon footprint in 2021 and since that time, has continued to offset its operational carbon emissions, the majority of which result from travel. The offsetting programme compensates for emissions by delivering finance to emission reduction projects, which are independently reviewed to assure emissions reductions are occurring.
- Relations with Stakeholders: The Board has extended its interaction with its shareholders and other stakeholders to include a consideration of ESG matters.
- Position on Modern Slavery: The Board recognises the importance of the issues which the UK Modern Slavery Act 2015 is designed to address. It has expanded its oversight of outsourced providers, including the Investment Manager, to include questions relating to their policies to combat Modern Slavery. As Chair, Ed Warner assumes direct oversight of the Company’s statements and its response to the issue of modern slavery. A description of the Board’s approach to this subject is set out on the Company’s website.
