This article first appeared on ESG Investor.
Haven Green CEO Paul Price says boutique firms are better positioned to offer impact investment opportunities than established players.
The two organisations announced separately this week that they would take the government to court over a climate strategy that lawyers say “illegally” fails to include the policies needed to deliver the promised cuts in emissions and relies on speculative technologies.
The promise of litigation comes in the same week that Lord Wei of Shoreditch‘s Wei Forward Reportinto impact investing stated “the technologies simply do not exist to achieve net zero in the developed world”.
In his report, commissioned by Future Planet Capital, Lord Wei says the investment community must transform impact investing from a “niche practice historically less focused on profit” to a mainstream discipline centred around high impact, high profits and large global funds.
There is certainly plenty of money available to help make the transformation. Impact Taskforce – formed under the UK’s G7 presidency which recently released a report into the importance of directing private capital toward impact investing – points to the US$100 trillion assets under management held by the world’s top 500 largest asset managers as instrumental in meeting the environmental and social challenges targeted in the UN’s 17 Sustainable Development Goals.
Ripe for disruption
However, Paul Price, former CEO at Morgan Stanley Asset Management Ireland, believes it is the smaller boutique asset managers that hold the key to effective impact investing.
Price has set up Haven Green Capital Partners, which he describes as “the world’s first multi boutique structure focused solely on managers with sustainability and impact at the heart of their investment process”.
Haven Green’s objective is to ensure that smaller asset managers with genuine sustainable and impact investment strategies are not muscled out by their larger, deep-pocketed counterparts to such an extent that they fail to get off the ground.
“Tragically, smaller managers in the sustainability and impact space struggle to scale. In some instances, they have great ideas, but they can only hire one salesperson or one marketing person to try and build the business tell a good story,” Price says.
Haven Green offers these managers the chance to outsource client servicing by providing a team of investment professionals who are tasked with securing working capital and seed investments, which may otherwise be out of the boutique asset managers’ reach.
While Price argues that established players have been slow to meet asset owners’ growing need for sustainability and impact-led fund solutions, this is not the only reason he expects a shake-up to an industry dominated by multi-trillion-dollar giants including BlackRock and Vanguard.
“We are in a disruptive phase of the asset management business. The three pillars of asset management [people, process and technology] will start to separate from one another. Already the operations function is outsourced. There is no logic to have that to have in-house client serving; it is a different skillset; outsourcing will become more prevalent,” Price says.
Haven Green may be the first of its type, but other players will need to join the fray if the boutique impact managers are to be effectively serviced. Price says the firm is working with just five managers at present, whittled down from a list of 30 hopefuls.
“We rejected those managers based on the depth of their ESG credentials, although some are in a transition and may come online later. We will never work with more than 15 managers. That is the cap because we are giving them the best of our attention.”
Accounting for the relatively small amounts directed to Haven Green’s suite of boutique managers, Price favours UCITS as the default structure for European investors but does not rule out setting up separately managed accounts for larger investments.
Setting the moral compass
Given Haven Green’s exclusive approach to manager selection, each provider must offer clear evidence that they are genuinely impactful and sustainable.
Haven Green uses an independent ESG data company, RepRisk, to provide impartial reports on the impact – or otherwise – of their managers’ strategies.
Price says: “We need to set our moral compass to the highest standard as from the very beginning and show that we share the values that we want to see delivered by our asset managers every day.”
Helios Investment Partners is among the five managers already on Haven Green’s books and Price points to the manager as achieving a positive impact in Africa.
Helios has invested over US$3 billion in African businesses including in solar energy provider Starsight Energy, which grew its revenue grew by 74% in the year to March 2021, and achieved carbon credit accreditation by switching thousands of Nigerian consumers from diesel-based energy to renewables.
Gaming the system
Price says these types of projects are only possible when investors can direct capital to asset managers that take impact investing seriously. The rush to meet asset owner demand means that some established managers are marketing sustainable offerings without necessarily having the strategies or resources to deliver. Haven Green Partner Gary Smith describes the ESG asset management sector as “the Wild West” arguing that “everyone and anyone can announce that they have a plan to achieve net zero carbon emissions”.
It is no surprise then that Haven Green is pro-regulation that makes clear to investors the ESG credentials of the products on offer, including the Sustainable Finance Disclosure Regulation (SFDR), which Price describes as a “great step forward from a regulatory perspective”.
However, he warns there is a danger that asset managers trying to ‘game’ the system, particularly when it comes to achieving Article 8 and 9 status that are considered the ‘gold standard’ for ESG funds.
Last month, ESG Investor reported data from Morningstar that eight of the ten largest Article 8 funds do not include terms such as green, ESG or sustainable in their names, which might suggest opportunistic labelling by asset managers.
“There is a danger of gaming between Article 8 and 9 and we need to avoid that. There will be very clever investor relations people in underlying companies working out how to make their story sound right. Managers must prove that they are able to interrogate [their investee companies].”
Judging by the massive inflows into impact investing in 20220 – US$2.3 trillion which is the equivalent of 2% of global AUM according to The International Finance Centre – this area is ripe for opportunities both for asset owners and their managers. However, since just a quarter of these investments had a clear impact management system in place, picking a truly authentic provider remains a challenge.
Price says: “The dominant players of the future [in impact investing] are the start-ups of today. There are some really exciting managers out there and they need our support if they are to break new ground in impact investing.”