James Brocklebank

Sustainability should be at the heart of Advent’s core private equity strategy, and a dedicated impact fund could inhibit this, according to James Brocklebank, a managing partner at Advent International.

“I don’t want this whole sustainability initiative to be confined to one fund off to the side. As well as having a different mandate, the slight danger of doing impact in a separate fund is [people across Advent will think], ‘Ok, that’s Advent’s sustainability thing over there and we just carry on with normal life over here.’”

Advent International is currently investing the $17.5 billion raised for its ninth private equity fund, which launched in 2018. The Boston-based firm ranked 13th in affiliate title’s Private Equity International’s latest list of the top 300 private equity firms by capital raised over the last five years.

Advent’s priority is to enhance sustainability in its core private equity programme, Brocklebank told New Private Markets.

“I want responsible investment to be a core part of everything we do in the main fund,” he said.

One step Advent has taken towards this goal is adopting S&P Global’s Corporate Sustainability Assessment last month. Advent is the only private markets firm to adopt the CSA, which assesses a company’s ESG risk exposure and performance against sector-specific benchmarks. The firm plans to use the CSA to assess potential deals and to measure the ESG progress of its own operations and a selection of portfolio companies.

Advent signed the UN-backed Principles for Responsible Investing in May 2018 and became a TCFD supporter in March 2020. And it uses the SASB materiality sector index to identify ESG risks and opportunities when it invests in a company. So why has Advent adopted another ESG assessment strategy?

S&P’s CSA goes into more depth than other frameworks and is tailored to the responding company’s specific industry, said Jarlyth Gibson, director of risk management and ESG at Advent. “SASB takes a higher-level approach. They have a materiality matrix. Whereas S&P might have 80-100 very specific questions, SASB might have 10-12 areas of consideration. SASB gives framework and guidance. S&P is an assessment.”

Using the S&P CSA will also help Advent’s investor base, who are asking – said Brocklebank – for more data.

“Investors have different drivers. Some are caught up in the SFDR themselves, so they need a set of data and they’re trying to figure out ‘How am I going to get this so I can comply’, like insurance companies. Some, like large pension plans, have made net zero commitments, so they’re looking through to their GPs and the underlying portfolio companies, trying to understand where these climate metrics are going to come from,” said Gibson.

But Brocklebank and Gibson insist that the main instigator for this S&P partnership was Advent’s own sustainability ambitions, and not those of its investors.

“We run our business on sector lines; this gives us the opportunity to benchmark our companies against what best-in-class looks like in that particular sector,” said Brocklebank.

Advent may reconsider its position on dedicated impact funds. “I don’t rule anything in or out. We’re always looking at ways we can continue to improve our sustainability profile,” Brocklebank said.

The question of whether to raise a dedicated impact fund is one that has been discussed at many large private markets firms. Some, like Apax and Bain, have opted for a dedicated impact strategy, while others, such as EQT and Carlyle, share Advent’s view that impact needs to be applied across the entire portfolio.

Megan Starr, global impact head at Carlyle, recently told PEI Media’s Impact Investment Forum that Carlyle doesn’t have a dedicated impact strategy because “we don’t see a binary of good companies and bad companies”. Across the spectrum of Carlyle’s investments, “we saw impact as less of a product and more of a process. We try to think about how these issues are systematically important across our portfolio”.

Less than a quarter of private equity investors are “not looking at” investing for impact, according to a recent survey of 209 private equity investors by PwC.