HarbourVest's Annual ESG Report

Annual ESG Report

A review of our environmental, social, and governance efforts

We strive to ensure the best futures for our clients through our noteworthy insights, interwoven skills, and strong partnerships. This extends to how we have developed our ESG program at HarbourVest. Our Annual ESG Report shares the enhancements we have made over the past year and highlights our ongoing efforts to best serve our clients.

A message from our Executive Management Committee

Ongoing economic, ecological, and societal challenges serve as both proof of our interconnectedness and a reminder that the choices we make today are creating the world we will inhabit tomorrow. We believe our investing practices should reflect an evolving understanding and treatment of the real-world risks and opportunities that ESG considerations present to the assets that we manage for our clients. To deliver on our most fundamental commitment of seeking superior risk-adjusted returns we must recognize and support the global economy’s transition towards a more sustainable future. As always, investors who are better prepared for change will be better positioned to reduce the financial, operational, and reputational risk of their investment portfolios while enhancing value creation and revenue potential over the longer-term.

Supporting convergence on ESG data and methodology

The success of our, or any, ESG program is directly tied to the strength of its data. Yet, the key features of a healthy ESG dataset—its accuracy, accessibility, relevance, and timeliness—have historically been heavily challenged in private markets. Significant efforts have been made over the past year to solve this issue, arousing optimism about ESG data moving forward. We are actively participating in strategic industry initiatives to establish uniform ESG data standards and methodology, including the ESG Data Convergence Initiative (EDCI), an LP-GP collaboration seeking to standardize ESG metrics and provide a means of comparative reporting and benchmarking for private companies. This nascent initiative has already unlocked over 13,000 ESG data points on over 850 companies in HarbourVest’s portfolio.1 Our leadership roles with the Initiative Climat International (iCI) and the Sustainable Markets Initiative’s Private Equity CEO Task Force (PESMIT) have contributed to the development of the Private Markets Decarbonization Roadmap (PMDR), which will allow GPs to use a common language when assessing the transition readiness of their portfolio companies and aggregate these classifications to the fund level for LP disclosure. These critical steps will support the objective assessment of an asset’s readiness to operate and continue to drive value in the emerging low-carbon economy.

The next frontier of progress

We continue to collaborate with our GPs to understand new ESG risks and opportunities they are contemplating in their investment processes and participate in collaborative investor initiatives to learn about new research, thinking, and developments. One recurring thread we have heard over the past year is a growing focus on how assets in an investment portfolio depend on, and impact, nature. The landmark global agreement to halt and reverse nature loss by 2030 reached at the United Nations Biodiversity Conference in Montreal (COP15) in December 2022 and the recommendations set forth by the Taskforce on Nature-related Financial Disclosures (TNFD) in September 2023 have set the course for nature and biodiversity to follow in the footsteps of climate change as a common part of the investment vernacular. We contributed to thought leadership produced by PESMIT on how private equity firms should be considering nature-related impacts and dependencies in their portfolio. For the first time in this report, we delve into a preliminary understanding of our own portfolio under these terms.

We believe the enhancements made to our ESG program over the past year make us better investors and better partners to our clients. These efforts, including those across data, industry involvement, and emerging trends, have garnered HarbourVest recognition from the industry in the form of awards from Real Deals and BVCA. We are excited about the continued evolution of our ESG program and the positive impact it has already made on our firm. We hope you find this update on our ESG activities both informative and encouraging. Thank you for your partnership.

John Toomey, HarbourVest

John Toomey

Managing Director

Peter Wilson

Managing Director

Our ESG program pillars

HarbourVest’s commitment to ESG is founded in a tenet that has served us well for over 40 years: better information drives better results. In support of this belief, we center our approach to responsible investing on three areas of focus: performance, transparency, and alignment.

Performance

Invest with a broader lens to make well-informed decisions


Manage portfolio risk and support value creation

Transparency

Report to stakeholders and support industry standards


Anticipate and comply with
ESG-related regulation

Alignment

Add value to our partnerships and clients


Strive to be a responsible corporate citizen

Our ESG Policy

We updated HarbourVest’s ESG Policy in 2023 to reflect enhancements to our responsible investing practices and governance structures. The updated Policy includes the addition of our formalized commitment to uphold human rights through our internal business and investment activities, an area of increasingly strategic importance to our investors.

