2021

LP Impact Guide

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Case studies for LPs looking to invest in impact

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IntroductionImpact investing strategies – those that target positive environmental or social externalities as well as financial returns – have in recent years become an integral part of the private markets ecosystem. The rise of attractive risk-adjusted opportunities as the market has matured has increased the accessibility of such strategies to institutional LPs. This has been met with rising investor interest, with 68% of LPs recently surveyed by Campbell Lutyens expecting their focus on impact investing to increase in the medium term.*

With a view to providing such LPs with useful insights and thus facilitating the flow of additional capital into impact investing, Campbell Lutyens, in conjunction with The Rockefeller Foundation, conducted interviews with five thought-leading LPs in the space. Given the varied nature of the broader LP universe and consequent lack of a ‘one size fits all’ approach to impact investing, the interviewees span different LP types, sizes and geographies – though each has established impact fund investing practices in place.

The interviewees shared insights into their motivations, strategies and due diligence processes, discussed the challenges they faced at the outset of their impact investing programmes, and offered words of motivation for LPs looking to begin or increase their activities in this area. Their responses are profiled in the pages that follow.

* Campbell Lutyens LP Sentiment Update, October 2020 (the “Sentiment Update”), a copy of which is available on request. Note that for the purposes of preparing the Sentiment Update CL interviewed a subset of LPs and nothing herein is intended to suggest that such subset should be considered to be representative of the comprehensive universe of institutional investors.

With thanks to the following for their contributions:

Hamilton Lane case studyInterview with David Helgerson

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Once the decision was made to move into impact investing, what were the major strategic choices that needed to be made in the first instance?We first assessed the demand and opportunity set and made sure we had the right market size in mind. The more important step, then, was to decide which themes to focus on. Our impact platform is focused on four accessible and flexible themes: Clean Energy Transition and Sustainable Processes (as part of Environmental Impact), and Health & Wellness and Community Development (under Social Impact). We also had to determine the execution and build a diligence process that accomplished our impact and investment goals and worked within our model at the time.

What was the motivation for getting into impact investing in the first place?Simply to support our clients. Our experiences in impact investing have been an evolution that started when we were building customised separate accounts for our clients. Our first impact vehicle was a customised separate account back in 2001, designed for our client to achieve specific impact goals. As we have done more and more in the impact world, that’s evolved, but the constant has been to support our clients’ goals, and to do so in a way that matches our own values and goals.

1How were those strategic choices refined over time, and what approach did you ultimately take to meeting with and screening GPs?We have built out a five-factor screening process which includes: identifying and articulating the impact, assessing intentionality and ensuring our impact missions are aligned, looking at measurement and reporting, examining the value-add, and analysing the risk-return profile. New entrants should think about their diligence framework because that’s what sets your direction going forward. In terms of what we’ve learned and refined, over the course of the platform we have seen disproportionately high deal-flow in energy and health. We’ve executed on interesting opportunities on the community development and financial empowerment sides, but the deal-flow has not been as robust. So we’ve come to look at these as almost two categories: the social and the environmental. We still believe in the sectors within those, but we’re reassessing what the proportionality will be in terms of the mix. We’ll be roughly 50/50 between the environmental and social, but how that breaks down may be different.

How did the due diligence processes differ from those in more traditional fund investments?We dig into their impact capability and past experience. We’re seeing managers who have experience as investors but perhaps not as impact investors, and we’re seeing other managers who have great impact credentials but not great investment credentials. One of the things we like to dig into is how those two marry together. It’s not as easy as saying ‘we have these two things we’re bringing together’, because they are dynamic and can influence that decision-making. When we talk to groups who have already started on that journey, have executed investments and have results, it’s much easier for us to assess their future capabilities.

