"We don't have plan B because there is no planet B."
Ban Ki-moon, the former United Nations Secretary-General from 2007 to 2016
Sustainable Investing: Our View
As a global multi-family office LP, we believe that the entire financial community plays a critical role in allocating investment capital to address the most pressing social and environmental challenges as defined by the UN Sustainable Development Goals ("SDGs). One of our firm's core missions and beliefs is to do everything in our power as a global multi-family office to allocate capital and resources to sustainable investing to address the world’s major social and environment challenges, as identified by the United Nations Sustainable Development Goals (the “17 SDGs”).
As a global multi-family office, it is our position that sustainable investing (SI) provides our family office LP partners with the knowledge and expertise to generate better returns. We integrate Environmental, Social and Governance (ESG) factors in our investment process. As a firm, we invest our enormous power of capital, power, and world-wide influence to effect positive change in our global communities and for our family office partners, owners and stakeholders. ESG factors are fully integrated into our core multi-family office business and guide how we work with our LP partners, how we manage our operations, and conduct philanthropy. We incorporate ESG data into our investment process. The main goal of our sustainable investments philosophy is financial returns for our family office partners that meet sustainability criteria. We allocate to sustainable investments and products across all asset classes, including equities, fixed income, real estate, alternative investments, index solutions and thematic investments. In real estate, we considers sustainability essential in developing and managing investments at our multi-family office.
On October 31, 2018, US SIF released its annual report announcing that responsible and impact investing assets now total $12 trillion in the U.S alone, a 38% increase from 2016. According to US SIF Foundation's 2018 biennial “Report on US Sustainable, Responsible and Impact Investing Trends," there are $11.6 trillion assets under management that incorporate environmental, social and governance factors at the outset of 2018 held by 496 institutional investors, 365 money managers and 1,145 community investing financial institutions. In addition, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets filed or co-filed shareholder resolutions on ESG issues between 2016 and the first half of 2018, according to the report. Eliminating double counting for assets involved in both ESG incorporation and filing shareholder resolutions produces the net total of $12 trillion in SRI strategies at the start of 2018, US SIF noted in a news release.
Our Sustainable Investing Focus
We are one of the leading multi-family offices active in impact, sustainable investments (SI), ESG, SRI, the 17 SDGs, and philanthropy. Our approach to ESG goes beyond traditional negative screens. Our people have an unique world-class approach to sustainability for our family office LP partners that helps us identify investment opportunities world-wide. Our focus on sustainable competitive advantages and the impact of disruptive change has always incorporated governance. We believe that the Sustainable Development Goals (SDGs), which went into effect January 2016, present a new opportunity to the global family office financial community to have a new conversation around sustainable investments and global growth.
Thus, as a firm, we will not allocate, invest, or form a partnership, or work on a transaction that does not embrace and promote ESG factors and incorporate our vision of sustainable investing. We believe it is our mission as a multi-family office to help increase the flow of private capital to reach SDG-related, ESG, SRI and Impact related investments around the world. We will only work and partner with those family offices, asset management, wealth management, investment banks, fund managers, and vendors who share share our vision to build sustainable investment solutions to meet these vital goals that can truly save our planet. Over the past decade, impact investing and other forms of sustainable investing have become a world-wide trend, driven by family offices who are demanding more accountability for ESG issues, as well as momentum to fight climate change from the Paris Agreement.
To reduce extreme poverty, fight inequality, protect the planet and ensure prosperity for all, the United Nations has set up the 2030 sustainable development agenda with 17 Sustainable Development Goals (SDGs) calling for action to all countries and private investors to help change the world.
Consider the following statistics which the United Nations recently published:
- 767 million people lived below the extreme poverty line in 2013 and 793 million people were undernourished in 2014-2016.
- 9% of primary-school-aged children worldwide were out of school in 2014 and 1 in 10 children worldwide were engaged in child labour in 2012.
- More than 3 billion people, most of them in Asia and sub-Saharan Africa, lack access to clean cooking fuels and technologies.
- The proportion of the urban population living in slums worldwide is still 23 per cent in 2014.
- In 2013, nearly a third of marine stocks were overfished.
- Gender inequality persists worldwide, women face structural disadvantages in escaping poverty.
Our Privos Investment Stewardship team promotes sustainable business practices aligned with long-term value creation. As family offices often hold large ownership stakes in leading companies in each country, it is important how a family office engages corporates, clients, and the broader investment community on governance and stewardship
ESG Engagement is the essential stewardship program at our multi-family office which helps us assess a family office’s approach to governance, including the management of relevant environmental and social factors. As a multi-family office, we focus on a range of ESG issues likely to impact our family office partners’ long-term economic interests, including board succession planning, governance, leadership, operational excellence and long-term financial performance. For instance, we hold engagement meetings with our family office partners that include an agenda, anticipated outcome which help formulate a family office’s approach to an issue, improve the disclosure of a family’s portfolio company, or inform a voting decision.
PRI in Person 2018
Our Chairman & CEO attended the 2018 PRI in Person, held in San Francisco, on September 12-14, 2018. PRI in Person is a world-class leading LP global conference on sustainable investment, offering a platform for PRI signatories and other investment professionals to learn, network and collaborate in person over a three day period. The annual event allows attendees to discuss topical issues and share experiences from their own organisation and region with peers from around the world. The 2018 conference ran alongside the Global Climate Action Summit, a major event organised by the State of California, which will bring together leaders from government, business and the global community to inspire greater global ambition to act on climate.
In line with this, investor action on climate change was be a key focus for PRI in Person 2018, but the conference also covered other themes including ESG integration, active ownership and emerging E, S and G issues. Privos was honored to attend PRI in Person, and we encourage other asset owners and family offices to become signatories to PRI. In 2019, PRI in Person will be held in Paris, and we look forward to participating in the event next year as well. As a multi-family office, our people regularly attend other world-class leading sustainable investing events, including SOCAP, US SIF, GRESBY, Ceres, GIIN, and others. A list of the leading sustainable events for your family office to consider attending is listed at the bottom of this page for your review.
