First story in new series examines how one CIO sourced his VC investments that just happened to be ESG.
Environmental, social and governance (ESG) investing is not always an easy tightrope to walk. As environmental concerns, labor laws, shady government practices, and women and children’s rights take center stage at the world symposia and the United Nations, some believe that it’s institutional investors and their influential dollar-power that may be the key to change. Some consider ESG a strategic portfolio hedge for the years ahead. On the other side of the argument, however, is the risky amount of money that portfolios can lose in the short term by divesting from sin and dividend stocks that might fall on the wrong side of public relations.
Hartford HealthCare: A Case Study Our first story starts with Hartford HealthCare, where Chief Investment Officer David Holmgren and Senior Investment Director Kevin Edwards have always embraced certain ESG-type principles while keeping a laser focus on high performance. What CalPERS had experienced as a principles vs. performance dilemma, Hartford HealthCare has addressed through a more proactive approach, which involved following initiatives as opposed to being restricted by policies.
No Sacrifices Although limited partners (LPs) are prohibited from disclosing general partner (GP) returns, it’s well-known that one of Holmgren’s ESG venture capital firms, DBL PARTNERS, was an early investor of Tesla, SolarCity, and SpaceX. It gained a reputation for its mission to invest in top-tier companies that enable social, environmental, and economic benefits. In reviewing the timing of Hartford HealthCare’s (early) investment in 2015, one can intuit the investment is doing quite well. In private conversations, CIOs often raise the question: If I’m going to invest in ESG, what returns I will have to give up? “I think that’s misguided,” DBL’s co-founder, Nancy Pfund, told CIO. “They don’t have to give up any return. We’re not the only ones that have demonstrated that—there are plenty of funds out there. I mean the Bain Capitals, the TPGs, the KKRs. It’s not just little firms in San Francisco that are doing this. This is a worldwide global movement and it’s delivering. Fortunately we’ve been able to work with entrepreneurs that helped to build those proof points for over 15 years.” In addition to being an early investor in Tesla and SolarCity, DBL’S historic portfolio also includes companies such as Pandora (“which helped build the entrepreneurial profile within the city of Oakland”), Revolution Foods (“which brings healthy lunches to low-income school kids”), solar company Power Light, which was sold to Sun Power, and NEXTracker, which was sold to Flextronics. “By now, we have a long list of companies that have been home runs and grand slams. These companies help to educate people about how there really is not a sacrifice between driving top-tier returns for your investors and building companies that actually hire a lot of people in quality jobs and address important problems across the globe and turn these problems into opportunities,” Pfund said.
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