How to ensure impact becomes central to investment processes? Rekha Unnithan, Nuveen’s co-head of impact investing, has a gut feeling that simply asking investment professionals to start focusing on impact is not the way to build a successfully dedicated strategy.
“That would not work because incentives are not aligned,” Unnithan said during a panel at PEI Media’s Impact Investing Forum.
“Why would that person take on a very different type of view compared to what they did every day?” she asked. “When you start off, you need people who are accountable for both the performance, impact and ownership of an impact portfolio and…deals.”
Unnithan spoke alongside representatives from Bridges Fund Management, EQT Partners and The Carlyle Group about how to scale impact investing strategies throughout the way a GP conducts business.
Impact and ESG as a ‘check-the-box’ requirement is a mindset Anders Misund, partner and head of Nordics at EQT Partners, said his firm discovered was the wrong approach when it first built a dedicated team towards such strategies 10-15 years ago. At first, EQT’s approach was “extremely process, procedure, reporting and compliance-focused.”
“But it’s really not the right way to start if you want to inspire and drive an organisation,” Misund said.
For Michele Giddens, co-founder and chief executive of Bridges Fund Management, a firm she described as “an original dedicated impact investor,” ESG integration began when ideas about how to structure Bridges first came together.
“We decided to create a new firm that would be a highly commercial private funds manager but that would have impact locked in,” Giddens explained. “We wanted a team [in which] impact and attractive financial returns was in their DNA.”
For firms with a long investment track record, building in impact and ESG practices is more about a “change over time as opposed to a static assessment of if a company is good or not,” said Megan Starr, Carlyle’s global head of impact. “Impact comes from thinking about where sustainability macro-themes intersect with where profitability is in the industry.”
One example she offered is that, in addition to Carlyle managing a renewables and sustainability strategy, the firm also has begun carbon foot-printing emissions across majority-owned portfolio companies. While this process has involved “a lot of calls sitting on the phone, digging through utility bills,” Starr said it’s also led to millions of dollars of cost savings.