Mark Haefele, chief investment officer at
UBS
Global Wealth Management, recalls when it began to learn how investors like Sir Ronald Cohen invested to make a social or environmental impact while still earning a financial return at the European Economic Forum. World in Davos, Switzerland, in the mid-2010s.
At the time, the majority of influential investment activity in the private markets in the U.S. neighborhood was $ 1 million to US $ 3 million – relatively small to consider a large wealth management company. Haefele began to think about how UBS could increase the size of its client operations, as it tackled the world’s social and environmental challenges – to “find a way to put some zeros behind them.” those initiatives, ”he says.
By April 2016, UBS closed the US $ 471 million Oncology Impact Fund, a vehicle managed by U.S. venture firm MPM Capital, which aimed to accelerate treatments for cancer by investing in early-stage treatments. The fund also funded grants for academic therapeutic cancer research and access to cancer care in developing countries through a percentage of the manager’s performance tax and 1% of awards for any drugs that came to market.
The fund was UBS ’first major step in a journey that came to raise money from clients to address a range of social and environmental goals, while at the same time earning a good return for them.
By the second half of 2020, more than a year ahead of schedule, the wealth management company had reached a self-limiting five-year goal to raise US $ 5 billion to fund investments that specifically address United Nations Sustainable Development Goals (SDGs).
When the US $ 5 billion target was announced in January 2017, it was considered “a heavy promise,” Haefele says, “there were people in the industry who were concerned about setting such targets. ”
Making and meeting a goal
Creating an ambitious target meant that UBS had to create a pipeline of investments that would yield and influence at a market level. But as the world’s largest wealth manager, announcing a commitment at that point asset management companies and other solution providers pointed out that they should start coming up with results.
“I like to think we had a positive impact on increasing the number of solutions, and solution providers doing something like this,” Haefele says.
UBS was also looking for solutions that could measure outcomes against specific environmental and social goals – not just investing in good companies with good intentions or even the environmental, social and regulatory practices. (ESG) is best.
While it is easier to meet such solutions in the private markets, where, for example, private equity funds could be specifically designed to invest in renewable energy, he knew. UBS had to find solutions in the public markets to grow the company. In addition.
Shareholder activity
In January 2018, UBS announced that it had created a 100% sustainable cross-asset strategic asset allocation package, enabling clients to invest 100% of their assets both in stocks and bonds. bonds, and in public and private markets.
For the public markets, he began offering each other public money that allowed shareholders to get involved. That year, U.S. company Federated Hermes developed an equity strategy that invests in companies that they believe can coax toward making changes that address the specific GDS of the DA; a year later, he developed a high-yield credit fund with the same goal.
While there are 17 broad goals, such as “no poverty” and “clean water and sanitation,” there are 169 core targets under these goals that can be addressed, says Eoin Murray, head of investment at Federated Hermes. Of those 169, 42 are “unsustainable,” Murray says.
Like mutual funds, Federated Hermes has performance targets that it seeks to achieve, but the purpose of GDS funding was to include communication targets as well. “A big part of our job is to make sure that UBS and its clients are comfortable with the progress that has been made to achieve these communication goals,” he said.
The company will give itself three years to move a company in the right direction by working with executive officers and other senior managers, in addition to the board. An example is
Alliant Power,
an integrated utility company that supplies electricity and natural gas to wholesale and retail customers in the U.S. When Federated Hermes invested in the company, they believed that Alliant’s full potential was not. tapping different renewable energy sources “recognizes and adds sufficient market value. . ”
Today the company is on track to increase its renewable energy capacity by 400% by 2023, and reduce its coal capacity by 36%, according to the asset manager.
The idea of shareholder activity may seem a bit strange in the bond markets, however, where money owners are lenders, not owners, companies, and do not have a vote at stake. shareholders’ annual general meeting, Murray says.
While this separation is important in times of physical distress, most of the time the interests of both shareholders and money owners are linked – they both want the company to grow and, in the future. In this case, to achieve specific impact goals, he says.
The availability of them and other public funds helped lead UBS towards its US $ 5 billion goal. At the end of 2020, 61% of impact-related assets were invested in public funds, and 39% were invested in private vehicles.
What lies ahead
Last year, UBS announced that it would recommend sustainable investment options over traditional investments to their clients. With sustainable investment now at the heart, the wealth manager does not need to set high targets as urgently.
Moving forward, the company will focus on how to advise clients on how to achieve their own specific sustainability goals, showing them how their portfolio records are, such as for example, against certain targets and how they can move to achieve their goals.
They also highlight accelerating trends due to increased global awareness of emergencies, from climate change to health care to food shortages. “Things like electric transport and plant-based meat,” says Haefele.
“People understand that, as part of their regular investment process, they need to understand the characteristics of sustainability as governments pay more attention,” Haefele says. “But more and more, everyone is realizing that this is mainstream, which is why it is so exciting to take this to the next level. ”