Debjani Raffan, head of UBS Wealth Management Scotland, tells Bryce Wilcock why the company is committed to helping its clients make an impact as well as a profit.
Supporting a positive social or environmental impact as well as achieving compelling financial returns is at the heart of sustainable and impact investing. Social impact and sustainability aren’t usually the first two things that pop into your head when you think of wealth management, however they could be set to play a much larger role in the future.
UBS, as the world’s largest wealth management organisation, (Scorpio Partnership Global Private Banking Benchmark 2017) is acutely aware of the challenges facing the world around us with the global population expecting to reach more than 8 billion by 2030; a population that will require 35% more food, 40% more water and 50% more energy than 2015, according to The Millennium Project.
This is why, at the World Economic Forum (WEF) in Davos last year, UBS announced ambitious plans to position itself at the forefront of sustainable and impact investing over the next five years. Now, just a year on from that announcement, the industry has reached a point where institutional grade investments are being made available at scale to more investors than ever before.
In fact, according to the Global Sustainable Investment Alliance Report 2016, the total number of assets invested using at least some form of sustainability criteria is now estimated to be around US$22tn. However, despite this progress, that figure only accounts for 8% of the overall global household wealth of US$280tn, so there is still work to be done.
As Debjani Raffan, head of UBS Wealth Management Scotland, points out: “The way companies operate has a profound effect on society and the environment and over the years we’ve seen this become an increasing focus for UBS stakeholders, from clients and employees, to shareholders and the nations in which we operate.
“Across the globe, there is a growing interest in market solutions to ensure that companies have a positive impact, and more investors are looking to incorporate environmental, social, and governance factors into their investment decisions, not just to align their values with their investments, but to get exposure to some of the fastest-growing trends in society, such as ed-tech, healthcare and renewable energy and storage.
“As a result, impact and sustainable investing is becoming a force to be reckoned with, and we expect the financial community to play an ever more important role in contributing to a more sustainable society.”
As part of UBS’ ambitious five-year commitment to increasing awareness of impact investing, the company is aiming to educate as many of its clients as possible about the benefits impact investing not only has on society and the environment, but also the financial benefits.
UBS currently manages approximately £2tn worth of its assets on behalf of its clients across the globe and as part of its plan, hopes to increase the volume of impact investments - primarily private equity - to US$1bn a year.
So, you might be wondering, what makes an investment have an impact on society? Previously, it was said that in order to be a sustainable and impactful investor, one should avoid simply “sin investments” such as companies involved in the arms trade, tobacco or gambling for example.
However, now it has shifted to a focus on the opportunities for outperformance through leveraging sustainability megatrends.
Impact investing now seeks to generate a positive social or environmental impact alongside a financial return for wealth holders comparable to that of traditional returns – indeed if impact investments are not fully competitive in terms of financial, they will not scale and will not achieve the desired impact. This explicit strategy spans asset classes.
Whether investing venture capital in an application that provides mobile learning solutions for under-resourced schools, private equity into emerging markets healthcare companies or financing the transition to a clean energy future through renewable energy infrastructure, this approach seeks commercial solutions to social and/or environmental challenges.
UBS helps monitor such impact by drawing upon the United Nations’ Sustainable Development Goals (SDGs): 17 goals that need to be achieved in order to address society’s biggest challenges between now and 2030.
However, while there is significant interest in SDGs from investors, there is little understanding of exactly how to invest in these themes in ways that can generate real impact. While investment in listed companies that contribute to the SDGs is relatively straightforward, investment in private markets is more challenging. This is where UBS comes in.
“As with any new approach to investing, there are always going to be barriers in terms of familiarity and understanding,” Raffan adds. “The amount of jargon and some at times unnecessary complexity has meant that investors are often left uncertain about new initiatives.
“This is why we want to help our clients navigate this brave new world of investing and have published a guide to explain and used this year’s UBS Forum, our annual conference for investors, to explain what it is all about. We have divided it into sections devoted to some simple questions. What is sustainable investing? Would I lose out financially? How do I go about it? What difference can I make?
“We want everyone to be able to engage with an approach to investing that must become the norm if it is to fulfil its potential and society is to address its biggest challenges. We have a real opportunity, collectively, to engage more people in investing sustainably and in ways that can make a genuine difference to society while also delivering financial returns comparable to that of traditional returns. We want investors to simply think ‘why not?’”
Also driving the impact investment revolution is the changing demographic of the typical investor. The rising influence of the millennial generation – those born between the early 1980s and early 2000s – is a major driving force behind this shift.
Having grown up in a digital age with a constant flow of easily accessible information and increased transparency, millennials’ expectations of public and private organisations are higher than their previous generations’. Younger wealth holders are more socially and environmentally conscious and expect others to act accordingly.
According to UBS and Oppenheimer Funds surveys with Campden Wealth in 2017, around 69% of ultra high net worth millennials say they want to align their investments with their social values, along with 88% of women surveyed.
“We know from our in-depth research that women and millennials are driving the adoption of sustainable and impact investing,” said Raffan. “And as they strengthen their skill-sets and assume more control of assets, we fully expect to see this theme continue to take hold.
“That’s why we’re working alongside our clients to explain the potential benefits of sustainable investing and also dispel common myths. Investing is no longer just about financial gains, but it can also generate social and experiential returns.
“Through impact investing, we’re seeing more people than ever before become interested in wealth management and are helping our clients preserve a legacy. Even family members with no interest in finance are getting involved.”
So, you may be wondering, what makes up a sustainable investment? UBS breaks it down into three areas by looking at the environmental, social and governance (ESG) factors, as a way of determining whether companies are sustainable.
Environmental investments for example look at those helping tackle climate change, pollution and waste as well as those who are pro-actively looking for ways to improve the environment. As for the social factor, it could be businesses that promote and invest in workplace safety, tackling discrimination or those boasting sustainable supply chains. And for governance, investments look at those that are helping tackle corruption, cartel behaviour, tax gaps and promoting business ethics.
And whilst this piece only skims the tip of the iceberg, UBS has released an in-depth report looking into the benefits of impact investing. Investors are keen to understand this new investment trend and the release of the report is UBS standing by its brand values of helping its clients find the answers to life’s questions.
To find out more about the guide or to download it, visit www.ubs.com/forum-2018.
UBS Wealth Management is a business division of UBS AG, which is authorised and regulated by the Financial Conduct Authority. As with traditional investments, capital is still at risk.