In brief: Get under the skin of systemic sustainability risks

Two organisations – the Predistribution Initiative and Impact Frontiers – are working on a framework to manage sustainability risks born from the way we currently invest; they want input from LPs and GPs.

Regular New Private Markets readers may already be aware of the Predistribution Initiative, and its goal of addressing the systemic sustainability risks “baked in” to the current investment landscape.

Now the organisation – in collaboration with another sustainability-focused group Impact Frontiers – has started work on a framework to “support investors in measuring, managing, and reporting their positive and negative contributions to impact and systematic risk”. The two organisations are calling on both LPs and GPs to join the conversation through a period of consultation; zoom calls for asset owners, managers and other stakeholders are happening throughout March and the consultation runs to the end of April.

What exactly is meant by investors’ “contributions to impact and systematic risk”? It is how strategic and financial investment decisions have real-world effects on companies and society and can create instabilities that are not yet accounted for in existing ESG discussions.

For example, how decisions around leverage or sale-and-leaseback strategies can affect an individual company’s ability to survive shocks or make capital investments. Or how outsized compensation at the fund manager level can exacerbate inequality. Or how aggressive tax structures can undermine civil society.

This document proposes ways in which investors and managers can start to make disclosures around these risks (and others); it also provides a good overview of the kinds of risks that are under consideration.

  • All the relevant information about the consultation process can be found here.