Hamilton Lane has maintained an internal environmental, social and governance policy for over a decade and has been a signatory of the UN PRI since 2008. But until this summer, no one person was tasked with leading its various initiatives.
Enter Paul Yett, a 23-year Hamilton Lane veteran who’s worn a number of hats at the firm and is in the perfect position to help formally begin the firm’s ESG integration.
We caught up with Yett to discuss turning the firm’s inward-facing ESG processes outward toward clients, the inevitability of ESG regulation in the US and more.
What has beginning this role from scratch looked like so far?
At Hamilton Lane, we’ve been focused on ESG for well over a decade now, with ESG considerations factored in at every turn. For example, we’ve been issuing an ESG questionnaire as part of our due diligence process for more than 10 years.
We’ve had a formal Responsible Investment Committee since 2012, and each of our investment teams also factors ESG considerations into their investment processes. By stepping into this role, I’m bringing all of those parts together to create more cohesion, consistency and centralization.
I’m also focused on continuing to work with and understand our clients’ unique needs and considerations. Historically, many of the clients I have worked with were based in North America, but since I’ve taken on this role, I’ve talked to clients all over the globe about the types of things that they’re focused on, which for many LPs outside of North America is predominantly the ‘E.’ Across the industry, investors in this asset class are also keenly focused on the ‘G’ – because it all starts with good governance.
How do you feel about the prospect of ESG regulation?
It’s inevitable and it will happen. If I think about Hamilton Lane’s own evolution, the United Nations PRI was formed in 2005-06 and we became an early signatory, in 2008.
This has been a long-term focus for us, working with external organizations on how to invest responsibly. Again, for the asset class, some level of regulation and consistency is inevitable and will come about, but I don’t know if we’re quite there yet.
Do you feel EU ESG regulation will make its way across the Atlantic or some other form of regulation/best practices will emerge?
I do think that increased regulation will happen, and will be a natural outflow from the increasingly ubiquitous conversations in North America around ESG. Hamilton Lane has a strong presence in Western Europe, where client demands around ESG and responsible investing are not ‘nice to have’ ancillary benefits, but absolute must-haves. That sentiment is making its way across the Atlantic.
For example, we have a client in Australia who expressed a zero tolerance for exposure to oil and gas investments, even if it’s a very small percentage of a portfolio. That’s in their bylaws and investment mandates, and I just think that along those lines, investors and even regulators and governments are increasingly going to take stands and make definitive statements around these types of issues. This was the evolution in places like Australia and Europe over the past decade, and it’s coming to North America as well.
Do you see ESG moving past the dimension of just being a risk mitigator?
I wholeheartedly believe ESG is a risk mitigator, and I think you need to look at each of the factors of the E, S and G, whether you’re investing in an asset directly, or through a secondary or a fund structure. All of that absolutely mitigates risk.
But I also think ESG factors are opportunity creators. For example, certain parts of the ‘E,’ in particular within areas like renewables and infrastructure – if you look at it through that lens, and have a sense for where the puck is heading, you’ll be able to identify specific and attractive investment opportunities. So, risk mitigant is the must-have part, but viewing investments through an ESG lens also affords some very interesting forward-looking opportunities.
This article first appeared in affiliate publication Private Funds CFO