Impact Making a Splash – Snowball
Mixed progress across DEI and climate, while impact investors struggle to get to grips with nature risks.
Impact-focused fund managers across asset classes are making positive headway on their contributions to core sustainability themes, according to UK-based impact investor Snowball.
Snowball works and invests with other fund managers to deliver its impact investment strategy. It has published the latest iteration of its impact report, which has surveyed the progress of these fund managers on net zero, biodiversity, and diversity, equity and inclusion (DEI), reporting largely positive progress.
“The type of managers we work with varies significantly – from those managing billions to smaller managers focused on venture capital and early-stage strategies,” Henry Bacon, Principal at Snowball, told ESG Investor.
“It’s therefore challenging to apply one lens to all of them, so we have instead tried to encapsulate a broader understanding of where they all are [against the assessed themes], fully appreciating that there will be variance in their responses.”
Snowball has especially singled out the need to make progress on DEI.
“Ensuring a strong DEI focus isn’t just the right thing to do, but the smart thing to do,” said Laura Boyle, Principal at Snowball.
“We see a positive correlation between companies being managed in such a way that encourages diversity of thought and business success.”
US-based asset manager Wellington stood out for its strong DEI focus for racially minoritised groups, the report said, noting that the firm provides students of African/Black heritage opportunities to transition into careers at Wellington through tuition support, paid internships and mentoring.
Overall, the report noted most progress was made on gender diversity, with 29% of fund managers having specific targets in place and committing to a 40-45% improvement in female representation at senior leadership levels.
However, there is no clear correlation between the number of DEI policies and initiatives a fund manager has implemented and how these policies are put into practice, the report said.
For instance, the majority (83%) of fund managers are incorporating DEI considerations into their investment process, but Snowball found that only 62% reported the diversity data of their portfolio holdings.
Snowball also assessed its own progress on DEI, noting that more than 50% of the senior leadership, board, investment decision-makers and investment committee are women and 27% of the firm identifies as neurodivergent.
The Snowball Fund was formally launched in 2020 and serves as a diversified multi-asset, multi-theme and multi-geography fund focused on impact investments into and alongside selected impact managers.
All investments are expected to target Snowball’s overarching interconnected themes – social equity and environmental sustainability.
Twenty-eight percent of the fund is invested in fixed income, 22% in real assets, 24% in public equities, 25% in private equities, and 1% in cash.
When selecting and managing investments, Snowball applies its ‘Bullseye’ impact framework to its own impact performance, the impact performance of the external managers Snowball works with, and the overall enterprise impact of the fund’s investments on people and planet.
Staggered progress
There was an evident lack of concrete biodiversity commitments across the assessed fund managers, the report said.
“Several asset managers we spoke to are very interested in biodiversity and are keen to learn,” said Bacon. “But their strategies are less developed in this area. Most just don’t quite know how to approach it.”
The majority of public equity managers said they were taking a risk-based approach, mapping risks that investee companies face across themes such as water scarcity, biodiversity loss and ecosystem degradation.
In contrast, private equity managers considered nature-focused impacts to be “a secondary priority”, the report said.
“In the best of cases they contemplated potential adverse effects and risks on biodiversity when making investment decisions,” Snowball added.
Meanwhile, all real asset managers had some form of biodiversity-related commitment.
“There was more alignment between fund managers on net zero than in DEI and biodiversity,” said Bacon.
“This is to be expected, particularly due to how regulations and standards have evolved over the last few years. There is simply more guidance available for calculating and managing carbon emissions.”
Of the fund managers in Snowball’s portfolio, 30% said they are either in the process of setting net zero commitments or have no commitments, while 22% have made net zero commitments but lack timelines and frameworks. The majority (48%) have set specific targets to achieve net zero that are measurable and time bound.
However, Snowball again identified a lot of variability in the strength of commitments across asset classes.
For private equity, Snowball noted that the most ambitious manager had made specific targets to achieve net zero for its operations and investment portfolio by 2040, with plans to ensure its investments have set science-based targets by the end of this decade. Meanwhile, emerging market asset managers across fixed income and private credit were not yet committing to specific, timebound net zero targets.
“Transparency is key. While we appreciate a net zero target being made, it is just as important to see and understand progress towards that target,” said Bacon.
“If an asset manager has slowed down in progress, why? The [climate transition] won’t happen in a straight line. It’s about knowing how investors are dealing with it.”
Snowball intends to undertake more in-depth engagements with specific fund managers based on their responses to the survey over the coming months.
“Overall, we are pleased with progress, but there were a few surprises in terms of some managers we thought may be further along on DEI or perhaps didn’t consider climate to be as important,” said Bacon.
“We would like to understand these managers’ perspectives and gauge their willingness to adjust their views and priorities going forward.”
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