In those early stages, what resources were most helpful, and who was most helpful to speak to, for getting to grips with the impact investing space?We were a part of the first group of signatories to the UN PRI, which enabled us to participate in discussions with the early leaders in the space. We have since found value from many different advisors throughout the years. Campbell Lutyens has been one! There have been others, from investment bank / agent-type advisors – Big Path Capital is a group that’s focused on impact – to consultants like Pacific Community Ventures, to some of the oversight bodies like the PRI or GIIN, with whom we continue to work. And obviously the GPs and LPs who we’ve worked with have all helped to shape our ideas about where the market is going and what it needs. Bridgespan are another good name, a good player in the market.

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Looking back, what do you wish you’d known as you were starting off in this space?If I were giving advice to new entrants, I would say to think carefully about what your investment and impact strategies are, and to make sure that they are aligned. Consider the differentiation that you’re bringing to the market, both as an investor and as an impact manager. There can be a natural evolution if the impact space itself is evolving, but knowing what your playbook is from the outset is a really valuable way to start building relationships.

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Hamilton Lane case studyInterview with David Helgerson

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To what extent are the processes involved in monitoring your impact investments different to those implemented elsewhere in your portfolio?We’re looking for regular feedback on the specific impact-related KPIs on which the GP has committed to report. We want them to be meaningful, and we want that to be a robust part of both their initial investment process and their post-investment process. When we speak with managers and we need to pull the metrics out of them, that’s not a great fit for us. We would like to see managers who have already thought about that part of the equation.

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What were the main challenges in making those first few impact fund investments, and have they persisted? What do you think will be the main challenges for LPs looking to move into this space in the coming years?As at the beginning of any strategy, we had to find our sweet spot. For us that translated into everyone around the table setting a very high bar around finding consensus on both the investment hurdle and the impact hurdle. What’s nice about having gone through that journey is that we now know what works, and we have built the tough questions into our diligence process. The area has come a long way but it’s still in the early innings. The opportunity and the challenges are meshed together; there are so many areas where investors can be successful with an impact approach, but that breadth of activity and capital flowing into impact may confuse the market. I think that will shake itself out – what’s important is to maintain transparency and clarity around the investment and impact goals because not every LP has the same objectives. I hope the market can embrace that level of complexity.

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Which sectors within the impact investing landscape are you most excited about for the coming years?We are most excited about innovation driving impact, which is evident in the thesis of our impact strategy. It ultimately comes down to finding disruptive technologies that are delivering more effective outcomes. It’s hard to single anything out because there’s so much opportunity, but energy transition is one that is really big. We have also spoken to GPs lately who have said that climate technology investing will be one of the biggest themes in the next couple of decades.

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“It’s hard to single [any sector] out because there’s so much opportunity, but energy transition is one that

is really big. We have also spoken to GPs lately who have said that climate technology investing will be

one of the biggest themes in the next couple of decades.”

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Glenmede case studyInterview with Jennifer Wong

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Once the decision was made to move into impact investing, what were the major strategic choices that needed to be made in the first instance?About 70% of our capital comes from one endowment, with the remainder coming largely from internal funds-of-funds raised from smaller clients who use them as diversified bites at particular asset classes. Given the interest in impact was coming from these smaller clients, a pooled client vehicle made sense, but that’s difficult because everyone’s definition of ‘impact’ is different. We ended up launching the pooled vehicle to give clients a diversified bite at things that are broadly positive for the world, but alongside that, started onboarding GPs who may or may not have been in the pooled vehicle to offer more of a ‘Cambridge Associates model’, where it’s a menu of options for those interested in committing more to specific managers. The pooled vehicle forms the core of your investments and you have further access to more sector-specific managers that may or may not resonate with your impact ideas.

What was the motivation for getting into impact investing in the first place?It began with client demand. Back in the early 2000s two environmentally conscious families approached us and said they wanted their values to be reflected in their investments – luckily we said ‘yes’, and that was our first foray into impact investing. In 2014, senior management recognised the potential in impact investing, and that was when we began building out the team, launching public markets strategies and tracking our impact AUM. I then joined in 2017 to help sound out what was available in the private markets and build something that our clients could use. We’ve had it grow year-on-year in excess of 30%, which is testament to how clients are resonating with these sorts of strategies. You might think that $500bn people are the only ones that can do this, when in reality the interest really lies with people much smaller than that.

