Investors give emerging managers a pass on ESG: report

  • Why is this important: Whether emerging managers should set ESG targets is a prominent topic of debate

Are you an emerging manager concerned that you’ll need to make ESG a top priority to attract money? Little need to worry, new research finds.

According to the second edition of the Emerging Manager Report published by Buyouts Insider, almost a third of institutional investors said they did not find the setting of environmental-social-governance targets by emerging managers to be important, and almost 40 percent said it was only somewhat important.

More important to investors when assessing emerging managers appear to be composition of team, track record and investment strategy, according to the report, based on a survey of more than 40 institutional investors.

To be sure, many institutional investors do take ESG seriously, and many emerging managers differentiate themselves by focusing on it.

ESG-conscious emerging managers raising funds include WaterEquity, a firm co-founded by the actor Matt Damon that invests in enterprises helping impoverished people worldwide access safe water and toilets; Lightspeed Ventures, a female-founded early-stage firm; and Impact America Fund, which invests in technology that supports low-to-moderate-income community needs.

Still, limited partners at a New York conference late last month argued they can’t take ESG too seriously when its value is majorly determined through anecdotal stories and ideas.

We hear “case studies and stories about what’s been done at a particular [industrial] company and how safety incidences are way down because of the accountability they’ve put in place, the new equipment they have, how they’ve increased diversity in the company,” Tracy Harris, partner at StepStone Group, said at Buyouts Insider’s Emerging Manager Connect East.

But she said, “they are still stories and there aren’t too many firms consistently tracking the same KPIs because each of these companies are so very different in private markets.”

Harris added: “I would say we’re really just at the beginning of figuring out where and how to measure [ESG]. I think we are learning along with our GPs.”

Harris spoke on a panel moderated by Andrew Siwo, an investment director with ESG-focused Colonial Consulting.

Her fellow panelists included Carol Schleif, deputy chief investment officer at Abbot Downing; Wendy Pan, vice president at Bank of America Global Wealth & Investment Management, and Ethan Levine, managing director at Commonfund Capital.

Levine agreed with Harris about ESG’s lack of accountability, adding that the only way it will evolve into a major standard for investment assessment is to translate effects into reliable numbers.

“Until there’s enough data to back it up, I don’t see it generating the same level of interest from a broad standpoint where everybody at every institution says this is important and leads to better performance,” Levine said.

Interestingly, a sister survey of emerging managers by Buyouts Insider found that more than half said striving towards ESG goals is at least important, if not very or extremely important. For those institutional investors that care about ESG, these firms should have a leg up.

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