We also salute those true leaders of sustainability who we consider every employee who works at US SIF, SOCAP, Responsible Investor, TBLI, Phoenix Impact Conferences, and other sustainability professionals who work to change the world every day. We encourage every family office to join these organizations.
Seven (7) ESG Themes Your Family Office Must Incorporate Into The Investment Committee Process
As sustainable investing increases in global family offices and financial community, there is still considerable confusion surrounding the terminology surrounding ESG, Impact, SI, and the 17 SDGs. Your family office will be exposed to terms and leading firms in the sustainability industry, such as MSCI, measuring impact, data providers, materiality, engagement. Then throw into the mix that every asset management firm and wealth advisor is sending you ESG and Sustainable Investing marketing materials, which often include expensive, high fee generating products as a way to increase the advisor’s personal book of business. So, how to you learn the required lingo of sustainability, weed out the greenwashing advisors and fund managers from those who are truly doing a world class job in sustainability? Put another way, how do you find the world-class TPG Rise and Generations of the world, while avoiding others who are less committed to sustainability.
To help your family office become more familiar with sustainable investing and help you increase your allocations to impact investments world-wide, we have compiled below a quick cheat sheet for your family office to incorporate into your investment committee process, as follows:
(1) You should focus on the concept of Materiality and how to factor it into your investment decision making; put another way, family offices should distinguish between companies who score highly on ESG issues that are financially material to their business, from those who score highly on issues that are not financially material to their business;
(2) Your family office should focus on implementing ESG Integration across your asset classes and global holdings;
(3) Your family office should analyze your Scoring Methodology and subscribe to important measuring tools and incorporate data from your family office’s external data providers (MSCI, RepRisk, Sustainalytics, Bloomberg, etc.);
(4) Your family office should focus on Education and providing ESG and sustainable training to your family office members, fund managers, and portfolio companies;
(5) Your family office should focus and analyze on how do you Measure ESG across your global holdings; for instance, you should ask tough questions of your fund managers and portfolio companies about if they are using the SASB accounting standards ( which are rigorous standards-setting process in materiality focused, evidence-based and market informed) and other similar measuring tools) and other measuring tools;
(6) Your family office should ask tough questions to your fund managers and portfolio companies about the current hot concept of ESG Engagement, with particular understanding that ESG Engagement with privately owned companies is different from listed equities because private funds typically own their portfolio companies outright and can influence them to implement ESG in a more impactful way;
(7) Your family office should require its private equity fund managers to use the UNPRI Tools that were developed by UN Principles for Responsible Investment (PRI). Your family office should also adopt the principles of UNPRI, or join UNPRI when possible; and
(8) Your family office should attend the leading SI conferences and events to meet LPs who are committed to sustainability, including US SIF, PRI in Person, SOCAP, and others.
Sustainable Investing Confusion: You Are Not Alone
Impact investing, ESG and sustainable investing cause huge confusion not only in the family office world; in fact, it is public knowledge that different divisions within the same asset management firms and global financial institutions and banks cannot agree within the same firms over the definition "impact" and "sustainable investing." In fact, we have witnessed, first hand, different teams working at the very same global private equity firms, financial services firms, fund managers, hedge funds, wealth management firms argue openly at meetings about what is the exact definition of an impact investment, or what constitutes sustainable investing. So if your family office is confused by the massive number of impact investing conferences, sustainable investing conferences, private wealth management dinners, and financial advisor cocktail parties that you are being invited to those days, you are not alone.
Add to the mix that the data providers are all pilling into ESG, with MSCI, Sustainalytics, RepRisk, Bloomberg, Morningstar and others, fighting like rabid pitbulls for market share in the booming sustainable investing ("SI) industry. For instance, MSCI uses more than 1,000 data points on ESG policies, programs and performance to focus on 37 sector-based and universal key issues grouped under 10 themes that roll up to environmental, social or governance pillars. All of these are factored into a holistic ESG score. It is any wonder that your family office is confused about impact and SI.
Then there is, of course, the elephant in the ESG room, namely Aladdin, a technology system developed by BlackRock, the world’s largest asset manager. Since its inception in 1988, when it was developed as an internal risk tool for BlackRock employees, Aladdin is now found at 85 asset managers and institutional investors that have about $20tn in total assets, up from an estimated $11tn just four years ago. As a risk tool, ESG and sustainability facts into Aladdin, but your family office probably does not have access to Aladdin. That being said, Aladdin is just another example of the "fight for data" that is happening in the sustainable investing and impact industry.
The Elephant In the Room: ESG Does Not Pay
Global family offices are all taking about the elephant in the room in the ESG industry, which is the simple rule that "ESG does not pay." If your family office wants to engage in impact and sustainable Investing, you should help us in the global family office world ensure that ESG professionals - those professionals who have decided their lives to sustainability - are paid for their contribution.
To put it simply, a senior executive recruiter from a top 5 global recruiting firm stood up recently at a leading ESG conference and said,
"I have thousands of resumes and CVs coming in every month from qualified global candidates like all of you here at this leading US ESG conference, all wanting to quit their jobs, pivot, and get into into sustainable investing and impact - candidates from Goldman, Morgan Stanley, Blackrock, McKinsey, Wharton, Booth, HBS, Stanford GSB and more - every single month these candidates and their resumes flood into our offices from around the world - talented people wanting to work in impact and sustainable investing - yet, in the past there months, I have received just one real job placement for a mid-level ESG professional from a global asset management firm - one paying job - and this job actually is posted at the same salary of what a senior paralegal makes at a big law firm in New York City. You heard that right - ESG professionals are lucky to earn what a paralegal makes working for a global asset management firm. So, it sounds great all this impact stuff you are all talking about at this conference - these negative screens, MSCI, TPG RISE, Generation, the fight for data, all these 17 SGS and what have not - but the way I see it folks from my chair actually getting you all the ESG jobs from one of the leading recruiting firms on Wall Street, the reality is that the ESG job orders and ESG pay is simply not there. You heard me: ESG does not pay. If you meet anyone who works in the ESG industry, from Managing Director at a large global asset management firm to junior analyst at a impact fund - these people are all making C- money if they are lucky, probably D- money. So if you look around this ESG investor conference, if you see any ESG professionals with badges on, you need to know that they are all underpaid. Grossly underpaid. And, until you change that elephant in the room, the planet is not going anywhere, folks. That's my view from the trenches."
