The CIO head of impact investing at UBS Wealth Management has said three factors are driving the growth of sustainable investing.
A trinity of forces encourage the rise of sustainable and impact investing: Millennials' hunger for values-driven approaches, broad changes in society and economics, and the growing financial clout of women.
That is the view of James Gifford, the chief investment officer and head of impact investing at UBS Wealth Management. Based in Hong Kong, Gifford spoke to journalists at a recent roundtable in London on the trend, and what he sees behind it.
Sustainable investing is a term that applies to screening out firms because they fail ethical/social/environmental tests and seeking out companies that are deemed to be “good” in some way. A related trend is that of impact investing, where money it put to work to achieve non-financial outcomes, such as fighting crime and illiteracy, as well as monetary returns.
“All the surveys and the anecdotal evidence we have around Millennial clients, and trends and views on ways of thinking, say Millennials have a far higher affinity for sustainability and aligning their business and investments, and philanthropy all with sustainable alignment,” Gifford said. “In the old days, people saw business in one section and that’s where you made money, and philanthropy is on another section, and this is how we make the world a better place. Millennials just don’t think like that. They want to start businesses that solve problems. They get really inspired about impact investing.”
“The second driver is female clients. Similarly, all the surveys show that women have a higher affinity for sustainability for investment and business. And women will be inheriting a large proportion of the capital, which will be in generation transition in the coming decades. And women’s wealth is growing significantly faster than male wealth because there are a lot more female entrepreneurs than there were," he continued.
"The other driver is that the world is just changing. These issues are just more important, companies need to be more sustainable to attract talent, attain customers and avoid scandals. The economy is now more transparent than it has ever been in history. There is nowhere to hide for unethical companies. Sustainability has to become a core driver and is becoming a core driver of business," he said.
Gifford's comments come after UBS launched a batch of services designed to foster sustainable growth, including a platform connecting clients with investment opportunities and launched portfolios that target particular returns as well as benefit society the environment, as reported by this publication.
There is debate surroudning whether impact/sustainable 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.
Rising interest in such areas even fuels corporate M&A activity; last year, Tiedemann Wealth Management, a US firm, acquired a Seattle-based organisation in part to obtain its impact investing expertise.
Gifford spoke about why clients would want to participate in sustainable investing, and what the investment world is doing to meet client demand for the sector.
“There are the societal returns,” Gifford said. “There are big problems in society, and the sustainable development goals process which is identifying a funding gap of over $2 trillion a year for next 15 years. That will only be filled by large scale business and investment. And we believe there is an important role for private wealth given the trends, in mobilising capital for these sustainable goals. Everything is lining up in terms of demand from clients and interest in clients. On the supply side there are now large asset managers stepping up by providing institutional-quality product. We think that we are at the point where the supply side of investment product can now help deliver a 100 per cent sustainable and impact investing portfolio, which ideally gives better returns than traditional portfolios.”
What does UBS have in store for the future?
“At the world economic forum in Davos last year, we committed to deploying $5 billion of client’s capital into impact investing over the next five years. It’s a big commitment we still have a long way to go to get to the target over the five years in impact investing. But we will be onboarding additional funds in private markets and possibly shareholder engagements going forward.”
This commitment to sustainable investing from UBS is not the first reported by this publication - in December UBS launched the world’s first healthcare development impact bond aimed at reducing the number of maternal and newborn deaths in Rajasthan, India.
Other firms are also taking aim at social issues. In November last year, this publication reported that Societe Generale had launched a “sustainable and positive impact finance” offering. Last October, Standard Life Investments launched its first impact investment product, the Global Equity Impact Fund.