1How were those strategic choices refined over time, and what approach did you ultimately take to meeting with and screening GPs?Once we let people know we were open for business, we got pinged from every direction. We had a lot of introductory calls in the first year and a half – we talked to as many different impact managers as possible, which helped shape our thoughts on which sectors make sense for us. Meshing that with our existing private markets knowledge, we were able to arrive at a few different areas that we thought had a higher investment potential for us. Then we were more intentional in terms of which meetings we took and who we reached out to. The fact that we are an institutional LP helped to open the door to the impact funds that came to market.

How did the due diligence processes differ from those in more traditional fund investments?We try not to let it differ too much. Everything gets reported up to the same Investment Committee and the same bar exists from a returns perspective. In terms of impact diligence, this is probably an area that we could improve on. There’s a framework that we use across all asset classes that goes through target outcome, measurement and reporting, firm resources, philosophy and other things – and for impact we weight target outcome a lot more than the others, even reporting. This is because, for instance, a number of our healthcare managers develop vaccines and hospitals around the world but don’t report on impact, and we believe their target outcomes outweigh any reporting deficit. That’s the only thing in the due diligence process that differs. Until the industry gets its act together on impact measurement, we’re not going to take a stance one way or another on what is the gold standard.

In those early stages, what resources were most helpful, and who was most helpful to speak to, for getting to grips with the impact investing space?There were a number of different resources that helped us map out the market. I would look at the funds that had made it onto ImpactAssets 50, or were part of the GIIN – though they tended to skew to self-defined impact funds or very early-stage impact, which was not always helpful for us as a more institutional LP. The other group that was helpful was the Institutional Limited Partners Association – they began with more D&I and ESG work, but it was helpful to connect with other LPs who were beginning to think about impact so we were able to walk the muddy waters together. The other one that is probably better now is Impact Capital Managers: they’re trying to bring impact managers together.

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Looking back, what do you wish you’d known as you were starting off in this space? I wish I’d known that there would be such a proliferation of impact funds coming to market. And I wish our industry had done more to broaden the term ‘impact’. It was seen as niche, people didn’t pay much attention to it, and a lot of managers, because of the concessionary background of impact investing, would disavow themselves from the term even though what they were doing was very impactful. Having a broader definition would have helped from the get-go. New LPs in this space should think through what they want to define as impact without constraining themselves to self-defined impact funds.

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Glenmede case studyInterview with Jennifer Wong

To what extent are the processes involved in monitoring your impact investments different to those implemented elsewhere in your portfolio?The only thing that’s different is the impact measurement piece. We are planning to start producing an annual impact report this year. Given that we have a mix of traditional managers and impact managers in the portfolio, we’re trying to figure out how to make this comprehensive yet concise document for our clients. That will be an interesting challenge. The approach thus far has been to think of specific KPIs across the board that we could ask the GPs for, knowing full well that many might not respond because we might be off-base.

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What were the main challenges in making those first few impact fund investments, and have they persisted? What do you think will be the main challenges for LPs looking to move into this space in the coming years?The main challenge has been that we typically don’t invest until Fund III, IV or V, with more established firms where there’s less team risk, but this profile doesn’t really exist in impact yet because it’s a newer area of the market. This challenge has persisted, and that’s why we’ve tried to balance traditional managers that we think are impactful with more emerging impact managers to create a good portfolio for our clients. Going forwards, impact measurement is probably going to be the biggest challenge. LPs need to consider whether they are willing to look at GPs who don’t self-define as impact, and if they are comfortable looking at emerging managers, how emerging are they willing to go? Another challenge will be too much capital piling into some of these areas; I’d be interested to see how managers remain disciplined in pricing for impact assets and in fund-size increases.