2018 Global Family Office Trends in Sustainable Investing
Our multi-family office is pitched every month, like your family office, by armies of traditional fund managers looking for new allocations and LPs who are suddenly slipping in a couple of ESG slides into their powerpoint decks (a practice which is referred to as “Greenwashing”) and telling us their fund is now "green." So how should your family office engage allocate more capital to ESG and sustainable investing? As a family office, we applaud your desire to move the needle forward with your own impact investments. To help your family office understand the current trends, and navigate the scores of wealth advisors, asset managers, fund managers, and now hedge fund managers who are all coming calling with new "green" ESG funds and sustainable investments, we have complied a short list (a cheat sheet if you will) that outlines the current trends in ESG and sustainable investing, as follows:
(1). The Fight for Data: Global family offices want to understand the non financial impact of their portfolios and are calling for better data to measure investment strategy and impact measurement. ESG integration allows family offices to look deeper into their investments and understand performance. There is also an increased demand for data between family office portfolio companies over time. Family offices are also looking to appreciate how their portfolios are making a difference, and they are demanding more sophisticated metrics on how to measure their investments.
(2). Hedge Funds Are Entering Sustainable Investing: Global family offices are staring to see their hedge fund managers enter sustainable investing. As we all know, hedge fund managers have been called many names over the years, but “responsible investor” is not one of them — until now. Hedge funds have committed a little more than 10 per cent of their assets to strategies that follow responsible investment principles, with some allocating up to half their funds in this way, according to research by the Alternative Investment Management Association, a lobby group, and the Cayman Alternative Investment Summit, organisers of an industry conference. The managers of these typically opaque funds, whose reputations have been hit in recent years due to sluggish returns and high fees, have responded to increased investor demand for products that marry strong performance with societal outcomes. “The same transformation that is occurring in the traditional asset management industry is now happening in the alternative investment industry as well,” said Tony Cowell, head of asset management for KPMG Cayman Islands. “This sector is only going to grow in importance as more hedge fund managers and investors work together to make an impact.” The survey of 80 investment managers, which together oversaw $550bn of hedge fund assets, showed 40 per cent had already hired a responsible investment specialist or planned to do so. Respondents said they had seen a 50 per cent increase in demand for responsible investment from current or prospective clients over the past year, according the Financial Times. That being said, JPMorgan Chase & Co. surveyed as many as 270 investors attending its recent 16th Annual Macro Quantitative & Derivatives conference; a staggering 44 percent said they had no interest in the ESG and sustainable investing. JPMorgan says the proportion of ESG naysayers is down from 54 percent when it posed the same question a year ago. But it still suggests that the quant crowd, which is by its nature even more data-driven then the rest of the investment gang, is justifiably concerned by the lack of objective statistics available.
(3). ESG in Fixed Income: the fixed income market has started to embrace sustainable investing. Debt investors are starting to wake up to the fact that their clients are demanding they engage on ESG issues. The fixed-income industry is finally realizing that ESG performance can affect investment quality. Today, credit-rating agencies are looking at ESG performance as an indicator or risk. To this end, Moody's announced in late 2018 that it would begin to factor ESG into its credit ratings.
(4). Sustainable Green Bonds: Green bonds are the hottest topic in the bond industry, with new issues surpassing $150 billion last year. Today, bond issuers are going beyondgreen and are using bonds to integrate sustainability into business strategy and signal their values. Starbucks sustainability bond is a good example of a company addressing social and environmental sustainability in their coffee supply chain. SEB, the Swedish house bank of the Wallenberg family, helped invent the green bond, and is an example of world class innovation happening in the green bond market.
(5). Family Offices Flooded With New Sustainable Investment Products: Family offices, Millennials and woman are flooding into sustainable investing creating a huge rush to create sustainable investing products. Morgan Stanley 2017 survey by their Institute for Sustainable Investing found that 86% of millennials are interested in sustainable investing, a trend which will bring billions of dollars of capital into ESG and impact investing over the next decade. Wealth management firms are rushing to offer sustainable investment products to family offices, often with high fees and marginal performance.
(6). Corporates Embrace ESG: companies are incorporating sustainability as part of their corporate strategy. Family offices are increasingly asking companies for data and evidence that they are making a long term change on the world. Corporations are changing their business practices and are learning how to address ESG activism at the board level.
(7). Private Equity Flooding into the Family Office Space: today, leading private equity firms are partnering with global wealth firms and asset managers to gain access to non-institutional capital. For instance, KKR, Carlyle, TPG and others have announced joint ventures and partnerships with leading wealth firms to gain access to the assets of family offices. We discuss this trend below.
ESG Key Data Points for Your Family Office
(1). Privos estimates that there is more than $9 trillion invested globally to SRI strategies, or one out of every five dollar managed under professional management globally. From 2014 to 2016, sustainable, responsible and impact investing enjoyed a growth rate of more than 33 percent, increasing from $6.57 trillion in 2014. More than one out of every five dollars under professional management in the United States today - 22% of the $40.3 trillion in total assets - under management tracked by Cerulli Associates—is involved in SRI.
(2). Your family office should be aware that there is no single approach to ESG and sustainable investing and there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing,” “ethical investing,” “green investing,” “impact investing,” “mission-related investing,” “responsible investing,” “socially responsible investing,” “sustainable investing” and “values-based investing, "ESG," "SI,” among others.
(3). Traditionally, responsible investors have focused on one or both of two strategies according to US SIF. The first is ESG incorporation, the consideration of environmental, community, other societal and corporate governance (ESG) criteria in investment analysis and portfolio construction across a range of asset classes. An important segment, community investing seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas. The second strategy, for those with shares in publicly traded companies, is filing shareholder resolutions and practicing other forms of shareholder engagement. Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy.