Read our ESG Policy

Our ESG commitments

Our ESG awards

2020

BVCA Excellence in ESG Award2

Recognized in LP category for outstanding commitment to embedding ESG principles

2020

Equality Group Award3

Named as a Top 10 Inclusive PE Firm

2021

Real Deals Award4

Named Diversity & Inclusion Leader of the Year

2021

Equality Group Award5

Named as a Top 10 Inclusive PE Firm

2022

Real Deals ESG Award6

Received award for LP – Institutional Investors and Asset Managers

2023

BVCA Excellence in ESG Award7

Recognized in LP (all sizes) category for outstanding contributions to ESG

Our ESG journey

Over more than four decades, we have prioritized high professional and ethical standards. We work closely with many of our GPs and advocate for the adoption of best practices and core ESG principles. Some of our key ESG milestones along the way are reflected here.

2008

Cleantech strategy

Launched first of two cleantech funds focused on investments
catalyzing global sustainability

2013

PRI Signatory

Committed to adhere to the six
Principles for Responsible Investment

2016

ESG Council

Established ESG Council to reinforce ESG as a fundamental aspect of firm governance

2019

ESG Program Lead

Hired first lead of ESG program

2019

HarbourVest
Stewardship Initiative

Created to leverage investment strengths towards positive impact

2020

RepRisk®

Implemented use by all HarbourVest investment teams to help identify and 
monitor ESG and business conduct risks

2021

GRESB Member

Joined the Global ESG Benchmark
for Real Assets 

2021

Climate strategy

Published first TCFD Report and signed the Global Investor Statement to Governments on the Climate Crisis 

2022

Initiative Climat International

ESG Program Lead named global
coordinator of iCI for 2022 and 2023 

2022

Sustainable Markets Initiative 

Peter Wilson joined the Private Equity CEO Taskforce of the Sustainable Markets Initiative

2022

Chief DEI Officer

Hired first Chief DEI Officer

2022

ESG Data Convergence Initiative

Joined to signal support for streamlined and comparable ESG data in private markets 

2022

Greenhouse gas emissions data

Partnered with Persefoni to develop a database of estimated emissions for portfolio companies 

