Why we’re doubling down on measurement and reporting across sustainable investing
Today marks the public release of the Generation Growth Equity team’s 2021 Sustainability and Impact Report, covering our third Sustainability Solutions Fund (SSF III). This is a key milestone for us — announced alongside the launch of our $1.7 billion Sustainable Solutions Fund IV — and a chance to share some of our thinking around sustainable investing, impact measurement and reporting.
SSF III closed with just over $1 billion of committed capital in 2019 and is now almost fully invested as of writing. SSF III is invested in companies whose products, services and operations contribute to the global outcomes of planetary health, people health and financial inclusion — also the focus of SSF IV.
A Word from Our Team
Sustainable investing since 2004.
Since Generation Investment Management’s founding in 2004, we have put sustainability at the core of our investment process because we believe it delivers the best long-term returns. We are proud to be part of a community committed to creating a net-zero, prosperous, equitable, healthy and safe world. Through continually innovating our own approach, catalysing sustainable investment initiatives and financing the development of organisations to fill standards gaps, we’ve worked for 18 years in collaboration with partners, peers and leaders to advance this vision.
In terms of internal developments, 2021 was a busy year.
Sustainability research, which we call roadmaps, is the engine of our sustainable investing process. Over the year, we authored 17 roadmaps with topics including Remote Compensation, InsureTech and Climate Risk, Industrial Bioengineering and Healthcare Data. We also worked with our Chairman to convene 11 virtual roundtables during the year and hosted our inaugural System Positive Summit for portfolio company senior teams, offering them the chance to learn from over 15 leading practitioners and share our knowledge on sustainability topics like best in class governance, scaling a mission-driven culture, and impact measurement and reporting.
The market context is rapidly changing.
We are seeing rapid and dramatic movement in US (via the SEC) and EU climate disclosure regulation, leveraging the framework established by the Task Force on Climate-related Financial Disclosures (TCFD), as well as in the consolidation and strengthening of international standards-setting bodies. Notably, we saw the launch of the IFRS Foundation’s International Sustainability Standards Board (ISSB) at COP26. We are also seeing increased convergence around the net-zero goal and in particular Science-Based Targets. As context, Generation supports Science-Based Targets and has committed to align 100% of our firm-wide portfolio to net zero by 2040, or sooner.
We’re doubling down on our role.
As a pure-play sustainable investment manager, we feel more urgency than ever to help scale best practice for measurement and reporting for our portfolio, and to contribute to and inform the course of the global ESG regulatory and standards activity. At Generation, we refer to sustainability as having two dimensions — what a company does and how a company operates. As such, we believe the best companies will be able to consistently capture and report on both the contribution of their products and of their operations towards a sustainable future.
“At Generation, we refer to sustainability as having two dimensions — what a company does and how a company operates.”
- Lila Preston, Head of Growth Equity at Generation Investment Management
In 2022, you can expect us to continue to support our companies on their journeys to best practice on both levels. Please read on for a summary of our Sustainable Solutions Fund III strategy and results. You can also browse and download our full report on Generation’s website.
Portfolio Impact and ESG Performance Measurement Approach
We report to our investors on our portfolio in an integrated way — combining impact and financial results.
Impact Metrics
We select at least one ‘North Star’ impact metric to measure the contribution of each business’s product or service (what it produces) to specific outcomes within our three impact domains (see the table below).
ESG Performance
We also monitor and report on a set of core ESG performance metrics related to how the company operates, and we analyse our business’ overall contribution and risks to impact using the Impact Management Project (IMP) framework.
As part of our analysis, we use a proprietary System Positive Framework to help us identify if a company is truly System Positive, meaning it has the potential to drive the transition to a net-zero, prosperous, healthy, fair and safe future. Our investment team comprises individuals with investing and sustainability backgrounds, who inform and challenge each other’s thinking.
Our process and team-based approach are key to the success of our fund, both in terms of impact and financial returns. We are all responsible for the alignment of our investments with a sustainable world view.
“Sustainability has been and will always be at the core of our mission, but we know we cannot achieve this mission on our own. We believe partnership is the way to succeed. When companies and entrepreneurs work with Generation, they don’t just get a single point of contact. They gain access to our team, extended network and a continuum of capital across private and public equity to help them scale and transform, and to bring system-positive change for generations to come.”
- David Blood, Senior Partner of Generation Investment Management
Portfolio-wide Results
Within our portfolio in 2021, we saw a significant step forward in disclosure and transparency on all fronts.
· Strong disclosure: 100% of the private portfolio reported its full Scope 1, 2 and 3 emissions for the second year running — with like-for-like emissions intensity decreasing by 30% in 2021.
· Deeper transparency: Generation helped its five most recent investments in the fund to measure comprehensive environmental and social impact at the product level for the first time.
· Gender inclusion: The report captured the non-binary gender category for the first time, with 42% of portfolio company management and 25% of board members identifying as female or non-binary.
Portfolio Impact
Below we showcase one key Impact Metric per portfolio, capturing the impact of what the company does. For the full story on each of our companies’ journeys, as mentioned, simply browse or download our full report.
In Focus: Equity, Diversity and Inclusion (EDI)
Across our portfolio, the momentum building behind EDI in 2020 continued into 2021. Our engagement strategy continued to focus on disclosure and in setting the tone from the top and in connecting our companies with resources to support development of workforce EDI strategies. We tapped our network for multiple Board searches, leading to a three percentage point increase in average Board gender diversity.
In Focus: Environmental Impact
We believe it is critical for our portfolio companies to measure and reduce their climate impact, regardless of whether their business is tackling outcomes in Financial Inclusion, People Health or Planetary Health.
This year marks a turning point in action on climate. Three companies have set carbon emissions reduction targets, two of which are Science-Based Targets, and a further three are actively developing targets and reduction strategies.
About our Team
Our investment team comprised 16 people at the end of March 2022.1
Team diversity is important to us — at the end of March 2022, 57% of Generation Growth Equity partners identified as female or non-binary and 29% identified as a person of colour. Likewise, at the end of March 2022, 63% of our non-Partner investment team identified as female or non-binary and 44% as a person of colour — our talent pipeline.
About our Portfolio
We have been investing for 15 years as a Growth Equity team — beginning with our research ahead of the final close and launch of our first Climate Solutions Fund in 2008.
At 13 companies at the end of 2021, our portfolio is genuinely global — our companies have HQ and business operations spread broadly across the globe (Europe/UK, Asia, Africa, South America, Canada, and the US).
We work hard to approach sustainability and impact in a thoughtful and rigorous way, and we enjoy sharing our insights and results. If you are a client or peer and want to be in touch regarding our process or annual System Positive Summit, please get in contact.
Footnotes
1. Growth Equity Investment team as at 31 March 2022, excluding long-term consultants.
2. Geographic reach of companies in Generation Growth Equity’s Sustainable Solutions Fund III (SSF III) portfolio as at 31 December 2021.