(4). According to US SIF, SRI investors comprise individuals, including average retail investors to very high net worth individuals and family offices, as well as institutions, such as universities, foundations, pension funds, nonprofit organizations and religious institutions. There are hundreds of investment management firms that offer SRI investing funds and vehicles for these investors. Practitioners of sustainable, responsible and impact investing can be found throughout the United States. Examples include:
Individuals who invest—as part of their savings or retirement plans—in mutual funds that specialize in seeking companies with good labor and environmental practices.
Credit unions and community development banks that have a specific mission of serving low- and middle-income communities.
Hospitals and medical schools that refuse to invest in tobacco companies.
Foundations that support community development loan funds and other high social impact investments in line with their missions.
Religious institutions that file shareholder resolutions to urge companies in their portfolios to meet strong ethical and governance standards.
Venture capitalists that identify and develop companies that produce environmental services, create jobs in low-income communities or provide other societal benefits.
Responsible property funds that help develop or retrofit residential and commercial buildings to high energy efficiency standards.
Public pension plan officials who have encouraged companies in which they invest to reduce their greenhouse gas emissions and to factor climate change into their strategic planning.
(5). What are sustainable products: sustainable and responsible investing spans a wide and growing range of products and asset classes, embracing not only public equity investments (stocks), but also cash, fixed income and alternative investments, such as private equity, venture capital and real estate. SRI investors, like conventional investors, seek a competitive financial return on their investments.
(6). Performance Issues: several research studies have demonstrated that companies with strong corporate social responsibility policies and practices are sound investments. Studies with such findings have come from Oxford University, Deutsche Asset & Wealth Management, Morgan Stanley Institute for Sustainable Investing, TIAA - CREF Asset Management and the United Nations Environment Programme Finance Initiative, among others. For example, in 2015 Deutsche Asset & Wealth Management and Hamburg University conducted a meta-analysis of over 2,000 empirical studies, making it the most comprehensive review of academic research on this topic. They found that the majority of studies show a positive correlation between ESG standards and corporate financial performance.
(7). Family Offices and Shareholder Engagement. According to US SIF, wning shares in a company gives investors a channel through which to raise environmental, social and corporate governance issues of concern. By filing or co-filing advisory shareholder resolutions at US companies, which may proceed to a vote by all shareholders in the company, active shareholders bring important issues to the attention of company management, often winning media attention and educating the public. Moreover, resolutions need not come to a vote to be effective. The process of filing often prompts productive discussion and agreements between the filers and management that enable the filers to withdraw their resolutions. From 2014 through the first half of 2016, more than 200 institutional investors and money managers collectively controlling a total of at least $2.56 trillion in assets filed or co-filed shareholder resolutions on ESG issues. Investors filed more than 700 resolutions relating to environmental, social and key governance issues for the 2016 proxy season. Included in this group were resolutions asking firms for better disclosure and oversight of their political contributions and activities.
Recent social and environmental resolutions have addressed climate change, equal employment opportunity, human rights and sustainability reporting. In addition, investors also filed resolutions questioning companies on their governance structures and practices, particularly those involving board elections, executive pay and responsiveness to shareholders. In recent years, these proposals have been gaining traction, and frequently receive majority support. In addition to filing or co-filing shareholder resolutions, investors can also actively vote their proxies, engage in dialogue with corporate management or join shareholder coalitions as a means to encourage companies to improve their environmental, social and corporate governance practices. In addition, investors can participate in public policy initiatives, working with government regulatory agencies, and testify and report on ESG investment issues to Congress.
What is a SDG and Why Your Family Office Should Care
For those of you new to ESG, on September 25, 2015, the 194 countries of the UN General Assembly adopted the 2030 Development Agenda titled Transforming our world: the 2030 Agenda for Sustainable Development. Following the adoption, UN agencies under the umbrella of the United Nations Development Group decided to support an independent campaign to help communicate the agreed Sustainable Development Goals to a wider constituency. Known as Project Everyone, the independent campaign introduced the term Global Goals and was supported by corporate institutions and other International Organizations.
As a multi-family office, Privos Capital is taking the lead to help accelerate SDG Investing for global family office LPs on the themes of Sustainable Development Goals (SDGs). Family offices must state their commitment to contributing to the 2030 Agenda for Sustainable Development and to be "a catalytic driver for positive change." Family offices must provide liquidity and leadership to support the 17 SDGs which represent the "largest societal challenges of our time in our work and investments." Naturally, the more capital that is allocated to the 17 SDGs, the lower the overall cost of capital for those innovating in the sustainability around the world, which is one of the core missions of our multi-family office.
According to MSCI, ESG Investing is a term that is often used synonymously with sustainable investing, socially responsible investing, mission-related investing, or screening. ESG factors refers to industry specific key issues such as climate change, human capital and labor management, corporate governance, gender diversity, privacy and data security, among others. A mining company and a financial company, for example, may face different key ESG risks and opportunities. ESG is growing in significance amongst both institutional and retail investors. The practice of ESG investing began in the 1960s as socially responsible investing, with investors excluding stocks or entire industries from their portfolios ("negative screens") based on business activities such as tobacco production or involvement in the South African apartheid regime. Today, ethical considerations and alignment with values remain common motivations of many ESG investors but the field is rapidly growing and evolving, however, as many investors look to incorporate ESG factors into the investment process alongside traditional financial analysis.
"ESG investing is the consideration of environmental, social and governance factors alongside financial factors in the investment decision–making process," according to Remy Briand, Managing Director of MSCI ESG Research. Privos believes that as a global society, we are in the middle of a $30 trillion intergenerational wealth transfer from baby boomers to their children. And those kids - not really millennials only, but people from 25 to 40 years old - simply think about their investment decisions differently.
