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UBS Private Clients Swell Impact Investing Coffers

Jackie Bennion, Deputy Editor, 6 September 2019

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UBS Wealth Management held the stage this week with plenty to crow about on funding for impact investing.

UBS Wealth Management has raised $225 million from private clients for the KKR Global Impact Fund, a record intake, it said as it burnished its ESG credentials in a recent conference about sustainable investing.

The fundraising is part of a commitment the Swiss lender made in 2017 to raise $5 billion over five years towards good social investment that would also deliver a competitive financial return. Sustainable private equity giant KKR manages the fund, which has just crossed the $1 billion mark, a major milestone in the pure impact investment space, with $225 million coming directly from UBS clients.

KKR’s model is to search for companies around the world, particularly those whose core business models address critical social challenges, and help them create value.

Speaking at the ESG event earlier in the week about the wealth manager’s commitment to the sector, UBS global CIO Mark Haefele said the firm has already raised $2.8 billion towards its $5 billion pledge in the first two years. He also said that its first fully-sustainable multi-asset fund launched recently has become its “fastest growing", with $6 to $7 billion raised.

"Tackling global sustainability challenges is an increasingly important investment opportunity for us and for our clients," Haefele said.

For growing numbers of investors keen to marry investments to values, climate change has become the abiding issue. Recently surveyed European asset owners told the firm that in the next five years environmental factors are going to be more important for them to weigh than traditional financial analysis.

By any measure, this week’s summit on ESG/sustainable investing/SRI/impact investing - call it what you will - showed how muddled the space remains. With more flavours than Ben & Jerry’s and arguably far less quality control, investors and fund managers are piling in at a record pace.

UBS chairman Axel Weber said the growth of assets in sustainable investing has risen by roughly 70 per cent over the last two year, with around $30 trillion now invested in ESG products, albeit, he said, under a “kaleidoscope of definitions”.

The demand for ESG has created a land grab of sorts among investment firms looking to claim the high ground on what good environmental, social and governance led investing looks like. With the current loose voluntary reporting landscape, where basic screening and exclusions make the ESG grade, there is no gold standard to cast it firmly into the mainstream and give it real legs.

It is often why such gatherings can frustrate attendees searching for where tangible progress is being made. At one point in answering questions about the lack of clarity on sustainable finance, Haefele said, “If we don’t use paper napkins people don’t plant trees.” In many ways, it sums up the challenges facing the financial and any other sector tackling something as daunting as climate change.

At the event, UBS shared some of its own clients' thinking on ESG. Among European investors, for instance, only 20 per cent believe that ESG returns can match traditional investment returns, despite 2,000 plus studies suggesting otherwise. Surprisingly, the belief that ESG returns don’t hit traditional returns runs much higher among the firm’s Asian clients. But, overall, a majority believe that ESG will be mainstream within 10 years and integral to every asset class and portfolio. Many are demanding full ESG integration across their asset allocations now, the firm said.

Although demand for ESG products has exploded over the last couple of years, Haefele reminded attendees that the sector occupies a fraction of the overall investment market. Far more ESG innovation is needed in derivatives, hedging, and development bank debt to bridge gaping holes in core asset areas, he said. Speakers from fixed income and credit agreed that they are late arrivals to incorporating ESG practices and need to catch up.

Ketish Pothalingam, a lead on ESG at fixed income giant PIMCO, said that he is seeing many more pension funds and private and institutional investors wanting more reporting on ESG, and the most important way to deliver that information is face to face, he said. “A significant part of our new business requests is: ‘What are you guys doing on ESG?’” Secondly, regulators are on board. “It is voluntary but the direction of travel is mandatory.” It doesn’t matter what your motives are now, you have to join in, he said.

Eugenia Unanyants-Jackson, global head of ESG research at Allianz Global Investors said that no matter what tools or models become available, ESG “can’t be done mechanistically. You have to have your heart in it, your mind in it, and you have to change the way you look at companies,” she said.

“People want an explanation of how ESG is being integrated and there is accountability of what is actually being done and there is a link between the investment objective and what is delivered to the client. The engagement between what is said and what is actually done."

Haefele put the progress of sustainable finance in that messy transition of balancing the need for reporting and transparency against the need to develop products fast enough for ESG to scale and make an impact. “Hook up the pipes, get more money in the sector, that’s when we can really start to make the fine-grained changes,” he said.

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