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Which sectors within the impact investing landscape are you most excited about for the coming years?We have six broad buckets: sustainability (which includes energy transition and resource scarcity), healthcare, education, food and agriculture, financial inclusion and fintech, and community development and housing. Those six are probably the most investable areas where you can get impact and financial returns. The two biggest areas in terms of opportunity are sustainability and healthcare – at least that’s what we’ve seen play out in our own portfolio. Fintech is also on the rise.

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I wish I’d known that there would be such a proliferation of impact funds… Having a broader definition [of

impact] would have helped from the get-go. New LPs in this space should think through what they want to

define as impact without constraining themselves to self-defined impact funds.

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AP4 case studyInterview with Hanna Ideström and Jenny Askfelt Ruud

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Once the decision was made to move into impact investing, what were the major strategic choices that needed to be made in the first instance?It was an early decision to focus on climate transition; we felt it was more investable at the time, and we saw that solving climate change positively affects a lot of other impact areas. Then we had to decide which asset classes were most suitable to get this exposure, and we found that for many of the themes the private markets were best. Within private markets, it’s an exercise of defining structures because it’s a market-in-the-making. For us, for example, it was about being able to get exposure to small opportunities despite being a big investor – we still haven’t really found a good solution for this. We decided that we’d focus on developed markets initially and add emerging markets later on. Recruitment was another important area. We also made the decision not to have a specific impact allocation because we thought it would provide the wrong incentives – you drive to invest a certain amount into impact and lose sight of your returns, valuations and pricing.

What was the motivation for getting into impact investing in the first place?It was research driven, coming from an allocation perspective. We saw that there were sectors that will benefit from a sustainability transition, and that investing in them would deliver an attractive risk-adjusted return. We don’t refer to our strategy as ‘impact’; we have a thematic focus across the portfolio and it just so happens that our themes are related to sustainability. We also had legislative support to make sustainable investments without compromising on returns and set a good example in the investment community. Our Board of Directors encouraged this as well. It was a natural transition for us because we’d invested to reduce climate risk for a long time - the natural next step was to start investing in the upside, making active choices rather than just reducing risks.

1How were those strategic choices refined over time, and what approach did you ultimately take to meeting with and screening GPs?There is still plenty of opportunity linked to climate transition so that focus hasn’t changed, but we have refined our strategy around which specific areas within climate we put weight on. This moves so quickly: there are some areas that we felt two years ago were too immature that we are now considering more seriously. Officially, we revise our priorities once a year, but it’s constant work in terms of reviewing that strategy. Meeting and screening GPs goes both ways – we get incoming calls but are also out there talking to people. We have pursued a thorough analysis of certain segments, but that’s easier for more mature areas where you can be more focused. We often meet with small managers, even if they are out of scope size-wise for us, to build the relationship for the future. Even the ones that may be considered greenwashing – we tend to meet with them just to understand their view of the market and definition of ‘impact’.

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In those early stages, what resources were most helpful, and who was most helpful to speak to, for getting to grips with the impact investing space?We started by looking at trends and sectors. If you know what themes you want exposure to, it’s much easier to complete the analysis. We had a few hypotheses, and hired some external help to gather the data on sectors that were being impacted by demographic changes, climate-related changes, technology, consumer pull, regulator push, etc. There are a number of organisations that are very good in the impact community, but since we started from the thematic end, we used specialist organisations within each segment. For example, we looked extensively at climate change, at the industries and value chains that will be most impacted, and climate-oriented research institutions like the IPCC were very helpful in that regard. With them we were able to set climate transition scenarios and look at where the opportunities lay.

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Looking back, what do you wish you’d known as you were starting off in this space? The impact investing market as a whole is still at an early stage. GPs and LPs are waiting for common terminology, common standards for measurement, more consensus on what impact is – but I think trial-and-error is probably a better method than just waiting for the market to mature and be perfect. For LPs, as long as you have done your analysis, it’s good to get exposure early on because that generally correlates with a good return. One thing that has become apparent is that we have a big advantage in that we can invest with first-time teams and first-time funds. There are lots of LPs who don’t have that possibility, which makes it more difficult.