Privos Capital embraces the principles of UNPRI. As a multi-family office, our people participate in every leading global ESG, SRI and SDG investor conference in the financial industry including US SIF, SOCAP, Phoenix Capital, and others. We encourage all family offices both to start attending ESG and impact Investing events and to increase allocations to the 17 SDGs. For instance, our CEO was in attendance recently at the Peace Palace in the Netherlands for Phoenix Capital's Impact Summit Europe, and regularly attends US SIF, SOCAP, PRI and other ESG events. Speakers at Impact Summit Europe included the world leaders in impact investing, the true "Lions of Sustainability," as we like to call them, including Al Gore (Generation), and representatives from APG, FMO, PKA, MN, PGGM, OECD, ASN, GIIN, EIF, Natixis, DNB, Storebrand, Tridos, Unilever, Zurich, World Economic Forum, and others.
Late to the Game: Private Equity GP Fund Managers Pile Into ESG and Sustainable Investing
Family offices have been leaders in ESG long before it was fashionable to do so. Around the world, leading family offices, families that run entire countries, have been making sustainable investments without the need to talk about it. It was just the right thing to do. Conversely, for the most part, until about 10 years ago, private equity did not have a seat at the sustainable investing table, nor did they really care about ESG until their European pension fund clients, the PGGM and MNs of the world, and the pension fund consultants (the Cambridge, Mercer, Wilshires of the world), started screaming about ESG and sustainable investments. Once PGGM and Calpers started demanding their private equity GPs think seriously about ESG (translation: at least include ESG in your fund pitch books), then private equity woke up to the fact that their deal team must think about sustainability; the result at first was what we in the ESG industry call the dreaded "greenwashing," ie private equity firm IR teams would talk about ESG but the deal teams gave it lip service only. However, thankfully the tide turned and the private equity industry woke up when the the European pension funds took the position that we are not coming into your next fund (Fund 12, 13, 14) unless sustainability is a serious part of your firm, your firm investments, and the deal team participates in ESG.
Today, there is what we call Private Equity ESG 3.0 where leading private equity firms are waking up to the fact they are losing pension fund mandates to their competitors who are more sophisticated about ESG. For the losers, for the private equity funds who didn't jump on the ESG bandwagon, it is hard to play catch up when you are losing the ESG game. The result is that you are seeing leading private equity firms dangling, like candy, joint venture (JVs) with global wealth firms whose MDs couldn't get hired by the very private equity firm that comes courting them, begging for their wealth cannel and ultra-high net worth clients. Yet, what the wealth firms don't see is that the very private equity firm that you are doing a dance with will, in the end, acquire you and fire the very wealth management executes that inked the JV in the first place. Few people truly appreciate the movement here, yet you are seeing a whole new wave of global private equity firms now targeting wealth clients, setting up joint ventures, and using ESG as a way to win more mandates from their pension fund, LPs and consultant relations. Private equity is also using ESG as a way to source sustainable deal flow from global family offices in addition to using ESG as a way to raise LP capital and the wealth firms have no idea what is about to hit them in the market.
For instance, KKR & Co LP has set up a business to invest in budding companies which have societal or environmental benefits, marking the U.S. private equity firm’s foray into dedicated so-called impact investing, sources aware of the plans said. The move underscores how buyout firms, long associated with saddling companies with debt and slashing costs and jobs, are now seeking to offer products to investors that also appeal to an environmental, social and governance (ESG) business agenda. KKR’s new unit will seek investments in smaller medium-sized companies focusing on areas such as renewable energy, education and environmental management, according to one of the sources, who spoke on condition of anonymity as the information is not public, according to Reuters.
Other private equity firms are beginning to launch similar offerings focused on investors’ social responsibility agenda. TPG Capital’s $2 billion Rise Fund, for example, invests in five areas including agriculture and education, and counts musician and activist Bono as a founding stakeholder. According to Impact Alpha, for those of us actually interested in measuring impact, the Big Three private-equity firms, and fund managers at shops like Carlyle Group, Blackstone and Apollo Global Management that may follow them, will be on the hook for impact measurement, by choice. KKR has told investors its planned $1 billion Global Impact Fund will invest in businesses that deliver “commercial solutions that solve global challenges in credible and measurable ways." KKR will require portfolio companies to be aligned with specific UN Sustainable Development Goals and to measure and report on specific impact outcomes
Bain Capital’s $390 million Double Impact fund has been on a dealmaking roll in the past few weeks, taking stakes in two sustainable meals restaurants, an online, for-profit school. Bain has promised to report on the fund’s impact under the so-called GIIRS rating standard. Conversely, in 2016, IFC and Apollo announced a $1B credit fund targeting distressed assets in emerging markets. They each plan to invest $500M in a joint platform. Surprisingly, Blackstone does not have a dedicated ESG double impact fund like Bain; however, the firm does have a head of sustainability who focuses on savings and energy costs.
Meanwhile, TPG Growth’s Rise Fund has perhaps the most mature impact measurement framework, developed with the help of Bridgespan, the strategic consulting firm. TPG’s Bill McGlashan told Impact Alph that each Rise Fund investment is underwritten not only for financial targets, but for a specific “impact multiple of money,” – a dollar-value it expects to deliver in a quantifiable output that can be linked (i.e. by research) to a positive outcome. The skeptics were particularly aroused by the Rise Fund’s latest deal, an investment in the spinoff of Chinese internet giant Baidu’s financial services arm. The Rise Fund was one of three TPG funds that put up $1 billion, with $900 coming coming from Carlyle, Taikang Insurance, Agricultural Bank of China International and other investors. The Rise Fund cited Baidu FSG’s participation in the World Bank’s Universal Financial Access 2020 initiative 2020. In 2015, the World Bank Group committed to enabling one billion people to gain access to transaction accounts; the next year Baidu pledged to open 10 million such accounts. That’s more than some other partners, but only one-tenth as many as the 100 million pledged by Chinese internet rival Ali Baba’s Ant Financial group, for example.
