At Adams Street we believe that the integration of Environmental, Social, and Governance (ESG) factors in investment decision making can have a positive impact on performance by helping to mitigate investment risk.
Our commitment to ESG integration is further demonstrated by our participation in industry-wide initiatives. We became a signatory to the Principles for Responsible Investment (PRI) in 2010, and the Task Force on Climate-Related Financial Disclosures (TCFD) in 2020.
Most recently, Adams Street signed up to Initiative Climat International (iC International), which seeks to harmonize action on climate risk in private markets, and the ESG Data Convergence Initiative, which aims to standardize and promote ESG reporting and benchmarking in private equity portfolios. This directly supports our efforts to improve ESG transparency in private markets.
As part of our commitment to develop and maintain best-in-class ESG practices, we also updated our ESG Policy in 2022 to codify our investment beliefs and commitments with respect to a range of ESG topics that we are often asked to clarify. The ESG Policy also defines our oversight and accountability protocols for ESG integration and investing responsibly.
Importantly, Adams Street also recently appointed Yohan Hill as Director of ESG and Responsible Investing. Yohan coordinates our firmwide ESG initiatives in close collaboration with our wider ESG Committee.
Third-party relationships are also key to enhancing our ESG data, analysis and reporting capabilities. A partnership with Apex ESG Ratings & Advisory services is designed to allow us to collect and analyze ESG data from primary managers within our portfolio, improving ESG benchmarking and engagement with our active GPs.
The review of third-party ESG data is an important component of our investment diligence process that also includes our own analysis and assessment of relevant ESG considerations. Our process considers ESG factors in pre-investment due diligence of potential opportunities, including the manager’s or company’s ESG attributes, and industry- and country-specific ESG risks.
The identification of these factors is supported by a proprietary pre-investment ESG Checklist workflow tool. The tool was created to provide a consistent view of financially material ESG topics across our deal flow, helping to inform our investment decision-making process.
Adams Street is committed to providing more transparency to our investors and wider stakeholders on our ESG program, our ongoing progress, and the impact of our investments on society and the environment.
Our inaugural ESG Report illustrates the steps we are taking to enhance the level and depth of ESG data that we are compiling and reviewing.
We are deeply committed to our ESG initiatives and look forward to further updating you on our ongoing evolution in this critical field.
– Jeff Diehl, Managing Partner & Head of Investments, Adams Street Partners
ESG Committee
Adams Street has a dedicated ESG Committee which meets quarterly and oversees ESG integration. The committee includes representatives from each of our firm’s investment teams and each of the key geographies in which we invest.
Firm Overview
Adams Street has been recognized as one of the most respected and experienced private markets investment managers in the industry.
Adams Street has focused exclusively on private markets investment management since the firm’s founding in 1972. Adams Street manages assets for institutional investors, including corporate and public pensions, foundations, family offices, and endowments. Our deep industry experience and global insights provide clients with customized access to the spectrum of private markets strategies. Adams Street has 12 offices located in Austin, Beijing, Boston, Chicago, London, Menlo Park, Munich, New York, Seoul, Singapore, Sydney, and Tokyo.
ESG & Our Investment Process
Adams Street has remained focused on generating attractive returns by making investments that allow companies to grow, create jobs, and build wealth since our founding in 1972.4
We believe a commitment to investing responsibly is integral to those responsibilities. As such, ESG considerations are intrinsic to our investment and operational processes. Quantitative insights drawn from ESG data should enhance our ability to create opportunities to drive positive change. In the early days of the pandemic, unprecedented levels of fiscal and monetary support helped stabilize markets, which enabled many companies to accelerate and lean into an innovation supercycle that is being driven by the decades-long digital transformation of the global economy.
GREATER TRANSPARENCY
Provide data-driven insights on our ESG practices and the ESG attributes of our investment portfolio
ENGAGE WITH GPs
Encourage continual improvement and alignment with ESG best practice among our active GPs
MANAGE REPUTATIONAL RISK
Conduct systematic pre-investment screening of new investment opportunities and post-investment monitoring of underlying portfolio companies for any severe ESG incidents
MINIMIZE POTENTIALLY ADVERSE IMPACTS
Evaluate material ESG risks as part of our investment decision making process and interactions with GPs and portfolio companies
DEVELOP IMPACT INVESTMENT STRATEGIES
Design and implement strategies that can credibly deliver positive outcomes for society and the environment in line with the ESG and impact objectives of our clients
INDUSTRY-WIDE ESG INITIATIVES
Work collaboratively with industry peers towards improving ESG standards in private markets
Supporting Industry Organizations Promoting ESG-Related Initiatives5
Every investment decision Adams Street makes is based on a careful analysis of both risk and opportunity. By integrating ESG considerations at every stage of the investment life cycle — from deal sourcing, through investment due diligence, to portfolio construction, and reporting and monitoring — we can better identify opportunities for risk mitigation and long-term value creation in our investments.
