Brunel Pension Partnership has made a cornerstone $60m (€54m) commitment to a private equity impact fund on behalf of four of its UK local government pension scheme (LGPS) clients.
The £30bn (€35bn) LGPS pool said it had obtained attractive terms from the manager – Neuberger Berman – for its clients’ commitments and had also negotiated terms on behalf of the entire £263bn local authority pension system, “should any other individual funds or pools wish to commit before final close”.
Richard Fanshawe, head of private markets at Brunel, said the Neuberger Berman Private Equity Impact Fund was “ground breaking in seeking attractive financial returns in lockstep with positive social and environmental impact, having identified investable themes that can map to 15 of the 17 UN Sustainable Development Goals (SDGs)”.
According to Brunel, Neuberger Berman was targeting a high proportion of direct co-investments into underlying companies, “complemented by select investments in specialist impact primary funds that Brunel would be unlikely to access alone”.
It said Neuberger would aim to encourage private equity managers to make integration of environmental, social and corporate governance (ESG) considerations a formal part of their process and support specialist impact managers to achieve scale.
Fanshawe said greenwashing – or “SDG-washing” – had become prevalent, making it more difficult to find “authentic” sustainable investments.
The LGPS pool emphasised the importance of having a due diligence process “that digs deeper into non-financial data and reporting”, as it was “essential… to ensure our clients’ capital does not get diverted into greenwashing strategies purporting to be impactful but with very little substance”.
The pension partnership said it was impressed by Neuberger Berman because of its approach to impact screening as an additional filter for investment opportunities that had already met the manager’s financial screening criteria.
“We believe this not only improves overall risk consideration but hones in on the tangible impact these companies can have and allows the manager to track relevant reporting key performance indicators to prove their thesis using the Sustainability Accounting Standards Board framework,” said Fanshawe.
‘Impact investor buzzword’
Brunel emphasised in its announcement that the Neuberger fund represented “excellent investment opportunities”. The investment was not made to fulfil a specific impact mandate.
Other asset owners have also made commitments “impact” funds, but have been reticent to label themselves impact investors.
Sweden’s AP1, for example, has invested in a private equity fund committed to the SDGs and in a BlackRock Emerging Markets Impact fund, but does not see itself as an impact investor – referring instead to “dedicated sustainable investments”.
“This is a softer, or broader, definition than impact investing, which we are not, cannot be and do not want to be,” Mikael Angberg, CIO at AP1, recently told IPE. “The buzzword ‘impact investor’ risks becoming very binary.”
UK defined contribution fund NEST previously told IPE that impact was at the centre of every asset class decision and fund manager selection it made, but that it shied away from referring to impact investments due to apprehension about watering down the term ‘impact’.
In recent years mainstream institutional investors have become more interested in the environmental and social impacts, or outcomes, of investment activity. This development has been welcomed, but has also triggered a close guarding of the term and practice of ‘impact investing’.