A Call To Action: The Yahoo Finance Story
As a family office, we urge you to become more engaged in ESG and sustainable investing. One person can make a huge different in sustainability. For instance, a friend of our firm, an executive in New York working at Yahoo! Finance, recently and quietly took the initiative to add a new section to the popular financial website portal that provides ESG ranking and scores that are accessible to Millennials, women and everyone who has an internet connection and may not have the resources to subscribe to expensive MSCI data. Today, due to the call of action of just one world-class risk taking person, subsequently embraced by the entire go-fast, incredible team at Yahoo! Finance, the entire internet-free world now has a free ESG ranking system in which to make more informed decisions. You should look at Yahoo Finance ESG data, it is really incredible. The lesson is clear: one person can make a difference; it is just one person working at Yahoo! Finance who changed the world, which will over time - long after he retires - will continue to bring the world an ESG ranking system that will, of course, help drive capital to those companies that are the most sustainable.
How Do Deal With ESG Non-Believers: A Tool Kit For Family Offices
As a family office, you will hear constant objections and noise of those cynics non-believers and naysayers who reject the ESG movement. You would be surprised how prevalent the negative chorus of anti-sustainability is in the financial services industry.
To make it easier for you, we have created a cheat sheet for your family office to use during manager meetings to hep yourebut the commonly heard anti-ESG arguments that we hear as follows:
First, your family office will hear from those cynics who will argue that that global wealth management firms and asset managers are now flooding into the ESG space not because they care about ESG but because they only want to increase AUM. The naysayers will argue to you that asset management and global wealth financial services firms, like Morgan Stanley and Credit Suisse, are rebranding their firms “sustainable” as a creative way to push expensive “green” financial products on unsuspecting wealth clients.
Second, your family office will hear negative, cynical arguments that sub-par wealth advisors and financial advisors are simply using ESG to push products, make up for subpar personal performance, to re-brand and pitch women and Millennials, yet these wealth ESG products come loaded with high fees due to massive fee compression in the asset management business and the flight to ETFs. You will certainly hear that argument. You will hear arguments that smart hedge funds will never embrace ESG, no matter how hard Ray Dalio and Mayor Mike try to spin it. You will hear arguments from those who do not want to embrace ESG because they argue ESG will not produce market returns, or that they cannot accept below market returns as trustees of a US pension funds. You will also hear more sophisticated arguments that Cambridge Associates, Mercer, Wilshire and the rest of the consultant community started pitching their pension fund clients on ESG as a way to win new mandates and requiring every fund managers to stick a couple of ESG slides in their pitch books or decks.
Third, your may family office may hear those unintelligent, ridiculous arguments about ESG does not generate returns. That the "jury is still about about ESG" is how it may be framed, as one Barron ranked money manger explained to our CEO at a recent sustainable investing conference; this money manager said, "when I hit the Barron's list, the assets flood in to my fund, but if I were to incorporate ESG my returns would plummet, I would lose my ranking, my income and bonus would fall, I wouldn't be able to pay private school tuition, and violate the 'happy wife, happy life' rule" (he actually said that to our CEO, if you can believe it). But you will hear all sorts of variations from really smart fund managers, CIO, CFO and off-shore trustees. So be prepared for them. We have heard them all, and more.
In response to these and other arguments that are anti-ESG, as they say, you need to look today no further than to study the words of Larry Fink and then turn to Michael Bloomberg who will arm you with more rebuttal evidence than we can possible list here. But we are here to tell you that is our position at Privos that you have the moral - yes moral - imperative to kill off and reject each and every one of those arguments and instead double and triple down your sustainable investments if you are going to effectuate the change in this world that we all need for future generations. As a global multi-family office, we believe the more capital that those of us in the global family office world that is allocate to impact and sustainable investments, the faster the overall cost of capital will be lowered for those companies and firms that embrace sustainability. Thus, we believe it is our moral imperative to increase the capital flows into impact, sustainability, ESG and the 17 SDGs. If Blackrock and Calvert can both have a seat at the table, despite having different views of Impact, then your family office will be welcome as well. Remember family offices are the last bastion of private capital that is desperately needed in the sustainable investing.
Privos 2018 Lions of Impact
At Privos, we announce every year a "Lions of Impact List," which is our internal list of the best sustainable firms in the world who embrace the values that we hold dear at our firm. We believe that if your family office studies carefully the following firms, or engage in any way with these leaders in the ESG industry, you will accelerate the impact your family office is making in your community, country, and around the world.
Thus, we are happy to announce the Privos 2018 “Lions of Impact” include the following individuals and firms: Michael Bloomberg (Bloomberg Inc.), Innovest, Sustainalytics, Larry Fink (BlackRock), MSCI, Yahoo! Finance, Eaton Vance, Generation Investment Management (former U.S. vice president Al Gore and David Blood), Ellevest (Sallie Krawcheck); Pax World Funds; Walden Asset Management (Tim Smith), TPG $2B RISE Fund, KKR Global Impact Fund, and Lisa Woll (US SIF). We also include in our Lion of Impact each and every one of the foundations listed below, such as the Gates Foundation and Red (Bono’s Foundation) who make sustainable investing and impact the core focus of the world-class world they do everyday around the world. Family offices must partner more with foundations to effectuate fast and deep change that the financial services industry simply cannot take on given their mandate to sell product and increase AUM.
We also refer you to other media publications and financial sites various list of the leaders in ESG, including an excellent recent issue of Barrons which our firm applauds for taking the risk to devote an entire issue to ESG and sutainable investing. These publications do a better job than we can possible do here educating you on ESG and sustainable investing. Clearly, impact sells today, which is great news for the planet and future generations.
The 17 SDGs
Our planet faces massive economic, social and environmental challenges. To combat these, the Sustainable Development Goals (SDGs) define global priorities and aspirations for 2030. They represent an unprecedented opportunity to eliminate extreme poverty and put the world on a sustainable path. Governments worldwide have already agreed to these goals. Now it is time for family offices to take action. See, sdgcompass.org
As a multi-family office LP, our firm's core DNA is investing and allocating to ESG, SRI and impact investments that address the most pressing social and environmental challenges as defined by the UN Sustainable Development Goals (SDGs). The SDGs, officially known as Transforming our world: the 2030 Agenda for Sustainable Development, is a set of 17 "Global Goals" with 169 targets contained in paragraph 54 United Nations Resolution A/RES/70/1 of 25 September 2015. The SDGs are built on the Principles popularly known as The Future We Want. The SDGs include targets covering a broad range of sustainable development issues, including ending poverty and hunger, improving health and education, making cities more sustainable, combating climate change, and protecting oceans and forests. Privos will not invest in a transaction or make an allocation that does not involve one of the 17 SDGs.
