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.
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 2021, it screened 104 reports and selectively engaged with GPs on 34 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, and is committed to responsible and
sustainable investing. 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
applies the highest 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 considerable comfort from the extent of the Investment Manager’s activity in this area, which is described on pages 34 to 43 of the 2023 annual report.
The Board receives regular updates from the Investment Manager on the development and implementation of its ESG policies and processes, and the Board will continue to monitor those closely. These 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 confirm and challenge the Investment Manager to demonstrate that it is continuing to apply the highest standards of ESG practice across its investments and operations.
The Board recognises that the Investment Manager has been a signatory to the UN Principles for Responsible Investment (”PRI”) since 2013, that it is committed to considering the potential impact that its investment and operational decisions
could have, and that it encourages the GPs with which it invests to adopt the PRI. With regard to environmental and climate disclosures, the Investment Manager has started to report annually on its progress through its ESG report (https://viewpoints.harbourvest.com/esg-annual-report/) in line with the recommendations of the TCFD. The Board has noted that the Investment Manager is a CarbonNeutral® company in accordance with The CarbonNeutral Protocol, a leading framework for carbon neutrality. The Investment Manager’s offsetting programme delivers finance to emission reduction projects, supporting the transition to a low carbon economy. Finally, the Board also reviews the Investment Manager’s approach to promoting diversity, social responsibility, and
projects to combat social exclusion and enhance opportunities.
The Board is committed to incorporating ESG oversight across the Company’s outsourced providers and within its own operations. Ms Espinal has been designated as the lead HVPE Director responsible for ESG matters. She helps
to promote and facilitate closer monitoring and further development in this area for the Company.
The Company’s oversight of outsourced providers has been expanded to include questions and confirmations in respect of their ESG policies as part of its annual review of providers.
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 and achieved CarbonNeutral status on 1 July 2021.
- Relations with Stakeholders: The Board will extend its interaction with its shareholders and other stakeholders to include a consideration of ESG matters. The Board has noted the governance and environmental benefits of broader shareholder participation, facilitated by virtual shareholder events, and is continuing to offer remote access where possible.
- Diversity and Inclusion: The Board’s approach to diversity and inclusion is set out on page 92 of the annual report and is reflected in the activities of the Nomination Committee. Four of the seven Directors who are being proposed for re-election at the AGM are female, which, at 57%, is a figure well above the level recommended in the Hampton-Alexander Review. While the Board does not have a diversity target in mind, given the range of factors that this term necessarily covers, two of the six Directors being proposed for re-election at the AGM are from an ethnic minority background. The Board will continue to consider all factors, including diversity, in its recruitment processes.
- 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.