Dealflow | April 16, 2018

UBS Wealth aims to capture “impact delta” in sustainable portfolio

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ImpactAlpha, April 16 – The impact is not always in companies’ practices when an investment is made; it’s in the improvement in those practices over the life of the investment.

UBS’s “ESG Engagement Equities” strategy will focus on small- and mid-size listed companies in emerging markets, where there are opportunities to improve labor standards, supply chain management, and environmental practices.

“Shareholder engagement is most impactful when it focuses on companies that are not yet aware of global best practices,” UBS Wealth’s James Gifford tells ImpactAlpha.

The Swiss bank has made its sustainable portfolio, which invests in social and environmentally-focused stocks and bonds, available to wealth management clients in Asia, as well as in Switzerland. The portfolio primarily uses ESG (for environmental, social and governance) screening for green bonds, corporate bonds, stocks and other assets. UBS defines 27% of the portfolio as impact investing, which includes World Bank bonds and active shareholder engagement. The “ESG Engagement Equities” strategy is being managed by Hermes Investment Management.

The “low-hanging fruit” for shareholder engagement in emerging markets is to help companies improve their financial performance by aligning with global best practices, says Gifford, who was the founding executive director of the UN’s Principles for Responsible Investing. Examples include improvements in worker health and healthcare in Asian garment factories or upgrades in environmental practices and labor conditions in African brick factories.

“That delta is absolutely impactful,” says Gifford, when the business stops polluting nearby water sources or its employees are able to buy healthcare or pay for their children’s schooling.

Impact investing should include impact as an outcome along with impact as a theme, Giffords said. That means going beyond innovative products and services to focus on processes as well. “You need the whole [global] economy to address problems, not just energy, healthcare and education.”

UBS has committed to investing $5 billion in impact investing by 2022. In addition to the impact portion of its Wealth Management sustainability portfolio, the Swiss bank has raised $325 million of TPG’s $2 billion Rise Fund and $471 million for the Oncology Impact Fund, which supports cancer treatment development. (Non-communicable diseases, like cancer, are a growing health burden globally.) The bank’s philanthropic arm has also backed the first maternal health development impact bond and the Educate Girls development impact bond, both in India.