Privos Capital endorses the United Nations-based Principles for Responsible Investment Initiative (UNPRI) and works with family office LP partners to implement UNPRI’s infamous Six Principles for Responsible investment, which were devised by the investment community. We work with our partners to design bespoke, long term programs to implement UNPRI principles across our partners core holdings. We are proud members of US SIF act active at all major SDG, ESG and Sustainability investor conferences.
The 17 SDGs are as follows:
No Poverty - End poverty in all its forms everywhere
Extreme poverty has been cut by more than half since 1990- however, more than 1 in 5 people live on less than $1.25 a day
Poverty is more than lack of income or resources- it includes lack of basic services, such as education, hunger, social discrimination and exclusion, and lack of participation in decision making.
Gender inequality plays a large role in the perpetuation of poverty and its risks; They then face potentially life-threatening risks from early pregnancy, and often lost hopes for an education and a better income.
Age groups are affected differently when struck with poverty; its most devastating effects are on children, to whom it poses a great threat. It affects their education, health, nutrition, and security. It also negatively affects the emotional and spiritual development of children through the environment it creates.
Zero Hunger - End hunger, achieve food security, and improve nutrition and promote sustainable agriculture.
Globally, 1 in 9 people are undernourished, the vast majority of these people live in developing countries
Agriculture is the single largest employer in the world, providing livelihoods for 40 per cent of today’s global population. It is the largest source of income and jobs for poor rural households. Women comprise on average 43 per cent of the agricultural labor force in developing countries, and over 50 per cent in parts of Asia and Africa, yet they only own 20% of the land.
Poor nutrition causes nearly half (45 per cent) of deaths in children under five – 3.1 million children each year.
Good Health and Well-being - Ensure healthy lives and promote well-being for all at all ages.
Significant strides have been made in increasing life expectancy and reducing some of the common killers associated with child and maternal mortality, and major progress has been made on increasing access to clean water and sanitation, reducing malaria, tuberculosis, polio and the spread of HIV/AIDS.
However, only half of women in developing countries have received the health care they need, and the need for family planning is increasing exponentially, while the need met is growing slowly - more than 225 million women have an unmet need for contraception.
An important target is to substantially reduce the number of deaths and illnesses from pollution-related diseases.
Quality Education - Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
Major progress has been made for education access, specifically at the primary school level, for both boys and girls. However, access does not always mean quality of education, or completion of primary school. Currently, 103 million youth worldwide still lack basic literacy skills, and more than 60 per cent of them are women
Target 1 "By 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education leading to relevant and Goal-4 effective learning outcomes"- shows the commitment to nondiscriminatory education outcomes
Gender Equality - Achieve gender equality and empower all women and girls.
Providing women and girls with equal access to education, health care, decent work, and representation in political and economic decision-making processes will fuel sustainable economies and benefit societies and humanity at large
While a record 143 countries guaranteed equality between men and women in their Constitutions by 2014, another 52 had not taken this step. In many nations, gender discrimination is still woven through legal and social norms
Though goal 5 is the gender equality stand-alone goal- the SDG's can only be successful if women are completely integrated into each and every goal
Clean Water and Sanitation - Ensure availability and sustainable management of water and sanitation for all.
Affordable and Clean Energy - Ensure access to affordable, reliable, sustainable and modern energy for all.
Decent Work and Economic Growth - Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
Industry, Innovation and Infrastructure - Build resilient infrastructure, promote inclusive and sustainable industrialization, resilient infrastructure, promote inclusive and foster innovation.
Reduced Inequalities - Reduce income inequality within and among countries.
Sustainable Cities and Communities - Make cities and human settlements inclusive, safe, resilient and sustainable.
Responsible Consumption and Production - Ensure sustainable consumption and production patterns.
Climate Action - Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy.
Life Below Water - Conserve and sustainably use the oceans, seas and marine resources for sustainable development.
Life on Land - Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertificaiton, and halt and reverse land degradation and halt biodiversity loss.
Peace, Justice and Strong Institutions - Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.
Partnerships for the Goals - Strengthen the means of implementation and revitalize the global partnership for sustainable development.
2018 Conferences to Attend
For your family office, it is confusing to decide which sustainable conferences you should attend. To make it easier for you, the Case Foundation has published an excellent list of the best sustainable events for you to consider in 2018 to expand your knowledge. Here’s the opinion of the Case Foundation on 23 conferences to attend this year in the world of philanthropy, Impact Investing, Millennial engagement and Inclusive Entrepreneurship:
MAKERS Conference, February 5-7 (Rancho Palos Verdes, CA) explores new ways to make shock waves, unleash our collective power and lift each other up as we fight for causes that matter. Last year’s conference included speakers like Gloria Steinem, Eva Longoria, Priscilla Chan, Sheryl Sandberg, Diane von Furstenberg and Gabby Douglas.
Economist Impact Investing Forum, February 15 (New York, NY) join Economist editors and 200 financiers, institutional investors, policymakers, academics, impact investors and philanthropists at the second iteration of Investing for Impact: risk, return and the future of the world. Our CEO Jean Case is scheduled to take the stage with Liesel Pritzker Simmons, co-founder of the Blue Haven Initiative in a conversation on why investing in women founders is the ultimate return.
SXSW Interactive, March 9-17 (Austin, TX) we would be remiss if we didn’t give a shoutout to the conference of all conferences. Tens of thousands of attendees gather for hundreds of sessions on topics related to social good, investing, entrepreneurship, art, music and more. Our Case Foundation team will take the stage at four sessions that week, and we look forward to seeing many of you while in Austin. Speakers this year will include Melinda Gates, Alex Chung, Mark Cuban, Michael Dell, Kathryn Finney, Cindy Whitehead, Ira Glass, Walter Isaacson, Ezra Klein, Megan Smith, Gary Vaynerchuk and many more.
