If you are a manager raising capital – and sustainability forms part of the pitch – then here are seven valuable investor insights. They are gleaned from this five-minute film produced in collaboration with 52 Digital.
No cherry-picking. We are now entering the era of comparable and comprehensive ESG data. One or two good news stories from portfolio companies will no longer suffice for some investors; they will want to see consistent, systematic data. “One good ESG story or metric does not make someone an ESG champion,” said Julia Jaskólska, co-investnments and ESG lead at CalPERS Private Equity. “Equally one bad one would not make a manager non-investable.”
Back up words with systems. If you make claims about sustainability, be sure these are substantiated by systems: “a robust ESG and impact measurement framework,” said Matthew Johns, a principal at IH International Advisors. “If there is an absence of that, you are at risk of over-claiming, and at risk of greenwashing”.
Be honest about dealflow. With the proliferation of climate-focused fundraising in recent years, limited partners may be watchful for too much money chasing too few deals. “Everyone will claim the have a proprietary angle and they were the lead investor in a deal,” said Hanna Ideström, senior portfolio manager at AP4. “It think it would be more refreshing if they were more honest about the market dynamics. Markets are competitive.”
Know the difference between ESG and impact. In sustainable investing definitions can be slippery: make sure you are on a firm footing when discussing either impact or ESG. “We sometimes find GPs confuse the two or use those terms interchangeably,” said Bhavika Vyas, managing director at StepStone Group. “For us they are not interchangeable.”
Be open to discuss measurement and alignment. For some investors, some sort of measurement framework or alignment mechanism on impact outcomes is mandatory. “Someone not willing to discuss measurement and reporting on an impact strategy, while putting forward a sustainability/impact stratgy, is totally disqualifying,” said Cyril Gouiffès, head of social impact investments at the European Investment Fund. At least be willing to engage in the conversation and “meet half way”, he adds.
Be humble, even when oversubscribed. Some in-demand GPs develop “a celebrity status”, said Chandra Gopinathan, senior investment manager at Railpen, which can lead them to be less cooporative and transparent with data (“I don’t need to give you this; you are only $30 million”). “That’s off-putting,” said Gopinathan.
Ostentatious charity can backfire. Think twice about trying to burnish your ESG credentials with accounts of charitable giving. To AP4’s Ideström this is “just an indication of excess profitablility, probably at the management fee level”. She continues: “Rather than taking future pensioners’ money, they should leave that money with us.”