HarbourVest's Annual ESG Report

Responsible investing

We have instituted robust ESG due diligence procedures within each of our investment strategies to support sound investment decision-making and create compelling, risk-adjusted returns for our investors. ESG review is incorporated as standard in investment committee materials across all strategies and our investment teams utilize two key tools for ESG due diligence and monitoring and engagement.

See our ESG data insights for key datapoints from our ESG Manager Scorecard and RepRisk.

Our investment approach gives us a front-row seat to the challenges and opportunities that both GPs and LPs are experiencing on the ESG front, affording us the unique opportunity to engage our GPs on developing a strong ESG program while simultaneously working with our LPs on structuring ESG-themed solutions and reporting mechanisms. We then can package our learnings and be a helpful thought partner to both sides of the private markets equation.
Natasha Buckley
Vice President, ESG

Our ESG processes are tailored for each of our investment strategies to support each team’s distinct approach to investing and the material ESG-related considerations for each strategy.

Primary
investments +
Direct
co-investments +
Secondary
investments +
Private
credit +
Infrastructure
and real assets+
“A key objective of our program is to advocate and support GPs in the adoption of ESG principles. Over the past year or so, I have particularly noted progress from the midmarket and software specialists—segments which have historically been a bit quieter on ESG. It is exciting to see the activity and resources being deployed in these parts of the market.”
McComma Grayson - harbourvest
McComma (Mac) GraysonManaging Director and ESG Lead for Primary investments
“Private credit has an increasingly pivotal role to play in ESG, with reporting and financing structures being developed that have created helpful synergies between sponsors, borrowers, and lenders. The growing practice of sustainability-linked loans has been an interesting trend to observe and is becoming a compelling value proposition as ESG objective-setting continues to improve.”
Nai Uanarumit
Nai UanarumitVice President and ESG Lead for Private credit
“The energy transition is underway and that is opening up an exciting pipeline of opportunities in infrastructure and real assets. Solar, wind, and battery storage have experienced significant growth due to the large capital need, the important role for private markets, and subsidies and incentives from governments that help to de-risk investments. Opportunities in potentially disruptive areas such as electric vehicle infrastructure, hydrogen, biofuels, and innovative sustainability-based business models continue to bubble up. And we are seeing an increased focus on energy efficiency, with the decarbonization of traditional sub-sectors and business models.”
Holland Davis, HarbourVest
Holland DavisVice President and ESG Lead for Infrastructure and real assets

We continue to be excited about opportunities to develop targeted solutions and strategies as we look beyond ESG integration as the foundation of our program. Read more about these efforts in our featured insights:

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ESG data insights

ESG Manager Scorecard

Due diligence

Our proprietary ESG Manager Scorecard is used to evaluate a GP’s ESG integration approach and maturity. Evaluation criteria are aligned with industry standards and the resulting assessment is generated by proprietary weightings, taking into account the GP’s policy, processes, and resources to manage financial ESG-related risks and opportunities in their investments, and their commitment to transparent and regular portfolio reporting. Our approach is grounded in the conviction that the ESG policies and processes of the GPs we invest with can be an indicator for fund excellence and should be considered alongside other investment indicators.

Monitoring and engagement

Our ESG Manager Scorecard is maintained as a live monitoring tool and updated regularly. Scoring data can be used to provide specific feedback to GPs on areas for improvement and peer benchmarking. Our team can leverage the evaluation and feedback processes to encourage continuous improvement from GPs and will (where practicable and relevant) prioritize engagement with lower scoring GPs to encourage the adoption of a systematic approach to ESG management.

Due diligence

Our investment teams use RepRisk to strengthen our ESG analysis of investment opportunities across our investment strategies and to consider related risks. RepRisk is a global database that provides reputational risk ratings for GPs and operating companies based on an assessment of reported ESG incidents associated with that company, which are subsequently weighted according to severity, frequency, and source. Risk categories include reporting on fraud, misleading communication, child labor, occupational health and safety, and pollution or waste.

Monitoring and engagement

RepRisk allows us to proactively scan for negative ESG incidents for thousands of portfolio companies and GPs across investment strategies. Investments are monitored through RepRisk and subject to a regular, periodic review process that screens for potentially material ESG incidents. We have protocols in place to discuss ESG incidents with the GP or lead sponsor when incidents are considered relevant and material, and to record the outcome of that engagement. We have found this practice has enhanced our dialogue with GPs and allowed us to better understand their ESG risk management capabilities.

Primary investments

When conducting due diligence on primary investments, we typically evaluate the fund sponsor’s (GP) ESG integration approach and maturity through our proprietary ESG Manager Scorecard. Our evaluation criteria are aligned with industry standards; the resulting assessment is generated by proprietary weightings and provides an overall ESG rating for the GP. This rating takes into account the GP’s policy, processes, and resources to manage financial ESG-related risks and opportunities in their investments, and their commitment to transparent and regular reporting on the portfolio. Our approach is grounded in the conviction that the ESG policies and processes of the GPs that we invest with can be an indicator for fund excellence and should be considered alongside other investment indicators accordingly.

In addition, our investment teams use RepRisk® to strengthen our ESG analysis of investment opportunities across our investment strategies and to consider related risks. RepRisk is a global database that provides reputational risk ratings for GPs and operating companies, based on an assessment of reported ESG incidents associated with that company, which are subsequently weighted according to severity, frequency, and source. Risk categories include reporting on fraud, misleading communication, child labor, occupational health and safety issues, and pollution or waste issues.

