The Growing Momentum Of Impact, Sustainable Investment - There's More To Come, Says UBS

Tom Burroughes Group Editor 11 September 2017

The Growing Momentum Of Impact, Sustainable Investment - There's More To Come, Says UBS

A number of news stories came together to underline how sustainable and impact investing ideas are no longer niche areas. The world's largest wealth manager has set out its own credentials in the space.

Sustainable investing surged in total value to account for about $22 trillion of all investment worldwide for 2016, up from $12 billion in 2012, UBS said in a conference on the same day it announced that it has been lauded for its own performance in a sustainability index.

At UBS alone, sustainable investment volumes amount to more than $1 trillion at the end of the first half of this year, representing about a third of all the assets the Swiss bank oversees.

Sustainable investing, a term that can cover screening out firms because they don’t pass some sort of ethical/social/environmental test, or the deliberate holding of firms deemed to be “good” in some way, also includes the more recent phenomenon of “impact investing”.

“When you engage clients through the demonstrable returns and impact, it is very powerful and inspirational,” James Gifford, senior impact investing specialist, UBS Wealth Management, told a conference attended by staff from the firm and media representatives.

Impact investing is a term applied to when money is put to work to bring about certain outcomes – such as cuts in criminal re-offending rates, illiteracy or pollution – in addition to generating a financial return. There is debate on whether impact investing can match, or even beat, traditional approaches to money management; as the approach is put to work over time, it is hoped that more data will emerge to allow investors to compile benchmarks of performance. Impact investing is a relatively young field and not yet tested by a major recession.

According to a recent survey of US asset managers by Cerulli Associates, the analytics firm, a rising percentage of asset managers look at environmental, social and governance factors alongside more traditional financial tests to identify opportunities and risks. And a recent report by Boston Consulting Group and MITSloan Management Review found that investments that deliver financial results are closely correlated with those that are deemed sustainable (Investing For A Sustainable Future, 11 May 2016). Separately, a study by Barclays found that investment-grade bonds with higher ESG scores outperformed those with low ESG scores between 2007 and 2015 (source: MSCI). Impact investing has a way to go in terms of size, but the amounts are already large. There are $60 billion of impact investing assets under management, and $12.2 billion of fresh investment was expected to be put in place last year, according to the Global Impact Investing Network, a forum for the sector. One forecast has impact investing AuM topping $3 trillion over the next decade.

The profile of impact investing got another boost late last week when the International Committee of the Red Cross set up what it called the world’s first “Humanitarian Impact Bond” to transform the way vital services for people with disabilities are financed in conflict-hit countries. The bond raised SFr26 million ($27.4 million); it will be used to build and run three new physical rehabilitation centres in Africa (Nigeria, Mali and Democratic Republic of Congo) over a five-year period, providing services for thousands of people. The payment-by-results programme also includes the necessary training for the new staff as well as the testing and implementation of new efficiency initiatives. (For more on impact bonds, see here.)

The surge of interest in impact investing has drawn concerns, however, that some of the original focus on specific outcomes could be diluted if big-money investors pile into an area seen as fashionable. (For more on such thoughts, see here.)

High praise
At the UBS conference, senior bank figures from Switzerland, the US and UK linked up by video to discuss issues around sustainability and the role of wealth management. The event coincided with news that UBS was ranked as industry group leader in the Diversified Financials Industry Group by the Dow Jones Sustainability Index (DJSI). Sustainable investment specialist RobecoSAM, which evaluates companies' sustainability practices and rates their performance for the DJSI, commented: "[UBS] offers a large choice of sustainable investment solutions to its clients, such as impact funds, long-term theme funds, renewable energy and cleantech financing, green bonds, eco-mortgages, or energy check-ups for SMEs. In 2016 for example, its impact investment business increased 228 per cent compared to 2015."

Asked about data and methodology around sustainable investing, Michael Baldinger, head of sustainable and impact Investing, UBS Asset Management, said that the industry had for a while had been affected by how the vogue for socially responsible investing (SRI) had encouraged people to focus on excluding certain companies and sectors. The problem with this is that it dragged down returns, which did not help the case for sustainability. New approaches, such as impact investing, change the dynamic entirely, and are much more positive, he said. 

His colleague, James Gifford, said impact investing applied to a variety of fields, such as self-labelled funds – about 400 in the world at the moment – as well as renewable energy investments of various kinds, and sectors such as healthcare in developing countries. 

UBS has been pushing its credentials as an agenda-setting wealth manager in recent days. A few days ago, the Zurich-listed lender collected Nobel Laureates in Economic Sciences to Singapore in the first leg of its global Nobel Perspectives Live! Programme. More than 1,000 university students attended "Global trends that shape the world " event which featured four Nobel Prize laureates in the field of economic sciences: Michael Spence of NYU Stern; Robert Merton of Massachusetts Institute of Technology and Harvard University, who won the Nobel Prize in 1997; Roger B Myerson of the University of Chicago, who was awarded the Nobel prize in 2007, and Peter A Diamond of the Massachusetts Institute of Technology who focuses on labour markets and won his prize in 2010.


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