HarbourVest's Annual ESG Report

ESG data insights

We believe a GP’s ESG policies, processes, and resources can be an indicator for fund excellence and should be considered alongside other investment indicators accordingly. Our proprietary ESG Manager Scorecard provides an overall ESG rating for GPs based on an assessment formed by evaluating three key scorecard indicators:

Partnership management

  • Quality of ESG policy and ability to execute on commitments

  • Commitments to areas such as climate change and DEI

Investment
process

  • Sophistication and mechanics behind processes for considering ESG factors in investment decision-making and portfolio engagement

Reporting and transparency

  • Quality of reporting and incident monitoring 

  • Commitment to proactively and transparently engage with LPs on ESG activities

We compile our ESG Scorecard data annually to assess GP rankings and identify trends. This year’s analysis draws from a dataset of 270 GPs as of November 2023.

ESG Scorecard ranking methodology: All scores run from 0.0 (lowest) to 4.0 (highest). A 4.0 ranking represents a level of best practice that is not market standard; we set a deliberately high bar to give the more advanced managers room to improve.

ESG overall

No Data Found

Overall ESG score: Derived from Scorecard rankings on partnership management, investment process, and reporting and transparency.

Climate change

No Data Found

Climate change score: Derived from Scorecard indicators on a manager’s commitment to developing a climate change strategy and implementation of a strategy in alignment with the Recommendations of the Taskforce on Climate-related Financial disclosures (TCFD).

DEI

No Data Found

DEI score: Derived from Scorecard indicators on a manager’s senior investment team diversity, their approach to improving diverse recruitment and retention, advocacy, and their strategy with respect to diversity in the portfolios.

ESG overall by geography

No Data Found

ESG overall by investment strategy

No Data Found

The ESG scorings used in this document are for illustrative purposes only and there is no guarantee these scorings will have any bearing on the performance of any GP/managers the fund invests with, or on investments made by the fund, nor that they represent any GP/manager.

Breaking down the data

From our most recent benchmarking analysis, we generally found improvements across assessed metrics, albeit at a moderate scale. This gradual improvement is consistent with our expectations, as thoughtful ESG programs take time and investment to build.

ESG Overall

A tighter concentration of scores in the upper ranges indicates that most GPs have established ESG process, policy, and resourcing. We continue to generally observe the most sophisticated practices from European GPs and those that are focused on the buyout market.

Climate Change

While we noted an uptick in the proportion of GPs that have developed a climate change strategy, most GPs still have much work to do on climate risk analysis, emissions data collection, and target-setting. Due to the nascency of climate change methodology and guidance in private equity, this is unsurprising, and we expect that industry progress will support GPs in moving forward on developing their approach to climate change.

DEI

Of the three main outputs of our Scorecard, we generally saw the most progress from GPs on DEI. This included improvements in monitoring workplace diversity and more robust initiatives to drive diversity.

ESG process, policy, and resourcing

82% have an ESG policy

31% are PRI signatories

30% have dedicated ESG resourcing

Reporting and transparency

27% track ESG KPIs

27% have ESG on their
LPAC agenda as standard

34% produce an annual ESG report

Climate change

29% have developed and 33% are committed to developing a climate change strategy

6% make TCFD-aligned disclosures

16% have conducted climate
risk mapping of the portfolio

20% conduct carbon footprint analysis of portfolios

DEI

60% have a DEI/anti-harassment policy

71% monitor workplace diversity

24% conduct anti-bias/conscious inclusion training

71% have recruitment initiatives
in place to drive DEI

28% have thoughtful policies in place to improve retention

17% have mentorship programs

In 2022, we screened 200 incidents through RepRisk and selectively engaged with GPs on 38 reports which we considered to be potentially material. These engagements demonstrate the quality of our partnerships with GPs and allow us to better understand their ESG risk management and incident response capabilities.

RepRisk by the numbers

(in 2022)

13,500

active companies tracked by HarbourVest

650+

GPs tracked by HarbourVest

200

incidents screened by HarbourVest

38

direct engagements* linked to RepRisk data

*Direct engagements reflect only the number of completed engagements as of 12/31/22 and does not include engagements that were initiated in 2022 but still ongoing as of year-end.

ESG Data Convergence Initiative

We believe data convergence and industry consistency will, among other benefits, help reduce the fast-increasing ESG reporting burden felt by LPs, GPs, and portfolio companies alike. In 2022, we became supporters of the EDCI, an LP-GP collaboration that seeks to standardize ESG metrics and provide a means of comparative reporting and benchmarking on ESG for private companies.

In 2023, we reached out to the EDCI-member GPs that we actively invest with and requested company-level EDCI data where available. We were pleased with the results of this first-time exercise which gave us ESG KPI coverage for 15% of the portfolio by current value. As more GPs support the EDCI and implement the process into their engagements with portfolio companies, HarbourVest will increasingly build a more complete dataset of ESG metrics of the companies in which we invest.

As a more immediate initiative, we incorporated greenhouse gas (GHG) emissions data from GPs into our broader estimated emissions dataset, thereby enhancing the overall data quality of our 2022 emissions reporting exercise. We remain committed to the EDCI and its objectives and will continue to encourage our GPs to support the initiative, collect standardized KPIs across portfolio companies, and report the data to the EDCI and their investors.

EDCI by the numbers

(as of September 2023)

240

GP members

9%

Percentage of HarbourVest GPs that are EDCI supporters

43

GP EDCI supporters that provided HarbourVest with portfolio company-level data

851

Companies in total dataset

15%

Percent coverage of HarbourVest portfolio companies by current value

13,031

Number of ESG metrics in dataset

Source

[#] source

Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).