Organizations have an impact not just through their outcomes but also through their operational practices. Thus, in Rally Funds we examine how companies and product issuers operate, build their teams and manage their products.
For public equities, we use the materiality map from the Sustainability Accounting Standards Board (SASB) and Bloomberg’s ESG scores to supplement research. SASB’s materiality map identifies likely material sustainability issues on an industry-by-industry basis. Bloomberg provides a rating for Environment, Social and Governance practices of publicly listed companies using its proprietary framework. Bloomberg picks the most critical aspects under each pillar to score companies, and classifies companies as ‘leading or ‘lagging’ compared to peers (for E and S the peer is sector specific, for G it is country specific). We aim for a portfolio that is leading its peers.
For private products, we use in-house assessment tools to collect, analyze and monitor practices. We examine each private product issuer’s operations (answers to 51 questions) across five key dimensions:
- Impact Measurement Strategies
- Diversity
- Positive Employment
- Environment and Equality Practices
- Environmental and Social Considerations
- Indigenous Reconciliation Practices
2023 Overview
The following charts show that in 2023:
- Company and product issuers were operating in ways that support sustainability and equity
- RTIF private fund managers continued to have good operational scores overall
- RGEIF (and public equities within RTIF) are leading their peers in terms of ESG. Based on Bloomberg’s ratings, Between 68% and 76% of holdings are classified as ‘leading’ among their peers in their ESG practices.
RGEIF (and RTIF Public Equities) ESG Leaders
RTIF Operational Practice (excluding public equities) (equal weight)
Diversity
Examining diversity in the investment sector is critical. Research shows that asset managers and investors often invest in product issuers who are ‘like them’ and that there are current gender and ethnic biases in the sector. Evidence indicates that women and ethnically diverse founders receive a massively disproportionally small fraction of capital investments.
The 50-30 Challenge is a Government of Canada initiative to encourage companies to meet the challenge of having diverse representation on decision-making bodies:
- Challenge 1: 50% representation of women and non-binary people
- Challenge 2: 30% representation from members of other equity-deserving groups (defined by the Government of Canada as racialized people, Black people, people of colour, people with disabilities, 2SLGBTQ+, gender and sexually diverse people and Indigenous peoples.)
Challenge 1: 50% Representation of Women and Non-binary People
Through engagement with private investments and public debt holdings in RTIF we learn if holdings are meeting Challenge 1; through external third-party software, we learn if public equity holdings are. The low representation, from public equities in particular, is unsurprising and in line with results from wider surveys of public companies; the disappointing results point to the need for equity initiatives like the 50-30 Challenge.
RGEIF
20% of holdings have at least 50% representation on their Board of Directors of women or non-binary people
RTIF
Challenge 2: 30% Representation From Members of Other Equity-deserving Groups
RGEIF
A sampling of the Top 10 public equity holdings in 2023, as reported by the holdings:
- Ameresco: 12% of managers are people from equity-deserving groups
- American Tower: 33% of the directors on the Board are people from equity-deserving groups
- Healthpeak Properties: 40% of managers are people from equity-deserving groups
- Teladoc Health: 22% of board of directors, 26% of senior leadership are from racial or ethnic minority groups
- Xylem: In the US, 21% of leadership positions are held by people from equity-deserving groups
RTIF
Experience
The investment sector is dominated by large established product issuers. With our interest in supporting systems change, we aim to support new or smaller product issuers in order to diversify the sector and increase and diversify the investable strategies in the market, since tackling complex challenges like climate change and inequity require a multi-pronged approach.
This chart shows the experience level of product issuers at the time we invested in their products, whether ‘first time’, ’emerging’ or ‘established.’
Classifications are based on a product issuer’s team, track record and strategy. We classify a product issuer as emerging if it has some experience but its products or operations aren’t sufficiently matured to classify as established. A typical emerging manager has 1-2 products under management, a team that has worked together in a prior fund, some track record of investing and may have made a couple of early exits in a prior fund.
Who we invest in is critical. As part of a growing movement in the sector, we are intentionally seeking to disrupt dated models of capital allocation and risk assessment. We look beyond just track record to consider a wider and more diverse group of first-time managers.
| RTIF Product Issuers | Experience Level at Time of RTIF Investment |
|---|---|
| AiiM Partners | First-time product issuer |
| Alante Capital | First-time product issuer |
| Area One Farms | Established |
| Aristata Capital | First-time product issuer |
| Cross-Border Impact Ventures | First-time product issuer |
| Deetken Impact | Emerging |
| Raven Indigenous Capital Partners | First-time product issuer, when we invested in Fund I (Emerging when we invested in Fund II) |
Tables and charts in this report represent a snapshot of fund investments as of December 31, 2023; investments may change over time. This document is for informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of securities. The information contained herein is in summary form for convenience of presentation. Read more important information about this report here.