Natasha Morris, managing director, responsibility and impact at Adamantem Capital, shares her reflections on the last year and looks forward to 2023.
Looking back at 2022, were there any pivotal events, moments or developments in terms of sustainability in private markets?
During 2022 we continued to see sustainability challenges escalate and dominate headlines – natural disasters, energy insecurity, ongoing supply chain disruptions, human rights violations, the “great attrition” and sophisticated cybersecurity attacks.
This has resulted in a growing mainstream realisation that private investors must manage these externalities in order to create long-term sustainable value, but also have a role in creating positive environmental and social outcomes to address them. We have seen regulators respond by mandating increasingly harmonised corporate sustainability disclosures to assist investors, a rise in private investor collaborations developing support tools and the growth of impact funds seeking to deliver market returns alongside positive impact.
With this has come the need to ensure that investors are held to account for delivering sustainability outcomes in the same way as financial performance. 2022 saw the rise of “greenwashing”, “greenhushing” and “greenwishing”, raising the reporting bar but also the need for investors to design responsible investing strategies to deliver outcomes.
Thinking specifically about private markets, do you think the industry has made progress on climate in the last year? Where are the bright spots? Where has it disappointed?
The private sector will play a critical role in climate progress. There has been exponential growth in private market capital allocated towards transition and climate solutions funding, which over time should help countries deliver on net zero commitments.
Integrating climate risk into investment decisions and asset management is complex, but there is some fantastic work being done and shared across the private markets on developing our collective thinking, including the work of the initiative Climat International, which will expedite progress. Challenges continue to be: the need for increasingly sophisticated climate-related expertise as well as more robust ways to translate long-term climate risks into shorter-term investment considerations.
Looking ahead to 2023, what is your firm’s next priority in terms of the climate? What would you like to have completed over the next 12 months?
Building on our 2021 climate disclosures, in November 2022 we released our inaugural Climate Action Report, which details our approach to climate change integration and the progress we have made.
During the course of 2023 we will seek to build on this work to continuously evolve our approach. Focus areas include enhancing portfolio emissions measurement and tracking progress against net zero targets, supporting our portfolio companies to increase their Scope 3 emissions understanding and strategies and enhancing our TCFD-aligned Fund level reporting.
Aside from climate, which other areas of sustainability will be prominent on your agenda and why?
Adamantem’s responsible investing approach is built on three pillars: environmental sustainability; social inclusion; and governance and transparency, and we focus on a range of portfolio-wide workstreams across each of these pillars. This includes climate risk, issues around workforce attraction, retention and engagement, human rights risks in supply chains, personal data and cybersecurity and sustainability reporting. We believe integrating these factors into our investment decisions deepens our risk analysis and helps us make better investment decisions, while managing these issues during our ownership reduces operating risk and provides value creation opportunities.
How are more emerging topics like nature/biodiversity occupying your time and resources?
Nature creates significant economic value, but up until recently nature’s ecosystem services have been considered ‘free’, with businesses yet to widely understand how significantly their operations and supply chains may be affected by a reduced natural environment. As with climate change, the private sector has a critical role to play. Since 2020 we have integrated TCFD-aligned climate risk and opportunity assessments into our due diligence processes and used those assessments to build climate change resilience within our portfolio companies. A 2023 focus area for us is seeking to extend this framework to incorporate nature risk and opportunity assessments where material.