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UBP in the press 04.05.2022

“Targeting companies that solve problems”

“Targeting companies that solve problems”

Paperjam (27.04.2022) - Union Bancaire Privée is expanding its impact investment offering with the launch of a third strategy dedicated to restoring biodiversity. This strategy complements an offering focused on listed companies that was launched in 2018, and the one devoted to emerging countries launched in 2020. These strategies have raised USD 1.4 billion in assets under management. 


What is your definition of impact investing?

For me, it means that, as an investor, you should target companies that solve problems rather than those that cause them. There are many other more sophisticated definitions, but, at the end of the day, this is what it’s all about. Every time we make an investment, we ask ourselves whether these companies are helping to move the world from the old extractive economy to a new, positive, circular economy, along with whether their returns are a direct consequence of the problems they will have helped to solve and not just a coincidence.

In concrete terms, how do you implement these principles in your investment processes and decisions?

First and foremost, by using a rigorous process. We have our own impact assessment tool called “IMAP”, which stands for Intentionality, Materiality, Additionality and Potential. This proprietary scoring methodology allows us to assess the intensity of each company’s impact and gives it a score out of 20, with 12 being the minimum for a stock to be eligible for inclusion in a portfolio or to be added to our “Watch List”. Next, we ensure that the impact dimension is truly integrated into a company’s strategy and that it is implemented.

To achieve this, we engage with the companies in which we invest. This is very important, because, while impact investing on listed markets has made great strides in recent years, the issues of impact measurement and communication are still real challenges. Many of the companies we invest in are solving problems and are having a real impact, but they don’t know how to showcase that. Helping them on their way to clearer reporting on their impact is good for both the companies and our portfolios.

Do you invest globally or do you have exclusionary sectors?

We invest globally from a geographical point of view, but we exclude certain companies and sectors. We maintain an “Exclusion List”, which consists of companies that operate in controversial sectors that we feel are inappropriate to invest in, such as weapons, adult entertainment, alcohol and tobacco. We also have restrictions based on intensity of carbon production.

How do you go about measuring the impacts of the companies in your portfolio given the disparity of data on the subject?

We’ve put in place an annual impact audit of the companies in our strategies. This year, 124 companies from three strategies were interviewed. Among the questions we ask are whether there is a sustainability report and what its objectives are, whether there is a sustainability manager, and whether there is a biodiversity policy. What is interesting to see is the evolution from one year to the next; we can see whether a company or an industry is improving.

What do you do with all the data you collect?

Transparency is a rule with us: we pass on all the information we have. We publish an annual impact report and have an impact advisory board. The minutes of their meetings are also published.

It’s a way of engaging so that we can be part of regulatory change. It’s a real commitment. By the same token, UBP is an active member of a number of international working groups. For example, the University of Cambridge’s Institute of Sustainability Leadership, which has set up a working group on nature-related financial risks; or the UNPRI (United Nations Principles for Responsible Investment), to which we have been a signatory since 2012.

How do you view SFDR and the taxonomy? Do you see them as accelerators of your engagement or as potential sources of problems?

At first glance, I would say that these regulations have a net positive impact. Having your range of strategies labelled with Article 9 – as ours are – shows a significant commitment to sustainable finance.

Where I have concerns is with the reporting requirements. The taxonomy asks investors for information that companies do not necessarily provide. Much of this information is then made available by third-party data providers, but the quality of the information provided is very inconsistent. I think it is important that we manage to audit these data providers and ensure quality control. I also think it is encouraging that the regulator is aware of this problem.

Responsible investment has moved on from being a niche investment to become a mainstream investment. Doesn’t this change in status risk creating bubbles because of the influx of capital and the still relatively small number of assets that fully meet ESG criteria?

I think the main risk is that of capital misallocation. As efficient as the market is in evaluating a company’s ESG performance – certainly because ESG ratings have developed significantly and have become more qualitative – it is also inefficient in understanding the impact dimension. Indeed, the latter requires taking into account the entire value chain. In other words, the investment universe is in fact much broader than is sometimes believed and many of the companies in it are not considered at first glance to be impact companies. This requires a lot of analysis that few investors do.

Are there sectors that are more conducive to impact investing and others where this approach is not relevant?

This is a complex issue.

I think that in all sectors you can find companies that have an impact; let’s take the example of the mining industry. Everyone agrees that its net impact is negative, and yet without it, there would be no electric vehicles. And within this sector, there are certainly providers of innovative solutions that can reduce the intensity of energy use, CO2 emissions and personnel. Do they have a positive impact? Is it socially positive to be able to take people out of a dangerous occupation, but also away from a source of income? I think you have to consider it company by company.

Take the luxury sector: it’s not driven by need, but by desire. Multinational companies operating in this sector also have the opportunity to create a nature-positive business model. I’m thinking, for example, of companies that are doing exciting work in the field of mulberry silk farms, which can only be cultivated under very specific conditions, and which are trying to secure the future of the supply chain and the producer. The growers, if properly incentivised, will continue to grow these plants, thus preventing deforestation and this approach generates ripple effects.

UBP has just launched a biodiversity restoration strategy. What is the objective of this strategy and what are you selling to your investors?

The starting point is that more than 40% of the world’s GDP depends on nature. For me, biodiversity and climate change are inextricably linked. Yet investors, companies and consumers are much less well informed about the biodiversity crisis than about the climate crisis. I would say that we are about five years behind what has been done in the fight against climate change.

Our biodiversity strategy is very similar to our other impact strategies: it’s about trying to access companies that contribute to a particular problem. The biodiversity issue is closely linked to the food system and agriculture. Consequently, we are highly exposed to the agricultural space and we’re looking for companies that will be able to benefit from the changing regulatory framework and consumer expectations in this area.

Examples include the European Commission’s “Farm to Fork” strategy, which aims to halve the use of pesticides and reduce the use of antibiotics for farm animals by 20% by 2030, and to devote 25% of cultivated land to organic farming.

Impact Investing

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Victoria Leggett
Head of Impact investing
View her Linkedin profile

Expertise

Investing in biodiversity – why and how

How does the loss and restoration of biodiversity translate to investments?


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