Investing Well by Doing Good: A CIO Benefits from the VC-ESG Connection

Chief Investment Officer
By Christine Giordano
February 22, 2019

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.

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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.

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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.

To read the com­plete arti­cle, vis­it Chief Invest­ment Offi­cer.


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