The coronavirus crisis has accelerated the urgency of companies and fund managers to apply sustainability criteria in their investments and their daily operations. In this environment, Union Bancaire Privée (UB) has boosted its range of impact funds with the recent launch of UBAM – Positive Impact Emerging Equity.
Rupert Welchman, co-director of European equities of the Swiss firm and co-manager of another of its most popular funds in this segment, the UBAM-Positive Impact EquityIn this interview, he analyzes the firm’s strategy in what is known as ‘impact investment’, funds that have come to demonstrate that social and environmental criteria are not at odds with long-term profitability.
– UBP has opted in recent years for impact strategies. Is it incompatible to pursue social and environmental objectives with a good profitability?
Our investment process is based on the philosophy that impact investing must provide both financial and non-financial benefits. We do not believe that it is a decision of “this or that”.
Many of the areas highlighted in this strategy focus on products and services that the world urgently needs. Our ‘best in class’ techniques (best in class) offer solutions with attractive levels of profitability, so we trust that if we have carried out our analysis correctly we will have the basic elements for a fund that will generate superior performance while doing the good.
– In 2018 they expanded the range of responsible investment products with the launch of Positive Impact Equity. Is it difficult to find companies that contribute social and environmental values in the current environment?
There are no perfect impact companies in listed markets. In fact, it is almost impossible to find an organization that does not have some negative element, be it social or environmental, however well-intentioned it may be. Therefore, we focus on identifying companies whose intentions are good and whose products or services have the capacity to alleviate some of the world’s most pressing problems. We work with the companies we have chosen to improve their values and their disclosure with a mindset of defending ever better impact standards.
– What requirements must a company meet to be part of its investment universe?
We need companies to be happy to communicate with us. We approach impact as a collaborative process in which we investigate the operations and intentions of our companies.
We carried out an evaluation of four aspects, focused on intentionality, materiality (which is based on the percentage of a company’s revenue generated by a positive impact product), additionality (the company’s product as a solution to an unmet need, and therefore likely to be a commercial success) and potential (the total market the company will serve in its maturity).
This evaluation is called IMAP (for its initials) and allows to judge both the non-financial and financial merits of any candidate.
“We want to make our impact funds available to the widest possible audience at a reasonable price.”
– Is there a sector that is ‘vetoed’ within your strategy?
The process is not based on exclusion. It focuses on the positive inclusion of the companies with the greatest impact that we can find around the world. UBP does have exclusion lists, as these are requested by some of our clients, but this approach is at the other end of the approach we make through impact investing.
– What is the customer profile interested in this type of strategy?
One of our five key principles within impact investing is accessibility. Not only do we want to be in contact with clients who are interested in investing in positive impact, but we also want to make our impact funds available to the widest possible audience at a reasonable price.
For this reason, we have worked extensively with companies’ pension managers and consultants, as well as with investment platforms in various regions, to assist in the education process and ensure that anyone can invest in impact strategies just as easily. than a large sovereign wealth fund or foundation.
– Its strategy is based on six investment themes that incorporate the UN Sustainable Development Goals. What weight does each one of them have over the total portfolio?
At the end of April 2020, we had 22.5% invested in basic needs, 22.45% in health and well-being, 12.36% in fair and inclusive economies, 6.45% in healthy ecosystems, 14% in climatic stability and 18.06% in sustainable communities.
“22.45% of our portfolio is invested in the health and wellness sector“
– How has the fund behaved in periods of market downturn this year?
In the process of planning and launching the UBAM – Positive Impact Equity fund, we already carried out an extensive analysis that examined how a portfolio of candidates would behave during periods of serious disruption in the market. The analysis suggested that a portfolio similar to the one we currently manage endured these periods quite well.
Therefore, we have found that the fund performed better than its most representative benchmark (MSCI Europe) in 2020. We are never happy when we lose money for our investors, as has been the case this year. However, we are reinforced in our belief that a positive impact approach can generate above-market returns over the course of a cycle.
– What is the current level of liquidity in the portfolio? In which sectors may there be now greater opportunities to put that money to work?
We had spent much of the year with a high liquidity margin of between 3% and 5% assuming the fact that we are facing an unprecedented situation. We have already used part of this cushion tactically to buy shares of companies in which we believe investors have become unrealistically too pessimistic, as well as in some specific cases well positioned to take advantage of the effects of the Covid-19 pandemic. .
– Do you think that the current crisis can help increase interest in this type of strategy?
Yes. The global pandemic is just the latest chapter in an increasingly alarming saga of signs that, as a global society, we are living beyond our means in certain areas.
“The coronavirus is just the latest chapter in a saga of clues that, as a society, we are living beyond our means“
This crisis, in the misuse of natural capital, is affecting many different aspects of society. However, many of the costs of dealing with these economic blows of nature have so far been absorbed as an operating cost of our modern economy. We believe that the pandemic will be a turning point along the way, after which society will be forced to pay more attention to the misuse of natural capital.
While quarantine has been tough on the billions of affected individuals, many have found that they do not need certain aspects of their old lives, both professionally and socially. This implies the recognition of excessive consumption And, in this scenario, many of the companies that we have identified as positive impact candidates will register a greater demand for their products and services. Therefore, they will make attractive investments for people with exposure to this topic.
– How much is impact investment currently moving in Europe?
This type of data is very difficult to obtain accurately. We know from the Global Intermediary Identification Number (GIIN) that more than $ 600 billion in impact strategies around the world, but it is difficult to be more precise. From the funds we look at, it is exciting to see how assets under management continue to grow rapidly, at a time when active equity management is in decline.