Direct co-investments

HarbourVest-sourced direct co-investments, we generally work with the lead sponsor to analyze opportunity-specific ESG considerations based on a given company’s business model, domicile, historical business practice, and sector. In addition, we analyze the company and lead sponsor RepRisk ratings, where available, and any relevant ESG incident data. We will also seek to assess the lead sponsor’s ability to identify and  manage ESG-related financial risks and opportunities through the application of our ESG Manager Scorecard.

Secondary investments

The type of ESG analysis we perform for secondary investments depends on the nature of the portfolio we are seeking to acquire. If we seek a more diversified portfolio, we will typically perform a high-level ESG screen, which entails a sector-based review that takes into account potentially heightened financial ESG risks, and typically a consideration of ESG Manager Scorecard analysis for key GPs represented in the portfolio and a RepRisk analysis of the largest portfolio exposures, where available. With respect to secondary opportunities where HarbourVest plays a key role in driving the terms of bespoke managerial arrangements and otherwise has significant influence, we often have a greater ability to advocate for the appropriate management of ESG-related financial risks and opportunities through dialogue with the relevant sponsor(s) and will typically complete an ESG Manager Scorecard assessment as a basis for that dialogue, either prior to or post investment close. With respect to single asset secondaries, the ESG Manager Scorecard and RepRisk screening are supplemented by an asset-level ESG analysis.

Private credit

For private credit investments sourced by HarbourVest, we generally perform a red flag assessment of opportunities presented for consideration, where deal teams may consider, among other factors, whether the opportunity presents heightened financial ESG risk to our fund programs. This review is supported by a RepRisk screen. In addition, we typically consider ESG due diligence performed by the lead sponsor, if available. We may also utilize ESG Manager Scorecard assessments of the lead sponsor to the extent such assessments are considered current and on file at the time the credit is under consideration. 

Infrastructure and real assets

HarbourVest invests in infrastructure and real assets across its primary, secondary, and direct co-investment strategies, and across various sub-sectors, including power and renewables, telecommunications and data infrastructure, transportation and logistics, energy and utilities, social infrastructure, and natural resources. Accordingly, the type of ESG diligence we perform depends on both the type of transaction (as outlined for each strategy above), and specific ESG-related sub-sector financial risks and opportunities.

Professional Investor Definition

“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:

(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;

(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;

(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;

(e) any scheme which-

(i) is a collective investment scheme authorised under section 104 of the SFO; or

(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,

or any person by whom any such scheme is operated;

(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;

(g) any scheme which-

(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or

(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,

or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;

(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;

(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-

(i) a wholly owned subsidiary of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;

(ii) a holding company which holds all the issued share capital of-

(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or

(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or

(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or

(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.

The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:

(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-

(i) as stated in the most recent audited financial statement prepared-

(A) in respect of the trust corporation; and

(B) within 16 months before the relevant date;

(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-

(A) in respect of the trust or any of the trust; and

(B) within 16 months before the relevant date; or

(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-

(A) in respect of the trust or any of the trusts; and

(B) within 12 months before the relevant date;

(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-

(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or

(ii)  as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;

(m) any corporation or partnership having-

(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or

(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-

(iii) the most recent audited financial statement prepared-

(A) in respect of the corporation or partnership (as the case may be); and

(B) within 16 months before the relevant date; or

(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and

(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-

(i) a trust corporation that falls within the description in paragraph (k);

(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);

(iii) a corporation that falls within the description in paragraph (m);

(iv) a partnership that falls within the description in paragraph (m).

For the purposes of paragraphs (k) to (n) above:

  • “relevant date” means the date on which the advertisement, invitation or document (made in respect of securities or structured products or interests in any collective investment scheme, which is intended to be disposed of only to professional investors), is issued, or possessed for the purposes of issue;
  • “custodian” means (i) a corporation whose principal business is to act as a securities custodian, or (ii) an authorised financial institution under the Banking Ordinance (Cap. 155 of the Laws of Hong Kong); an overseas bank; a corporation licensed under the SFO; or an overseas financial intermediary, whose business includes acting as a custodian; and
  • “portfolio” means a portfolio comprising any of the following (i) securities; (ii) certificates of deposit issued by an authorised financial institution under the Banking Ordinance (Cap, 155 of the Laws of Hong Kong) or an overseas bank; and (iii) except for trust corporations, cash held by a custodian.

Institutional Investor / Accredited Investor Definition

An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(a) the Singapore Government;

(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;

(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —

(i) to manage its own funds;

(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or

(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;

(d) any entity —

(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and

(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);

(e) a bank that is licensed under the Banking Act 1970;

(f) a merchant bank that is licensed under the Banking Act 1970;

(g) a finance company that is licensed under the Finance Companies Act 1967;

(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;

(i) a company licensed under the Trust Companies Act 2005;

(j) a holder of a capital markets services licence;

(k) an approved exchange;

(l) a recognised market operator;

(m) an approved clearing house;

(n) a recognised clearing house;

(o) a licensed trade repository;

(p) a licensed foreign trade repository;

(q) an approved holding company;

(r) a Depository as defined in section 81SF of the SFA;

(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;

(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;

(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;

(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;

(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;

(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;

(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;

(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.

An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:

(i)  an individual —

(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —

(BA) a deposit as defined in section 4B of the Banking Act 1970;

(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or

(BC) any other asset as may be prescribed by regulations made under section 341; or

(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;

(ii)  a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —

(A) the most recent audited balance sheet of the corporation; or

(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;

(iii) A trustee of a trust which all the beneficiaries are accredited investors; or

(iv) A trustee of a trust which the subject matter exceeds S$10 million; or

(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or

(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or

(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.

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”).