COVID-19 amplifies focus on societal issues - AVCJ Forum
Concerns that impact investment would get pushed to the margins in the chaos of COVID-19 have been confounded by a renewed emphasis on social issues created by the pandemic, according to industry participants.
Going into 2020, climate change had been positioned as the hot topic, with several countries – plus the EU – setting carbon neutrality targets. Megan Starr, global head of impact at The Carlyle Group, said various people suggested to her that COVID-19 would cause investors to lose focus on environment, social and governance (ESG) agendas. As it turns out, they did not.
“It wasn’t that climate issues climbed into the back seat, but social issues climbed into the front seat,” Starr told the AVCJ ESG Forum. “It just shows how critical these issues are in managing and weathering endogenous shocks.”
She added that the extent of a company’s ESG competencies is often a proxy for the abilities of management. To this end, the key questions concern how a business makes sure employees are healthy, engaged, productive, and loyal.
COVID-19 has also promoted KKR to focus more on social issues. In July, the firm’s impact strategy acquired a majority stake in MasterD, a leading vocational training company in Spain. The investment was positioned as part of efforts to help the country address the challenges of unemployment and a skills gap, particularly among young people.
“We are evaluating a lot of these opportunities because we see a big need to reskill the workforce in Asia,” said Chee-Wei Wong, KKR’s head of global impact for Asia.
The firm’s impact investments fall under several core themes consistent with the UN sustainable development goals (SDGs): mitigating climate change, workforce development, sustainable cities and communities, and consumer empowerment. Wong noted that KKR sees even more reason to invest post-COVID-19 because the challenges around these themes have been exacerbated.
Starting with TPG’s The Rise Fund in 2016, a string of global private equity firms have raised dedicated pools of capital for impact investment in recent years, among them Bain Capital, Partners Group, KKR, and The Blackstone Group. For LPs, this represents a challenge.
“With the wall of capital coming into the impact space, if you are trying to come up with the right framework for measuring impact, it’s difficult,” said Doug Coulter, a partner at LGT Capital Partners. “We struggle internally with different views and have used various external consultants.”
At the same time, Coulter claims to see many companies with impressive impact credentials in portfolios that are not specifically tied to impact mandates, giving credence to the notion that strong ESG-related outcomes can coexist with commercial returns. LGT is talking to several portfolio GPs about raising capital for impact alongside their mainstream funds.
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