3How did the due diligence processes differ from those in more traditional fund investments?There is no difference in how we do our due diligence, find and screen funds or make our investments. But, if a team claims to have an ‘impact’ strategy, we do want to hold them accountable to that – we want them to be able to prove that, measure their impact with specific KPIs and ideally also link part of their carry to the achievement of those targets. The more a team claims to be adding, the more we will hold them accountable.

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AP4 case studyInterview with Hanna Ideström and Jenny Askfelt Ruud

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What were the main challenges in making those first few impact fund investments, and have they persisted? What do you think will be the main challenges for LPs looking to move into this space in the coming years?We see two main types of GP today and it’s a reflection of the market still being quite immature. There are small emerging managers: probably first-time teams with varying degrees of credibility in relation to both impact and investment. Then there are large institutional PE houses launching yet another strategy because they see a pocket of money in the market. Another ingredient is the proliferation of ESG strategies which are not necessarily impact-oriented but have similar claims. It’s a challenge for investors to find what they are looking for in this ecosystem. As an LP, you should start doing your homework: you should understand what you want to get exposure to and why, your time horizon, and your return, reporting and due diligence requirements. But there are many drivers including technology and regulation that will continue to increase investability, and over time more money will move towards those segments and there will be more experienced managers to choose from.

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Which sectors within the impact investing landscape are you most excited about for the coming years?Our current focus is within renewable energy, resource efficiency and energy transition. Healthcare is another interesting area. Going forward there will be many opportunities on the borderline between infrastructure and private equity, including water strategies and food and agriculture strategies – I think those will be interesting areas too.

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To what extent are the processes involved in monitoring your impact investments different to those implemented elsewhere in your portfolio?When it comes to monitoring and reporting, we are still early in our process. At the moment we don’t require separate reporting on impact. We generally follow where the rest of the industry is in terms of frameworks and best practice. We might develop an internal view on a few KPIs that we think any fund really should be reporting to us, but we don’t have anything in place at the moment.

The impact investing market as a whole is still at an early stage. GPs and LPs are waiting for common

terminology, common standards for measurement, more consensus on what impact is – but I think trial-

and-error is probably a better method than just waiting for the market to mature and be perfect.

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PGGM case studyInterview with Maurice Klaver

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Once the decision was made to move into impact investing, what were the major strategic choices that needed to be made in the first instance?What we just discussed is one. Also, when we started with private equity we were targeting 30-35% of investments outside of the US and Europe, but we scaled this back to 10% in 2016. What’s important is what we found between 2014 and 2019 – that without people really dedicated to the strategy, not much happens. We made an effort back in 2014 but fell behind when the person dedicating his time to it left. Now there’s focus, there’s an allocation (up to €500m over 3-5 years from 2019) and there are dedicated people. You need to put together a team that’s dedicated to it, has the resources and is being acknowledged by the client.

What was the motivation for getting into impact investing in the first place?It started in 2014 when our main client was thinking through their 2015-20 investment strategy. They wanted to invest not only for financial returns, but also in such a way that when their beneficiaries received their pensions, it would be in a world that they enjoyed living in. They looked at the key issues of the time (the SDGs were not there yet), chose four themes – healthcare, climate, food security and water scarcity – and aimed to quadruple their investments in those themes across all asset classes. Infrastructure and real estate were a big part of that – they classified all their investments according to the GRESB methodology developed together with APG – but we didn’t find many private equity funds that fitted those themes. We ended up starting our SDG allocation within private equity in 2019, with the mandate to make smaller, earlier stage investments than we were used to.

