General partners are all taking “slightly different” approaches to the “Do No Significant Harm” (DNSH) principle that forms part of the EU Sustainable Finance Disclosure Regime, according to panelists at the Impact Investor Global Summit.
“What we are seeing in practice right now is that this is still very much in development,” said Marleen Dijkstra, managing director at AlpInvest Partners. The bulk of reporting on this from GPs is yet to come through and “there is not one right answer” to how to do it, she said. AlpInvest manages Article 8 funds and commits capital to both Article 8 and Article 9 funds as an LP.
“The regulation is there to provide guidance on the disclosure – to set a sort of minimum level that people need to comply with – but in practice, I think we will find that every GP will do that in a slightly different way,” said Dijkstra, who was participating in a wide-ranging discussion on how managers are aligning with SFDR.
“Over time we’ll probably emerge to some sort of standardised [approach] but we are definitely not there yet,” she added.
The DNSH principle requires that sustainable investments must not only contribute to an environmental or social objective, but also to avoid significantly harming any of the other objectives as set out in the SFDR.
“There is a lot of flexibility there to set your own bar and define for yourself: when you contribute to an objective; when you do significant harm,” said Patricia Volhard, a partner at law firm Debevoise & Plimpton, who added that consistency is as, or more, important than the definition itself.
“You need to set it out in the beginning in your template – set out the metrics – and then apply [them] going forward with each investment in a consistent manner,” said Volhard. “That is the idea behind the Do No Significant Harm under SFDR. It’s really meant to permit a market participant to start applying a more consistent transparency and disclosure regime, without imposing a specific behaviour.
“That is what I think is very often misunderstood with SFDR.”
Phil Davis – director of ESG at private equity firm Helios Investment Partners, which manages an Aritcle 9 climate fund – described the DNSH principle, in the context of a fairly uncertain field, as “the bigger known around how market practice will evolve and adapt”.