Driving positive change in sustainability amidst challenges | Q&A with Alpha Associates and HPE Growth

Q&A with Natasha Franks, Head of Natasha Franks, Head of Client Reporting at Alpha Associates and Ayoni Guda, Head of ESG & Compliance Officer, HPE Growth

| Four years after introducing the Green Deal, what significant achievements in sustainability and ESG has your investment organization made, and how do you measure the impact of these initiatives?

Natasha Franks: I’m happy to say that Alpha Associates has been an early adopter of ESG practices. We first began integrating ESG considerations into our investment process in 2007, and we have consistently received a 5-star UN PRI rating since becoming a signatory in 2018. To narrow it down to just the past 4 years, we have launched an annual ESG reporting survey in partnership with Reporting21. This initiative seeks to improve transparency across our portfolio while also pushing our managers to improve their ESG performance year-on-year. Additionally, we’ve committed to tracking and offsetting our own carbon emissions. Notably, we achieved a 57% reduction in CO2 emissions from business flights in 2022 compared to those taken in 2019 (i.e. a typical year of pre-pandemic travel).

Ayoni Guda: What we consider one of the most significant achievements with respect to sustainability and ESG has been B Corp certification in December 2022. B Corps are a group of purpose-driven organizations who are on a mission to use their business as a force for good. Receiving a B Corp certification is a recognition of HPE’s ongoing efforts to balance profit and purpose with a verified and trusted standard. This marks the continuation of our journey as a responsible investor. We are now preparing for the B Corp re-certification process due in June 2025. To maintain the certification, B Corps need to improve their scoring of the B Corp Impact assessment. We are adopting a thematic approach to initiating projects to improve our scoring, with initiatives focused on environmental stewardship and climate change, inclusion & diversity, employee health & wellbeing and corporate giving.

Another significant achievement has been the launch of our very first impact product in 2023 that is focused on digital technology investments contributing in the fight against climate change: HPE Growth Digital Climate Fund (DCF). For us the DCF is a next iteration in our journey of using our business as a force for good. In further brainstorming what good means for us, and seeing the environmental and social issues going on globally, we have decided to offer a product that has a full environmental focus that is targeting the fight against climate change. Measuring impact of this product will be done based on the impact framework created for the fund.

With respect to our portfolio companies, we have updated our ESG strategy which is translated into an ESG framework to better align with our mission and purpose. As a result of applying our new framework and approach, now 90% of our portfolio companies measure their carbon footprint and have set sustainability targets. Impact is measured through our continuous monitoring and reporting process where we collect information from our portfolio companies and engage with them for the purpose of defining whether progress is being made on set targets.

These achievements are a result of an evolving journey that started way before the Green Deal was introduced. It started with become a signatory to the UN PRI in 2009 and incorporating the principles for responsible investment in our investment process. Then we launched our first ESG reporting and started including ESG considerations in investment documentation. Driven by our Management Team, in 2019, we applied for B Corp certification and became B Corp certified in 2022.

| Can you discuss the progress and challenges your organization has faced in implementing sustainability strategies, and what measures have you taken to overcome them?

Natasha Franks: We’ve significantly advanced our sustainability reporting and monitoring mechanisms, not only through our annual ESG reporting survey but also through the creation of our proprietary impact monitoring tool, which is designed to monitor and analyse impact-related KPIs across our portfolio. Programmed in-house, our tool leverages powerful machine learning models and analytical capabilities, which will allow our monitoring to evolve alongside the portfolio and market environment. An ongoing challenge is data collection and validation, particularly when dealing with sectors or asset classes with traditionally lower sustainability-related transparency. It’s critical to manage stakeholder expectations regarding the pace at which private markets managers can receive and interpret in-depth ESG data: better to do it slowly, alongside the changing regulatory landscape, than to rush into it and establish a weak foundation for future analysis.

Ayoni Guda: One of the main challenges we see is the increased number of (EU) regulations issued over the last couple of years around sustainability reporting, e.g. SFDR. While we support the aim of the regulations to combat greenwashing and to provide for more uniformity and consistency in sustainability reporting, new rules and regulations are complex to navigate. Also the SFDR  comes with a variety of disclosure and reporting requirements depending on the classification of a fund which leads to the challenge in getting the right data.

Another challenge we see in the market is the variety of frameworks, methods, approaches, metrics, tools, etc. being implemented / adopted. The different variances makes it difficult to leverage data collection and reporting for multiple purposes so that more resources can be allocated on other sustainability initiatives. In updating our framework, we improved alignment with internationally recognized standards, e.g., by becoming a member of the ESG Data Convergence Initiative (EDCI) and have implemented the metrics from EDCI and SFDR (PAI)  in our efforts to play an active role in setting the standard in uniform and consistent reporting.

| Considering your organization’s journey towards ESG integration, which ESG approach or framework has proven most successful in driving positive outcomes and generating value?

Natasha Franks: We’ve found success by focusing on clear, transparent communication with our fund managers and investors. Engaging with stakeholders from both sides of the spectrum allows us to develop a comprehensive understanding of each group’s needs and motivations. We continuously monitor market trends and regulatory changes to align with industry best practices, while also collaborating with expert partners in the impact space to enhance our capabilities. As mentioned, we have been a UN PRI signatory since 2018, and so adhere to all the associated frameworks that accompany this status. Our impact fund-of-funds is classified as SFDR Article 9, aiming to serve as a turnkey solution for investors seeking to enter the impact space and gain exposure to a diverse array of impact funds.

Ayoni Guda: Through applying our updated framework and engagement approach, we have seen increased awareness through reporting on ESG and sustainability matters at the level of our portfolio companies and ESG being put higher on the agenda. We see portfolio companies creating business cases to implement sustainability in their organization ranging from lowering GHG emissions with also the benefit of achieving cost reduction to improving employee motivation by launching summer Fridays off without affecting pay resulting in employee productivity uplift. Ultimately, improving quality of the investments which should lead to better performance.