Footnotes
  1. As of September 2023
  2. BVCA Excellence in ESG Award is based on an assessment of the Firm’s practice in ESG integration and engagement during June 2019 and June 2020. Award submissions were open to all sizes of LPs that are members of the BVCA and pay an annual fee for membership. Award listings, rankings, and/or recognition by an unaffiliated rating service and/or publication is not an indication of our future performance and should not be construed as an approval or disapproval of HarbourVest as an adviser. For more information on the award and methodology visit: https://www.bvca.co.uk/Our-Industry/ESG-and-Responsible-Investment/Excellence-in-ESG
  3. As of March 2021. Equality Group’s Inclusive Top 20 PE & VC Index is a comprehensive evaluation tool that analyses fund performance on inclusion, diversity, and equity over the past 12 months. The Index includes 400 global private equity and venture capital groups each with a minimum of $1bn in assets under management. The data is sourced from multiple publicly available information sites, including fund websites, social media channels, published articles and reports. The index covers six core categories: leadership, actions and policies, work-life balance, inclusive team, explicit I&D support and additional public information. Within these categories, there are a total of 22 inclusion and diversity sub metrics. There are a total of 45 points available in the Inclusive Index. Equality Group has applied variable weightings to individual categories to reflect the most impactful data points across the core categories, as informed by the latest academic research.
  4. D&I category nominations are put forward by Real Deals’ panel of LP judges who then deliberate on the winner. This award recognizes excellence in the LP communities with respect to companies who have made a real difference to improving D&I within their firm, at portfolio company level and in the wider investment community. For more information on the award and methodology visit: https://lnkd.in/eNWkjBAF
  5. As of March 2022. Equality Group’s Inclusive Top 20 PE & VC Index is a comprehensive evaluation tool that analyses fund performance on inclusion, diversity, and equity over the past 12 months. The Index includes 400 global private equity and venture capital groups each with a minimum of $1bn in assets under management. The data is sourced from multiple publicly available information sites, including fund websites, social media channels, published articles and reports. The index covers six core categories: leadership, actions and policies, work-life balance, inclusive team, explicit I&D support and additional public information. Within these categories, there are a total of 22 inclusion and diversity sub metrics. There are a total of 45 points available in the Inclusive Index. Equality Group has applied variable weightings to individual categories to reflect the most impactful data points across the core categories, as informed by the latest academic research.
  6. All nominations that received online are assessed by the Real Deals & Drawdown editorial team. Successful entries are then passed on to a panel of judges, who will meet, deliberate and decide a winner.
  7. The firms recognized were selected in September by an independent judging panel and presented at the BVCA Summit on 5 October 2023.
Source
  1. BVCA Excellence in ESG Award is based on an assessment of the Firm’s practice in ESG integration and engagement during June 2019 and June 2020. Award submissions were open to all sizes of LPs that are members of the BVCA and pay an annual fee for membership. Award listings, rankings, and/or recognition by an unaffiliated rating service and/or publication is not an indication of our future performance and should not be construed as an approval or disapproval of HarbourVest as an adviser. For more information on the award and methodology visit: https://www.bvca.co.uk/Our-Industry/ESG-and-Responsible-Investment/Excellence-in-ESG
  2. As of March 2021. Equality Group’s Inclusive Top 20 PE & VC Index is a comprehensive evaluation tool that analyses fund performance on inclusion, diversity, and equity over the past 12 months. The Index includes 400 global private equity and venture capital groups each with a minimum of $1bn in assets under management. The data is sourced from multiple publicly available information sites, including fund websites, social media channels, published articles and reports. The index covers six core categories: leadership, actions and policies, work-life balance, inclusive team, explicit I&D support and additional public information. Within these categories, there are a total of 22 inclusion and diversity sub metrics. There are a total of 45 points available in the Inclusive Index. Equality Group has applied variable weightings to individual categories to reflect the most impactful data points across the core categories, as informed by the latest academic research.
  3. D&I category nominations are put forward by Real Deals’ panel of LP judges who then deliberate on the winner. This award recognizes excellence in the LP communities with respect to companies who have made a real difference to improving D&I within their firm, at portfolio company level and in the wider investment community. For more information on the award and methodology visit: https://lnkd.in/eNWkjBAF
  4. As of March 2022. Equality Group’s Inclusive Top 20 PE & VC Index is a comprehensive evaluation tool that analyses fund performance on inclusion, diversity, and equity over the past 12 months. The Index includes 400 global private equity and venture capital groups each with a minimum of $1bn in assets under management. The data is sourced from multiple publicly available information sites, including fund websites, social media channels, published articles and reports. The index covers six core categories: leadership, actions and policies, work-life balance, inclusive team, explicit I&D support and additional public information. Within these categories, there are a total of 22 inclusion and diversity sub metrics. There are a total of 45 points available in the Inclusive Index. Equality Group has applied variable weightings to individual categories to reflect the most impactful data points across the core categories, as informed by the latest academic research.
  5. All nominations that received online are assessed by the Real Deals & Drawdown editorial team. Successful entries are then passed on to a panel of judges, who will meet, deliberate and decide a winner.
  6. The firms recognized were selected in September by an independent judging panel and presented at the BVCA Summit on 5 October 2023.
Governance and resourcing

HarbourVest has been a proud signatory to the Principles for Responsible Investment (PRI) since 2013. The six Principles for Responsible Investment were developed by investors, for investors, and signatories represent a majority of the world’s professionally managed investments. The PRI’s mission belief is that an economically efficient, sustainable global financial system will reward long-term responsible investment and benefit the environment and society.

As the industry coalesces around the need for better data and consistent measurement standards, HarbourVest has signaled its support for harmonization by joining the ESG Data Convergence Initiative (EDCI), hosted by ILPA. The EDCI seeks to standardize ESG metrics and provide a means of comparative reporting and benchmarking on ESG for private markets. For more information on the EDCI and HarbourVest’s preliminary 2023 data-collecting exercise, see our ESG data insights.

HarbourVest is an official TCFD Supporter and we encourage GPs we invest with to use its framework to structure the management of climate-related financial risks and opportunities within their investment processes. For more information on HarbourVest’s climate change framework, see our third annual TCFD report.

HarbourVest is a member of iCI, a GP-led initiative to collaborate on risk analysis tools to aid private equity action on climate change. For more information on our leadership and contributions to the iCI, see our spotlight on Climate change.

The Sustainable Markets Initiative was launched at The World Economic Forum in 2020. Its mission is to build a coordinated global effort to enable the private sector to accelerate the transition to a sustainable future. For more information on our participation on SMI’s Private Equity CEO Taskforce and the emerging focus on biodiversity, see our spotlight on Natural capital.

HarbourVest joined the Global ESG Benchmark for Real Assets (GRESB) as an Investor Member in 2021. We continue to report annually against the Infrastructure Fund Assessment for our open-ended infrastructure fund.

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”).