1How were those strategic choices refined over time, and what approach did you ultimately take to meeting with and screening GPs?We went theme by theme. We started with food and tried to map all the GPs in that space – our first GP came out of that screening. Then we mapped the more generalist impact managers, and then did the same for healthcare and energy and water. Then we started investing – it worked like it did for the more traditional US or large buyout investments.

How did the due diligence processes differ from those in more traditional fund investments?First we have to decide if the fund qualifies as impact for us. We say that at least 50% of the historic investments should fall within the themes that we focus on. For example, when we committed to Bain Impact, we looked at their first fund and it was just about right: seven of the 13 investments qualified under our definition. We look both in terms of number and invested amount – it’s a pretty pragmatic solution. For the first-time fund we just did, they were in exclusivity on three imminent transactions so we just looked at those and it was sufficient for us to get comfortable. We also want a commitment from the GP that they’re willing to report on the relevant KPIs. And then we do this impact due diligence which is different from our traditional investments: we go through the additional due diligence questionnaire, which covers how their impact process works, how they define impact, how they monitor their ambitions and who is responsible for this, and we give them a score between 1 and 5.

In those early stages, what resources were most helpful, and who was most helpful to speak to, for getting to grips with the impact investing space?This year we’ve developed an impact due diligence questionnaire which we complete in addition to the regular due diligence we do with our funds. The guiding ideas came from the IFC, with their Operating Principles for Impact Management, and Nuveen, who are also very well advanced in this space and have a pretty clear idea of what they want to achieve. The Impact Management Project are also an important one.

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Looking back, what do you wish you’d known as you were starting off in this space?What really helped us was defining impact for ourselves. It helps that we have these taxonomies, but what I found most difficult in the first two years was seeing investment opportunities for example in Asia or venture capital or infrastructure that did fit but did not match what our investment committee or clients wanted. There are interesting potential investments, with a lot of impact to be made, in life sciences, cleantech and the energy transition, and it’s been frustrating at times to spend some time in those spaces only to find out that the client doesn’t like the risk-return profile. So it’s good if, as you start, you define not only what’s impact for you, but also where your investment committee and clients want to play.

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PGGM case studyInterview with Maurice Klaver

To what extent are the processes involved in monitoring your impact investments different to those implemented elsewhere in your portfolio?They are similar. With ESG qualification, we’ll have an annual engagement with the GP to see what they have done, what they are changing in their policies, what they’ve achieved in their portfolio, and what incidents (if any) have come up. We’ll do the same with impact: we’ll ask them to report annually on those impact KPIs, and then we’ll do that impact assessment to see how they are evolving.

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What were the main challenges in making those first few impact fund investments, and have they persisted? What do you think will be the main challenges for LPs looking to move into this space in the coming years?Even though we have the approval to do smaller, earlier stage investments, we still have this Investment Committee that is used to doing larger tickets, so getting them interested can be a challenge. More generally, the funds you’re looking at are less institutional and so are more difficult to get across the line – though on the other hand, because these investments are smaller people are also willing to take on a bit more risk. What always remains a challenge is the measurement and the reporting. It comes down to your definition of ‘impact’, which is just different for everybody. Our GPs do define impact for their investments, which is really good, but they are so diverse that adding them up for our portfolio is still quite a challenge. But I think we are making good steps, and the SDGs and EU Taxonomy really help.

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Which sectors within the impact investing landscape are you most excited about for the coming years?I think they’re all exciting, the ones that we are focused on at the moment. Life sciences, especially in these corona times – it’s fascinating what’s happening there and how fast they’ve been able to move. I think it will give quite a boost to the whole industry. Energy transition and sustainable food are the same: there’s also so much happening there.

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What always remains a challenge is the measurement and the reporting. It comes down to your definition

of ‘impact’, which is just different for everybody. But I think we are making good steps, and the SDGs and

EU Taxonomy really help.

