“A Field Guide: Impact Due Diligence and Management for Asset Allocators”
A collaboration between BlueMark and CASE at Duke University, with support from the Tipping Point Fund on Impact Investing
About the Guide: “A Field Guide: Impact Due Diligence and Management for Asset Allocators” aims to drive more rigor and consistency in how asset allocators evaluate and manage private market funds that invest for positive impacts on people and the planet. Developed in 2023 through interviews with 50+ Limited Partners (LPs) and General Partners (GPs) worldwide, along with desk research, this guide draws from the experiences and practices of experienced LPs and GPs investing in diverse strategies. It provides guidance that is broadly applicable across sectors and impact themes based on practitioner wisdom and existing market best practices. It also highlights the blind spots and learning hurdles that newer LPs face when entering the world of impact investing.
How to Use this Guide: The guidance and recommendations in this resource have been designed to help LPs make meaningful investments in funds that are well-positioned to deliver on their impact promises. They are also intended to help LPs monitor their existing fund investments to gauge adherence to their plans and progress toward intended results. Finally, this guide can help LPs align impact management practices with emerging standards and in ways that may lead to increased confidence about portfolio impact performance.
What’s in the Guide
The guide offers tools and tips for allocators during due diligence and as part of their ongoing management of impact funds, as well as potential red flags that could signal a lack of rigor, capacity, and/or intentionality on the part of these managers. The resource also includes practice guides to highlight differences between light and high-touch engagement and taking into consideration a manager’s size, the size of a particular investment, and the manager’s thematic focus.
Practice Guides for LPs on Conducting Diligence and Monitoring GPs
- Easy to follow practice guides covering five key aspects of due diligence and monitoring.
Key Findings from Over 50 Conversations
Uncovered insights and dynamics related to how LPs are currently approaching impact management.
Words of Wisdom from the Field
- Key lessons, quotes, and important thought-starters directly from our interviewees.
Appendix of Resources
- Resources and key terms for impact management, including example due diligence questions for evaluating impact managers.
Words of Wisdom from the Field
Intentions and Actions Need to be Congruent
According to Anna Snider of Bank of America, it’s critical that the GP can easily describe their sustainability or impact objectives, and further describe the actions they will take to demonstrate they are committed to meeting those objectives over time. Kaisa Alavuotunki of Finnfund expressed a similar sentiment, saying that she looks at the centrality of impact in the GP’s investment strategy.
Impact KPIs Should be Attributable to the Impact Thesis
According to Quyen Tran of BlackRock, GPs need to be careful about which KPIs they attribute to their impact thesis and not take credit for all the results of their investee. She gave the example of impact strategies in the industry that invest based on an impact thesis linked to a company’s product or service, such as financial services, but then end up counting carbon emissions reduction by that company as part of the strategy’s impact outcomes. This conflates ESG and impact – progress from a company’s operations related to ESG, and impact from the thesis linked to its actual products and services (health care, financial services, etc.).
Go Beyond Mandated Reporting
Drew Ritchie of BSC said public reporting mandates are helpful leverage in directing GP reporting behavior. That said, he added that you need to analyze contextual, qualitative data to get the full picture and can’t simply rely on published numbers. Several other LPs mentioned they encourage GPs to provide reporting on results over time (i.e., longitudinal data) and at the company-level (i.e., not just fund-level reporting).
Good Impact Monitoring Includes Data Collection and Healthy Communication
Mark Berryman of Caprock explained that, yes, they want to see published impact reports, but It’s more that they are looking for data collection processes and evidence of a healthy communication process between an asset manager and its portfolio companies around impact objectives and performance than a snappy report.
Use of Market-Accepted Tools is a “Green Flag”
Several LPs said that seeing a GP using market-accepted resources for ESG and impact management – like EDCI or OPIM – as a framework for their process is a “green flag.” Tom Mitchell of Cambridge Associates said seeing funds using industry best-practice tools can serve as a proxy for good management.
You Can Have Influence Regardless of Your Role in the Fund
Drew Ritchie of BSC explained that they are much more prescriptive working with a GP on impact management when they are investing early and represent a larger proportion of a fund’s initial close. However, while they are less prescriptive when investing in a larger product where BSC represents a smaller proportion of the funds raised, they still look to engage on impact through reporting and regular dialogue.