Environmental Finance: The billion-dollar funds that have changed impact investing
Delilah Rothenberg, co-founder and executive director of the Predistribution Initiative, which was launched in 2019 with the aim to promote workers and communities in investment structures, tells Environmental Finance that in her previous work in private markets fund management she noticed that “a lot of the mega fund managers had practices that were undermining their stated ESG and impact goals”.
“I was looking at how we could help workers in our portfolio companies build wealth: can we pay them a living wage, can we give the workers a stake in the equity of the portfolio company that they work for?
“Relative wealth really matters and when you think about the SDGs and you go to these responsible investment conferences and see these general partners talk about embracing the SDGs, SDG 10 is focused on addressing inequality.”
She said top executives at large private equity companies could earn upwards of $100 million per year. Private equity in general – and impact investors in particular – should better link executive remuneration with the financial success of portfolio company employees, she said.
“I think it’s great that these big fund managers are coming up with impact strategies and ESG management systems, but they’re not really addressing many of the issues that we see come up with a systemic or in a systematic way.
“When I worked in the industry, I thought we were doing great work. And I think that is probably the case for most people who work in the industry in these [impact] roles. These firms are well intentioned.
“However, most of these private equity firms are focused on portfolio company operations. There are some issues at fund manager level that are starting to get a lot of attention in the impact investing space, like diversity, equity and inclusion at the fund manager level… but I would say that for the most part, there’s a lack of understanding of how investment structure can support or inhibit portfolio companies from operating responsibly.
“There is a lack of stakeholder voice that informs the governance and operations of portfolio companies and most fund managers are still missing grievance mechanisms at fund manager level as well as the portfolio company level. A lot of them are not too enthusiastic about collective bargaining and freedom of association among the workers in portfolio companies.
“It’s really hard to have a responsible investment strategy when you’re coming up with that definition of responsibility yourself and not consulting with other stakeholders. The stakeholder engagement component is very much missing.”