Print this article
EXCLUSIVE: Impact Investing Has Big Potential; Must Be Clear On Definitions - UBS Philanthropy Forum
Tom Burroughes
6 December 2013
A lot of financial terms are hurled
around these days and one that has become more visible is “impact investing”.
According to a quick Google search, the term brings up 23.4 million search hits. Impact investing can sometimes be
conflated with philanthropy, but as discussed at the recent UBS Philanthropy
Forum in St Moritz, Switzerland, the term needs to be
accurately understood to avoid confusion. But once any misunderstandings are
cleared up, impact investing can and should become a significant part of the
investment toolkit. (To see more about the forum and the
bank’s ambitions in philanthropy and values-based investing, click here.) There
is plenty of potential growth: out of a multi-trillion dollar asset management
industry, impact investing is still relatively small. According to JP Morgan
figures, in 2013 an estimated $9 billion will be allocated to impact
investments globally – a niche investment area which represents a predicted
market opportunity of up to $650 billion over the next decade. In a panel discussion moderated by
myself – this publication was exclusive media partner at the event – speakers
who discussed the issues were Wiebe Boer, chief executive officer, Tony Elemelu Foundation, Nigeria;
Andreas Ernst, head of impact investing, UBS Wealth Management and Jennifer
Pryce, CEO and President, Calvert Foundation. The panel session was entitled Philanthropy & Investing – Broadening
the opportunity for impact. From my vantage point as a financial journalist, I noted that the volume of
interest in impact investing, and the amount of material sent to us from firms
has noticeably risen in recent years, a process not really altered by the 2008
financial crisis. Although some more traditional forms of investing have
sometimes fared well (“unethical” stocks such as tobacco can sometimes be
strong), the ability to do good while earning a solid return appeals to people
in an age with more awareness than before about the plight of the less well
off. “Impact investing is a lense you can put across your portfolio,” UBS’s Ernst
said, arguing that impact investing was different from philanthropy, which
isn’t about investment as such but about a transfer of resources with no
necessary expectation of a financial return. Boer, meanwhile, said impact investing can only be about the intention of
the investor – there must be a way to evaluate the results. As for Pryce and her understanding of the term, she said agreed with Ernst’s
idea of it as a way of seeing investment. “There are many technical definitions
for impact investing that can create hours of conversation and debate, however,
I sat next to a fellow attendee of the forum this morning and she said it well
– `investments that make a difference’. You can have assets within fixed
income, alternatives, cash that have been screened for their social as well as
their financial return.” Sustainable “Impact investing can be a part of a general sustainable investment
stratetgy,” said Ernst. He said UBS advises clients on such investments and
also gives them access to third-party products. “We see an upside on the
buy-side. It gives investors an opportunity to play certain mega-trends. There
is an enormous social and commercial opportunity in designing and making such
products and services,” he said. Ernst talked about the emergence of a “sustainable consciousness” among
investors and commentators. He said strains on public welfare systems in the
West are also driving alternative options. “We see an interest from clients and investors who see the need to make
investments with values.” There are vocal philanthropy-minded investors and
those who can see attractive returns, such as 12 to 15 per cent and from a low
level, he added. There are, however, some bottlenecks, he said. “Anything that is new means
that investors at first will stand on the sidelines. Another issue is that the
median-size impact investing fund is $5 to $25 million, which is small. Such
investments are relatively expensive,” Ernst said, adding: “It requires some
courage for investors to look beyond conventional investments.” Calvert Pryce spoke about the work of the Calvert Foundation to illustrate her
particular angle on the issue. “The Foundation has a history of nearly 20 years
and we have a long history within the impact investing sector as the number of
funds and investments vehicles as well as interest has exploded in the past
five years,” she said. She talked about how her firm makes loan-based investments; her firm’s
products are classified as a fixed income asset. To date, Calvert has sold over
$1 billion in notes. At any one time, Calvert has about $500 million of assets
under management. “One challenge to grow of the sector is a practical one that impact
investment funds, products, vehicles that have emerged over the past few years
will need more time to develop a track record of performance to draw in more
conventional investors,” Pryce said. Her firm has started a new investment portfolio, funded by women for
women. The Women INvesting in Women INitiative (“WIN-WIN”) is a $20 million
fund by and for women. “WIN-WIN will enable investors to invest in women as
agents of their own economic power and opportunity, while receiving financial
as well as social returns,” she said. “We are not seeking to replace the
important work being done with women’s philanthropic dollars but rather to
augment it by accessing and employing women’s investment capital. Women
comprise nearly half of the nation’s top wealth holders and control
$20 trillion in investment dollars globally. Clearly, women's investment
capital has a huge potential to transform the lives of women around the world -
both the beneficiaries and the investors. The market currently lacks products
that can help shift women’s capital toward investments that support women as leaders
and agents of their own economic power and opportunity,” she said. “We will use Calvert Foundation’s signature Community Investment Note
product as a vehicle to channel women’s investment capital. Starting at just $20, our Community Investment Note is available to any
investor in various terms and rates up to 2 per cent. Through the women’s
initiative, women investors will have the opportunity to target their
investments in the Note to a designated portfolio of organizations,” she added.
Wiebe Boer: Boer talked about the foundation and how Mr Elumelu was forced, due to a
term-limit rule, to give up his CEO job at a bank, a fact that led him to think
about some of the issues and hurdles facing businesses in Africa. “Most of Africa’s economic history over the
past 500 years has been about extraction,” he said, referring to sectors such
as raw materials and agriculture, rather than services, manufacturing, and
other areas. “The foundation is trying to create a new type of capitalism in Africa,” he added.