As we shared in last month’s interview, “Verger’s ESG Evolution: An Interview with Leaders Jim Dunn & Vicki West,” our team’s approach to Environmental, Social and Governance (ESG) is two-pronged. First, Verger considers ESG risks and opportunities within our business operations. Second, the team incorporates ESG information into our unique investment philosophy.
When we sat down with team members to discuss Verger’s thinking around due diligence and building relationships with managers, we found a similar, two-pronged system. The following interview outlines insights from some of the team members involved in the process: Investments Team members Carlie Eubanks, Taylor Jackson, Craig Thomas, and Operations Team member Tricia Walker.
Verger’s Investment Philosophy
It’s no secret that Verger spends a great deal of time interviewing and building relationships with potential managers. The exercise of choosing which managers to invest with, otherwise known as due diligence, moves down two distinct paths. One, we examine a potential manager’s investment process. Two, we review the manager’s team structure and business operations. “We believe that ESG factors are material to our decision making along both of these paths,” Craig noted, when speaking to Verger’s investment philosophy.
While the range of topics under the ESG heading can be broad, some common examples of factors include carbon emissions, employee/stakeholder relations, and Board structure. “Years ago, managers would often respond to our ESG related questions with a focus on governance,” Tricia told us. “More recently, we’ve seen them proactively provide a wide range of information across ESG issues.”
Underlying Managers & ESG Information
The team agreed that the select group of managers they choose to spend time with have become much more proactive in sharing their ESG outlooks. For example, they often volunteer their views on which ESG factors are material to their investments and how this impacts their decision making. “At this point, it’s a red flag for us if managers aren’t addressing ESG risks and opportunities up front in their introductory presentations,” Carlie said.
Craig expressed a similar sentiment: “When managers discuss their underwriting process, we often see them point to specific ESG data or metrics they use to assess companies. The consensus among managers seems to be that if you’re ignoring ESG information, you’re potentially putting yourself at risk.”
“It’s all about competitive edge,” Taylor added. “We want to know what sources of information a manager uses to gain that edge.” The team pointed out that managers often will highlight the specific types or sources of ESG information they are using, and this can provide even further insight into the investment process. “We see it as a window into how they might be using information differently or more effectively than their competitors,” Craig added.
Underlying Managers & Business Operations
Repeatedly our team stressed the importance of culture. The idea is that Verger is investing in a manager’s business and their team – not simply their investment strategy.
“We collect a wide range of operational information from our managers as part of our routine due diligence— from their compliance policies and procedures to their ESG policies and procedures,” Tricia told us. “It’s important for us to figure out if the items on paper line up with the experience our team is having in building an ongoing relationship.”
Our team members each pointed out that diversity within all departments of a manager’s firm is an important contributor to long-term success. “We believe that diversity of thought leads to better investment ideas,” Craig noted. The Verger team looks for diversity within a manager team across demographics including, but not limited to, age, education, work experience, gender, and race/ethnicity.
“The best teams usually consist of a wide range of individuals, each with a unique outlook and perspective,” Carlie shared. “We make a point of asking any manager that is lagging behind in this space about their plans for the future,” Taylor added.
Engaging with Underlying Managers
As outlined in our Whitepaper, Investing in the Lives of Others: A Strategy for ESG Engagement, the Verger team has developed a dialogue with our managers that focuses on improving mutual ESG outcomes over time. The paper points out that it is an ever evolving process – one we are continually refining and adjusting.
“The engagement and continued relationship building process is particularly important to our philosophy,” Carlie noted. “Especially since we have a track record of investing with emerging managers and first-time funds.”
“Recently, we initiated a discussion about ESG policies with one of our new managers. They are small – a team of three – and are looking to implement best practices as they grow,” Craig shared. “They asked us for our input, and our thoughts on what we were seeing in the industry and with their peers. It was a great moment for collaboration and knowledge transfer.”
Our team also highlighted a collaborative relationship with one manager where Verger sits on the Limited Partner Advisory Board. “We appreciate this opportunity for knowledge sharing and have come away from the relationship with concrete learnings around leadership culture and communication of purpose,” Craig noted. The team agreed – at successful start-up companies and at Verger, there’s a common thread of rallying around a set of core values.
Other examples of engagement topics include opportunities around Diversity, Equity, and Inclusion (DEI) practices. “We see some great examples amongst our leading managers in terms of fostering an inclusive team environment,” Taylor noted.
The team members highlighted Verger’s participation in the Institutional Allocators for Diversity Equity & Inclusion (IADEI) consortium, our partnership with HBCUvc, and the ongoing activities of the Verger Women’s Leadership Initiative. They explained that we have begun building an ecosystem that can work to identify and limit bias and can support DEI advancements at Verger and at our managers’ firms.
An Ever Evolving Philosophy
Our team echoed thoughts shared in last month’s interview with Jim Dunn and Vicki West. “As leadership pointed out, we all view our ESG approach as the evolving product of continued learning and growth,” Taylor said. “We are humble,” Craig agreed. “And we’re hungry to continue seeking out and aligning with best practices in the industry.”
As noted in the last month’s interview, Verger is nearing the two-year anniversary of the formation of our ESG Task Force. The Task Force is continuing its work with Verger leadership and staff to formally communicate how ESG factors fit into our investment philosophy. It will also help establish a long-term, proactive approach to responsibility managing ESG risks and opportunities in our investment portfolio, as well as our business operations.
“Our ESG engagement strategy will continue to be a big part of formalizing our approach within the investment portfolio,” Carlie noted. “We form long-term partnerships with our managers, and a dialogue about improving mutual ESG outcomes is part of that.”
“There’s a great deal we can learn from our managers about business operations and team building,” Tricia added. “And similarly, we have knowledge we can share with them.” The team agreed and noted that managers often point out the unique nature of Verger’s mission-driven approach and philosophy in the investment allocator space.
Indeed, Verger’s mission will guide us as we continue to evolve our philosophy, our ESG approach, and home in on opportunities for growth and change. We’re up for the challenge. And we’re not alone – we have a great network of manager, client, and industry peers who are similarly committed to evolving in this space.