Agenda 2023: Sustainability regulation will ‘continue to dominate’ industry agenda, says HarbourVest’s Buckley

Natasha Buckley, ESG vice-president at private markets firm HarvbourVest, reflects on the past year and outlines her priorities for 2023.

Looking back at 2022, what were the pivotal developments in terms of sustainability in private markets?

Sustainability has risen up the agenda as a strategic priority for firms and their leadership. We are pleased to see this, and there are increasing examples of firms looking to share ideas and best practices together, which should hopefully accelerate progress.

The strong desire for collaboration is also highlighted by a successful first year of data submission into the ESG Data Convergence Initiative. More than 250 GPs and LPs signed up and ILPA stepped in to formally support the EDCI in 2022. Last year, a set of 2021 data on over 2,000 portfolio companies was submitted to the central benchmark hosted by BCG – a notable development that will support a wider build on consistently reported ESG datapoints.

Last year was also marked by a heightened focus on greenwashing by regulators and other actors. While it is important to address the market risks of mis-selling investors on ESG, I think we also need to acknowledge how challenging it is for GPs to navigate a proliferation of disclosure requests and regulatory regimes in this sensitive climate. In 2023, our best approach will continue to be ensuring that our statements on ESG are reasonable, accurate and can be evidenced – and most critically, linked to creating value in our underlying investments.

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?

As the current global chair of the Initiative Climat International, I am proud of our significant progress this year. In 2022, we launched chapters in North America and APAC, and now count over 200 private markets firms and investors as members. It has been a fantastic forum to build understanding around key topics relating to climate change: strategy and training, emissions reporting, target setting, and regulation.

A significant development this year was the iCI-ERM publication on Greenhouse Gas Accounting and Reporting for the private equity sector, which supports a consistent approach to calculating and disclosing on financed emissions by private equity funds. You cannot set targets without data, and there was an urgent need to create consistency in how emissions data is accounted for in private equity, which I hope this guidance will help address.

Many will say private equity is not moving quickly enough, so we need to continue to work together to put the building blocks into place, and my belief is we will get there faster as a result. Private equity has proven to be both nimble and collaborative when it comes to ESG, so we have cause for optimism as we see the sector working together.

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?

In 2020, we committed to developing an actionable climate change strategy that reflects our capabilities and stewardship potential as a firm. One of our key objectives was to develop our data infrastructure on climate, and in 2022, we generated climate change ratings for managers as part of our ESG Manager Scorecard dataset and worked to calculate portfolio emissions using proxy data. In 2023 and beyond, we are committed to improving the quality of this dataset to build a nuanced understanding of climate risk within our portfolio.

We also expect to see significant investment opportunities related to climate change. Our infrastructure programme, for example, is targeting investments in renewable energy and decarbonisation themes.

Aside from climate, which other areas of sustainability will be prominent on your agenda and why?

I think sustainability regulation is going to be on everyone’s agenda in 2023, and will continue to dominate until we have what the ISSB is terming “an interoperability” between regulatory regimes on ESG reporting. Let’s hope we get there sooner rather than later!