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

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.