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HESTA case studyInterview with Josephine Toral

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Once the decision was made to move into impact investing, what were the major strategic choices that needed to be made in the first instance?We are a AUD 60bn fund and need to ensure that we deploy capital of meaningful scale. We were reviewing impact opportunities that were small, fragmented and expensive. We made a strategic choice to focus on opportunities that we believed we could catalyse and scale over time to become a meaningful part of the portfolio. In order to create a governance structure over HESTA Impact, HESTA has an Impact Committee, a sub-committee of the Board, which meets on a six-monthly basis to discuss direction and impact strategy. The Chair of the Investment Committee sits on the Impact Committee to ensure alignment to HESTA’s investment strategy.

What was the motivation for getting into impact investing in the first place?Hesta has been at the forefront of ESG integration for a long time. The Australian superannuation system allows members to elect how they wish to invest their capital. At HESTA, we have had an investment option members can choose that, since 2005, has been focused on the transition to net zero. HESTA has never called investments in this option ‘impact investing’ as we view this as investing where we are focused on maximising returns. Over time, ‘impact’ became a theme, and we evolved to become more outcomes-based in our approach. More recently, we have developed a strategy called ‘HESTA Impact’. We take a step back and think about impact holistically – not just the way we invest but the way we advocate for members and how we act responsibly and sustainably as an organisation. We have aligned ourselves to seven SDGs, carefully chosen by the Board, as most relevant to our members. These are: gender equality, good health and wellbeing, climate action, affordable and clean energy, sustainable cities and communities, clean water and sanitation, decent work and economic growth. 1

How were those strategic choices refined over time, and what approach did you ultimately take to meeting with and screening GPs?We conduct the market mapping ourselves and work with consultants and advisors. This is done across the whole portfolio and we integrate impact in our approach.

How did the due diligence processes differ from those in more traditional fund investments?The main difference is understanding their measurement and reporting. How is a manager incorporating impact through the initial investment? How are they going to track it over time? How is it incorporated in their underlying portfolio companies? What metrics are they looking for? Are they using a particular consultant or reporting framework? The Impact Management Project has done quite a bit in streamlining reporting. Our ESG team has been thinking about how can we incorporate this focus across the portfolio. We are developing our own HESTA Impact Management approach, which is effectively how we’re going to manage impact across our investments, tracking various KPIs and mapping them to the SDGs.

In those early stages, what resources were most helpful, and who was most helpful to speak to, for getting to grips with the impact investing space?The Dutch and Nordic pension funds are viewed as leaders in the space. Two of my colleagues spent some time overseas with leading asset owners to find the best-in-class in delivering impact.

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Looking back, what do you wish you’d known as you were starting off in this space?We have come to the overarching view that it’s about understanding thematics and long-term trends. This understanding can then inform investment and impact decision-making. Meeting unmet needs creates investment opportunities – we are focusing on thematics rather than investing with groups labelling themselves as ‘impact’.

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HESTA case studyInterview with Josephine Toral

To what extent are the processes involved in monitoring your impact investments different to those implemented elsewhere in your portfolio?The first target that we have set is a net zero target over the total portfolio to 2050. As a result we are tracking our carbon footprint. We set a baseline last year and need to reach a 33% reduction in 10 years.

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What were the main challenges in making those first few impact fund investments, and have they persisted? What do you think will be the main challenges for LPs looking to move into this space in the coming years?We have evolved our thinking to look for GPs globally who are specialists in a particular impact area. For example, we’ve been supporters of life sciences and biotech for a long time, and there are managers developing really exciting drug technologies and medical devices who are not ‘impact managers’, but rather specialists in their area.

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Which sectors within the impact investing landscape are you most excited about for the coming years?On the social side, we are seeing more financial inclusion and fintech strategies reaching the end consumer. On the environmental side, how industries are evolving to reduce their carbon footprint.

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We have come to the overarching view that it’s about understanding thematics and long-term trends...

Meeting unmet needs creates investment opportunities – we are focusing on thematics rather than

investing with groups labelling themselves as ‘impact’.