Women’s Private Equity Summit, March 9-11 (Half Moon Bay, CA) brings together more than 500 female private equity and venture capital leaders for discussion and networking.
Skoll World Forum, April 10-13 (Oxford, England) launched by the Skoll Foundation, accelerates entrepreneurial approaches and solutions to the world’s most pressing problems by uniting social entrepreneurs in a pursuit of learning, leverage and large-scale social change. Past speakers have included President of the World Bank Group Dr. Jim Yong Kim, Winnie Byanyima of Oxfam International and Hamdi Ulukaya of the yogurt empire Chobani.
Nonprofit Technology Conference, April 11-13 (New Orleans, LA) features over 100 educational sessions, an exhibit hall highlighting the latest nonprofit products and services and networking events each day. Be sure to check out our session on open source philanthropy with our VP of Interactive Strategies, John Jones.
Women in the World Summit, April 12-14 (New York, NY) presents powerful new female role models whose personal stories illuminate the most pressing international issues. Speakers last year included Scarlett Johansson, Prime Minister Justin Trudeau, Diane von Furstenberg and many more luminaries.
Tech Inclusion, Spring 2018 (Washington, DC) brings the industry together to drive solutions to diversity and inclusion. Attendees include executives, hiring managers, human resources, data scientists, educators, entrepreneurs, investors, policymakers and diversity and inclusion advocates.
Vanity Fair Founder’s Fair, April 20 (New York, NY) slated for its second year, this gathering highlights the accomplishments of ambitious women entrepreneurs and explores ways to help them unleash even greater growth for their businesses and their brands.
Good Tech Fest, May 22-24 (Detroit, MI) is for anyone using data and technology to drive impact. It’s for the doers and practitioners. The people on the ground. The leaders that are wanting to find innovative ways to leverage technology, and the technologists wanting to apply their skills for real global change.
US SIF Annual Conference, May 30-June 1 (Washington, DC) gives you the opportunity to network with leaders of sustainable, responsible and Impact Investing. Hear from leading investors, CEOs and policymakers, and to learn about new approaches, trends and policy developments in the field.
MCON, June (Washington, DC) join 1,000 passionate individuals who come together to channel their enthusiasm into action for today’s most pressing issues. MCON gathers leaders, entrepreneurs and cause enthusiasts of all generations to discuss problems and find creative solutions to the challenges of today.
Forbes Impact Investing Summit, June 12-13 (New York, NY) this invitation only event for doers and investors who believe in investing in companies that can change the world is a new offering from Forbes and it’s certain to make an impression. Join seasoned impact investors who are moving capital and leading the next generation of investment.
NextGen Summit, June 18 (New York, NY) unites a global community of young entrepreneurs. The 2017 Next Gen Summit welcomed dozens of investors and founders of billion dollar brands and companies, NBA and NFL stars, Shark Tank alums, world-renowned fitness experts and underwater drone creators.
Aspen Ideas Festival, June 21-30 (Aspen, CO) unites leaders and influencers from around the globe for inquisitive discussions on the ideas and issues that shape our lives and challenge our times. Hundreds of award winning journalists, global leaders, scientists and explorers, former secretaries of states, startup founders and investors take the stage each year.
Fortune Most Powerful Women, October 1-3 (Laguna Niguel, CA) MPW has evolved into the world’s most extraordinary leadership community, convening the preeminent women in business—along with select leaders in government, philanthropy, education and the arts—for wide-ranging conversations that inspire and deliver practical advice. The program features one-on-one interviews, panel discussions, interactive breakout sessions and high-level networking.
Communications Network, October 10-12 (San Francisco, CA) brings together more than 500 social sector communications professionals from foundations and organizations across the globe for engaging dialogues on using the power of storytelling to drive social impact, demystifying design and the making of movements.
Global Impact Investing Network Forum, October 30-31 (Paris, France) investors from around the globe convene for the preeminent gathering of active impact investors and those who are interested in building an Impact Investing practice. Hosted by the Global Impact Investing Network (GIIN) and PEI Media, the Forum aims to advance and scale the market through insight from industry leaders, leading-edge research and unrivaled networking opportunities.
PopTech, October 31-November 3 (Point Lookout, ME) is a robust gathering of more than 600 scientists, technologists, humanitarians, designers, artists, innovators, corporate and governmental leaders, academics and those who defy tidy categorization.
Inc Women’s Summit, Fall 2018 (New York, NY) unites savvy female business leaders with diverse backgrounds, passions, and pursuits for a day of dynamic exchanges and innovative business ideas. Speakers have included the likes of Spanx CEO Sara Blakely, Shark Tank’s Kevin O’Leary, Maria Malcolm Beck of Bluemercury and more.
Blavity Afrotech, Fall 2018 (Silicon Valley, CA) unites founders and employees of some of the fastest-growing tech startups to share the tactics and strategies they use to grow their products and businesses. Conversations range from raising venture funding, combining tech and culture, user design workshops, growth hacking and more.
Washington Ideas, October 2-4 (Washington, DC) is an annual must-attend event bringing the most consequential people and issues to D.C. featuring hundreds of political leaders and those shaping the future of business, science, technology, arts and journalism.
Fast Company Innovation Festival, Fall 2018 (New York, NY) taking place across NYC, the festival features dozens of events in content tracks ranging from tech to design, leadership to creativity, fashion to healthcare and more. CEOs and influencers from companies and organizations like Bloomberg Philanthropies, CARE, DonorsChoose.org, Robin Hood, Swell Investing and more.
Bonus: LIVE anything! Live content from media brands is a hot ticket for 2018 both in person and online. Check out the many upcoming LIVE events from media entities like Forbes, Washington Post,Bloomberg, AXIOS 360 and The Atlantic announced each week.
There are countless other gatherings you can consider like TED, Fortune Most Powerful Women Next Gen, the Code Conference, the Milken Global Conference, Wharton Social Impact Conference and theSustainable Brands Conference series. Be sure to check out our past conferences we have featured in our blog from 2017 HERE and 2016 HERE. Many of these events take place year-after-year, so be sure to keep them on your radar in 2018 and beyond.