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Harvard: Venture capital ‘should be doing more to incorporate ESG’

Harvard Management Company has a $18bn allocation to private equity – including venture capital – and has brought ESG into its recently redrawn risk tolerance levels in recent years.

“Venture capital investors that overlook fundamental ESG considerations are making a fragile stage of business development even more risky,” says Michael Cappucci, managing director for compliance and sustainable investing at Harvard Management Company, the investment manager for Harvard University’s $53.2 billion endowment. “An industry that thrives on innovation and foresight should be doing more to incorporate ESG considerations from the start to ensure that their portfolio companies have the best chance at succeeding.”

Cappucci’s statement was released to accompany a recent report on venture capital from the UN-backed Principles of Responsible Investment. The report’s author, Peter Dunbar, a senior specialist at PRI, told New Private Markets: “At the top of the VC industry, there are a handful of really influential VC firms [where] there’s very little acceptance or acknowledgement about ESG.”

Harvard Management Company has a 34 percent ($18.1 billion) allocation to private equity, including venture capital, growth stage and buyout investments. In 2018, Harvard appointed a risk tolerance group to redraw its risk tolerance levels to increase its venture capital exposure and achieve higher returns. Harvard includes ESG factors in its new risk evaluation framework and “expects external managers to consider relevant ESG factors that could have a material impact on financial performance”, its sustainable investing policy states.

Harvard became a PRI signatory in 2014 – the first US endowment to do so.