“”

Final words of motivation

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To be able to do this, you need to be bold, to do things differently to how you’ve done them in the past. That’s going to be required anyway, in the world we’re transitioning to, and if you recognise that and make the decision now to adjust how you work and allocate, you will benefit in the long term. What’s so exciting with genuine impact is that you generate a return while also creating positive externalities for society and the environment. The sad thing about greenwashing is that you really can achieve those positive externalities just as long as you do your homework. If you think about it from a long-term perspective, if you can invest in things that are essential to society, your licence to operate will definitely stay and you’ll have much less downside from a risk management perspective. Once you start believing that you can make that type of investment, it’s a given.

They should just start doing it – that’s what will allow them to get most comfortable. It’s really easy to figure out a reason to say no to things. I know a lot of people that have done little carve-outs, dipped a toe in the water by doing a small commitment in their public equities portfolio, and as they saw the performance and impact metrics over time they were able to get more comfortable. To date, most of our clients have increased allocations to impact strategies over time.

The drumbeat of client demand is increasing. Each type of entity has increased its interest in impact over the past year, and some are transitioning their entire portfolios into sustainability-focused investments. For LPs new to the space, I would say define what you want to achieve first, and then go looking for it. There will be a lot of managers coming to market – new managers, spin-offs, GPs that build impact components – and they will be interesting in a variety of ways, but for anyone who’s serious about building an impact portfolio now you have a clean piece of paper to sketch out where you want to go and what’s most interesting to you. That’s a big part of the impact opportunity – to really tailor your investing approach so it meets your values and interests as an investor.

This will only get more important over time. You will be able to join platforms that will make a huge impact over time – you can be an anchor investor or a founding partner in some of these partnerships – and I think that’s pretty cool. Also, it’s all converging: you question why a GP would measure impact for its impact fund but not for its general fund, because the some of the investments are not that different. You will see more and more traditional GPs mapping their investments towards the SDGs.

Our view is that investing with impact is about supporting long term sustainable trends. Finding global partners who are aligned with your impact goals and objectives will strengthen your own impact strategy.

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Aakash KotakExecutiveLondonkotak@campbell-lutyens.com+44 (0)20 7292 6731

Toby ClarkeExecutiveLondonclarke@campbell-lutyens.com+44 (0)20 7292 6711

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This document is for information and discussion purposes only. It contains the observations, analyses and comments of the select interview participants referenced in the foregoing pages. Unless otherwise specified, the views contained in this document do not represent Campbell Lutyens’ own views. Campbell Lutyens, in conjunction with The Rockefeller Foundation, conducted interviews with a select group of institutional investors. The document does not purport to represent the comprehensive universe of institutional investors. No representation is made or assurance given that such observations, analyses and comments are correct. This document does not purport to represent the comprehensive universe of points to be considered in relation to the application of the subject matter hereof, nor does it purport to have been drafted with the specific requirements of any individual recipient in mind. Nothing contained herein constitutes an offer to sell, or a solicitation of any offer, or an invitation to subscribe for or purchase, or to make any commitments in respect of any securities. No reliance should be placed on the information contained herein, including any forward-looking statement or statements of belief and no responsibility is accepted in respect thereof. In considering any prior performance information contained herein, recipients should bear in mind that past performance is not indicative of future results. Nothing in this document should be treated as legal or regulatory advice. Recipients should conduct their own research and consult their own professional advisers in relation to the matters described herein. By accepting deliver of this document, you agree to treat this document as strictly confidential and not to reproduce, distribute or otherwise use this presentation or any of its contents without the prior written consent of Campbell Lutyens or The Rockefeller Foundation

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Campbell Lutyens is a global and independent private capital advisor, focused on fund placement and secondary advisory services. Over the past 10 years, we have worked with fund managers to raise and advise on sustainable investing funds across infrastructure, private equity and private credit, resulting in a deep understanding of the market. We have closed or are currently advising on $14 billion in sustainable investment strategies.

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