Albourne Adds ESG to ODD Process

This article provides high level insights into Sustainability Integration practices from the analysis of Albourne’s Sustainability Integration Scores (“SiQ Scores”) [1] for 1,002 funds across several Hedge Fund and Private Market strategies. OVERVIEW The Albourne SiQ Score seeks to measure the degree of Sustainability Integration in a fund (as reported by the fund manager). Albourne defines Sustainability Integration as the incorporation of financially material sustainability risk considerations into the investment decision making and risk management of a Fund’s investment strategy. Albourne’s SiQ Scoring framework was launched in April 2021. The scoring framework covers three areas: policy and governance, reporting and investment process & monitoring. According to Emlyn Palmer, Head of Sustainable Investing and Partner at Albourne: “Incorporating the SiQ Scoring framework for Sustainability Integration helps encourage managers to not only meet minimum acceptable standards, but to raise industry standards overall.” SCORING METHODOLOGY The SiQ Score is fund-specific and ranges from 0 – 100 (low to high). It is automatically calculated from a fund manager’s (“manager’s”) responses to a proprietary Short Form Questionnaire (“SFQ”) which forms part of the Albourne Sustainability Integration Questionnaire (“SiQ”). The SiQ also includes the PRI Association’s Asset-Owner’s DDQ which must be completed and submitted along with the SFQ for an SiQ Score to be registered. The SFQ’s 15 questions test the fund’s programme for features that Albourne considers to be core elements of sound Sustainability Integration. The questions in the SFQ are closed ended and presented with no default responses; managers or their representatives must select responses which most closely describe the fund. The responses then drive the SiQ Score based on a proprietary scoring matrix. The SFQ also serves as a survey tool which allows Albourne to collect data from managers about their Sustainability Integration practices in relation to a fund. KEY FINDINGS On average Private Markets funds’ SiQ Scores were higher than the average Hedge Fund score: The mean score for Private Market funds was 68 versus 51 for Hedge Funds. The median scores for Private Markets and Hedge Funds were 74 versus 56. Dispersion however was high across and within Hedge Fund strategies whereas Private Market strategies were more tightly clustered around higher averages: Hedge Funds were scattered throughout the full range of SiQ Scores of 0 – 100, with an interquartile range of 60 defined by upper and lower boundaries of 80 and 20 respectively, and a median of 51. In contrast, PM funds clustered much more tightly around their median SiQ Score of 74, with an interquartile range of 28 defined by upper and lower boundaries of 85 and 57 respectively, and a median of 68. This excluded a few outliers in the lower ranges. Investment Process and Monitoring is a key driver of SiQ Scores: High scores by PM funds are underpinned by high integration in investment process & monitoring whereas wide variations across different HF strategies are largely explained by variation in that area. [1] “SiQ” denotes Albourne’s Sustainability Integration Questionnaire which is the broader survey instrument that forms the basis of the SiQ Score. SiQ Scores are only available to clients of Albourne.

As the investment management industry strives to adapt to the increasing momentum of Sustainable Investing, the speed with which ESG-related acronyms appear to be emerging may be disconcerting to many. To help navigate the maze of acronyms, this paper presents a typology of acronyms of organizations or initiatives that aim to contribute to the Sustainable Investing space. UN-Related Organizations and Initiatives - Several of these initiatives have been originated by the United Nations, which, given the organization’s mission, is seen as a first mover in the Sustainability space. Investment Industry Organizations and Collaborations - These have also responded to investor interest in ESG, either by leveraging the existing membership groups or by forming new collaborations with specific objectives. Sustainability Reporting Organizations and Initiatives - Several organizations have been formed to establish standards for sustainability reporting, an area of historical inconsistency in terms of format, depth, and quality of information presented. Climate-Related Organizations and Initiatives - There are also organizations that specifically aim to tackle climate change, although in varying ways. Some may focus on advocacy, others on reporting, while some focus on carbon measurement. Impact-Related Organizations and Tools - Lastly, several organizations aim to establish best practices and create investor tools for impact investing. A non-exhaustive list acronyms falling within these categories are listed in Table 1 below. Please refer to the Glossary at the end for an expansion of the acronyms and links to the organizations and initiatives. Table 1 - Typology of Acronyms Subsequent whitepapers will aim to provide more in-depth discussion on the relevance and application of the various frameworks and tools that have been created by the organizations noted in this paper. GLOSSARY UN-Related Organizations and Initiatives PRI: Principles for Responsible Investment UN SDGs: UN Sustainable Development Goals UNGC: UN Global Compact UNDP’s SDG Impact: United Nations Development Programme’s Sustainable Development Goals Impact UNEPFI: United Nations Environment Programme Finance Initiative NZAOA: UN-convened Net Zero Asset Owner Alliance Investment Industry Organizations and Collaborations ILPA: Institutional Limited Partners Association AIMA: Alternative Investment Management Association SBAI: Standards Board for Alternative Investments CFA Institute: Chartered Financial Analyst Institute The Investor Forum: UK investor collective on stewardship ICGN: International Corporate Governance Network ICSWG and ICSWG (US): Investment Consultants Sustainability Working Group European and US Chapter ESG Data Convergence Project: GPs and LPs collective Diversity Project: Membership organization that initiated the Asset Owner Diversity Charter RIA (Canada): Responsible Investment Association (Canada) RIAA: Responsible Investment Association Australasia GRESB: Global ESG Benchmark for Real Assets Sustainability Reporting Organizations and Initiatives GRI: Global Reporting Initiative SASB: Sustainability Accounting Standards Board IIRC: International Integrated Reporting Council VRF: Value Reporting Foundation IFRS Foundation: International Financial Reporting Standards Foundation ISSB: International Sustainability Standards Board WEF-IBC Initiative: World Economic Forum - International Business Council Initiative Climate-Related Organizations and Initiatives TCFD: Task Force for Climate-Related Financial Disclosures COP26: 26th Conference of the Parties SBTi: Science Based Targets initiative CDP: Climate Disclosure Project CDSB: Climate Disclosure Standards Board GHG Protocol: Greenhouse Gases Protocol IIGCC: Institutional Investors Group on Climate Change IGCC: Investor Group on Climate Change (Australia) AIGCC: Asia Investor Group on Climate Change Ceres Investor Network: North American investor group on climate change NZAMI: Net Zero Asset Managers Initiative iCI: Initiative Climat International ShareAction: Key proponent of Investor Decarbonization Initiative PCAF: Partnership for Carbon Accounting Financials WBCSD: World Business Council for Sustainable Development Impact-Related Organizations and Tools IMP: Impact Management Project GIIN: Global Impact Investing Network IRIS+: Impact Reporting and Investing Standards+ OPIM: Operating Principles for Impact Management B Lab: Beneficial Lab III: Impact Investing Institute PFP: Pensions for Purpose IWA: Impact Weighted Accounts SROI: Social Return on Investment Nesta: UK innovation think-tank Jennifer Kizilbash Galang - April 2022