Investment Life Cycle6
ESG Oversight & Accountability
Responsibility for implementing Adams Street’s ESG Policy commitments is shared widely, with cross-functional oversight for our firm-wide initiatives and investment team-level accountability for ESG integration.
ESG COMMITEE
Firm-Wide ESG Integration
Priorities & Progress
Adams Street has made considerable progress in ESG integration in recent years. We continue working to enhance policies and processes and strive to optimize our commitment to investing responsibly and to ensure ESG factors are assessed at every stage of the investment process.
CURRENT AREAS OF FOCUS8
2022 Private Equity Wire ESG AAA European Awards3,*
Top-Down Analysis
To gauge the relative importance of ESG topics to our underlying investments, Adams Street assessed the perceived exposure of portfolio companies held in recent vintages of the Global Fund Program9 to the 26 General Issue Categories identified by the SASB Standards for their respective industries.10
The resulting heatmap provides a starting point for identifying ESG topics that are likely to help us better understand the ESG priorities for the sectors we invest in. The top three topics identified based on our analysis include:
EMPLOYEE ENGAGEMENT, DIVERSITY & INCLUSION
Addressing a company’s management of culture, recruitment and promotion practices to build a diverse and inclusive workforce
DATA SECURITY
Addressing a company’s management of risks associated with the collection, retention and use of sensitive customer information
ENERGY MANAGEMENT
Addressing a company’s management of energy in manufacturing and/or provision of products and services
Adams Street ESG Heatmap10
GP Engagement
General Partner engagement is our primary lever for influencing ESG outcomes in our underlying portfolio. Our annual survey of more than 200 GPs globally provides invaluable insights into ESG trends and attributes. The data helps to inform our analysis of new investment opportunities, our assessment of overall manager ESG ratings, and promotes improved ESG reporting and monitoring to LPs over time.
“Institutional investors are increasingly seeking to take that next step and make investments that have a measureable positive impact, rather than just providing a negative screen.”
– Miguel Gonzalo, CFA, Partner & Head of Investment Strategy and Risk Management, Adams Street Partners
Highlighted Findings from Adams Street’s Annual ESG Survey
Quantifying Carbon Exposure
Understanding carbon exposure can be a useful starting point for assessing climate-related risks and opportunities within investment portfolios.
We support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are committed to providing greater transparency on our exposure to climate-related risks and opportunities in our underlying investments.
In June 2022, Adams Street published Quantifying Exposure to Carbon-Intensive Industries in Private Equity Portfolios; read our insight >
The chart at the right is our estimation of the Weighted Average Carbon Intensity of four recent vintage years of the Global Fund Program9, using estimation factors derived from public markets proxy data, which suggests that the Global Fund Program’s exposure to carbon-intensive industries is less than half that of the S&P Global LargeMidCap Index, which we believe is a comparable public market benchmark. This is mainly due to relatively higher exposure to information technology and health care, and relatively lower exposure to energy, materials and utilities.
Quantifying Carbon Exposure within our Global Fund Program9
Corporate Governance
Adams Street believes that good governance produces superior financial returns as well as better outcomes for society as a whole. An overwhelming majority of respondents to the 2022 Adams Street Global Investor Survey of LPs said that private companies better align executive incentives with innovation, long-term shareholder value creation and job growth. Survey participants were bullish about the ability of private markets to continue to outperform their public market peers over the long term.
“A constant edge of private markets is better governance and alignment between management incentives and shareholder interests. Public company boards have to devote considerable resources to the many essential requirements of being a public company that unfortunately have little to do with generating long-term shareholder value”
– Jeffrey Diehl, Managing Partner & Head of Investments, Adams Street Partners
2022 Adams Street Global Investor Survey Highlights
Diversity, Equity & Inclusion
Adams Street is committed to increasing diversity internally and throughout the financial markets through enhanced access, contributions to educational initiatives, and staff outreach opportunities.
Adams Street goes further than implementing Diversity, Equity, and Inclusion (DEI) policies and practices internally. We also actively aim to be a leader in the private markets industry seeking to invest in companies that understand our DEI goals and embrace best practices.13
INCLUSIVE, DIVERSE CULTURE
INDUSTRY LEADERSHIP
ENCOURAGING DEI AT PORTFOLIO COMPANIES
Disclosures / Important Notes
1. As of June 30, 2022. Firmwide AUM does not include the more recent private credit closings or private credit leverage which may be discussed herein or is available upon request.
2. The content “Our Commitment to Responsible Investing” represent Adams Street’s aspirational goals and there can be no assurance that such goals will be achieved.
3. Adams Street has not historically managed vehicles with an impact investment mandate unless part of a client’s individual mandate; rather, Adams Street’s consideration of ESG factors has been part of its investment process, which also includes consideration of a range of other factors including those relevant to an investment’s risk/return profile.
4. There can be no guarantee against a loss, including a complete loss, of capital.
5. Certain organizations and their trademarks are included herein to which Adams Street is a signatory, has guiding principles to which Adams Street aims to adhere, or which Adams Street otherwise looks to and/or supports with regard to various ESG standards. Inclusion does not indicate that such organizations have endorsed Adams Street, nor a guarantee that Adams Street will take any particular action with regard to ESG issues. The level of diligence and/or oversight performed prior, or subsequent to, making an investment is performed in Adams Street’s discretion, including, but not limited to factors, such as the relationship with the GP and the relative size of the investment.
6. The summary of Adams Street’s current process with respect to ESG-related diligence and monitoring is provided for illustrative purposes only, is subject to change and there can be no guarantee that all investments will undergo each of the investment steps described above. While Adams Street considers broad ESG factors in its risk analysis and investment processes, the firm does not directly consider “adverse impacts of investment decisions on sustainability factors” as contemplated by European Union Regulation 2019/2088 at this time. Adams Street may adopt further measures which take into account adverse impacts of investment decisions in this context
7. Adams Street has contracted with RepRisk, an ESG research provider whose coverage includes private companies.
8. Represents Adams Street current focus areas and anticipated activities, which are aspirational in nature, are subject to change and further provided that there can be no guarantee that (i) Adams Street will be able to achieve any particular timing related to the completion of such activities, or (ii) Adams Street will ultimately be successful in engaging in such activities or achieving such objectives.
9. Adams Street first implemented the Global Fund Program in 1996. The Global Fund Program is a highly diversified global portfolio that incorporates some of the top-performing ideas across each of Adams Street’s strategies.
10. Analysis performed as of June 30, 2022. This analysis represents a limited universe of Adams Street portfolios and the results of such analysis would differ across different strategies or portfolios.
11. Assessment of “ESG Leading Managers” and “ESG Lagging Managers” represents Adams Street views and opinions based on industry research, survey responses and other factors as determined in its sole discretion as of October 2022 and is subject to change.
12. Certain organizations and their trademarks are included herein to which Adams Street is a signatory, has guiding principles to which Adams Street aims to adhere, or which Adams Street otherwise looks to and/or supports with regard to various DE&I initiatives. Inclusion does not indicate that such organizations have endorsed Adams Street, nor a guarantee that Adams Street will take any particular action with regard to DE&I issues.
13. As of May 2022. Represents Adams Street’s objectives with respect to DE&I efforts as of the date referenced; however, there can be no guarantee
that such objectives will be achieved and are subject to change.
14. “Diverse Backgrounds” defined as representing professionals of color.
Important Considerations: This information (the “Paper”) is provided for educational purposes only and is not investment advice or an offer or sale of any security or investment product or investment advice. Offerings are made only pursuant to a private offering memorandum containing important information. Statements in this Paper are made as of the date of this Paper unless stated otherwise, and there is no implication that the information contained herein is correct as of any time subsequent to such date. All information has been obtained from sources believed to be reliable and current, but accuracy cannot be guaranteed. References herein to specific sectors, companies, or investments are not to be considered a recommendation or solicitation for any such sector, company, or investment. Past performance is not a guarantee of future results. Projections or forward-looking statements contained in the Paper are only estimates of future results or events that are based upon assumptions made at the time such projections or statements were developed or made. There can be no assurance that the results set forth in the projections or the events predicted will be attained, and actual results may be significantly different from the projections. Also, general economic factors, which are not predictable, can have a material impact on the reliability of projections or forward-looking statements.
In June 2022, Adams Street published Quantifying Exposure to Carbon-Intensive Industries in Private Equity Portfolios;