In October 2015, Credit Suisse published a report which concluded that global inequality had reached a negative record. Among other things, the report disclosed that 1% of the world’s population held more wealth than the rest of mankind. Following the report, the bank implored leaders who convened at the World Economic Forum at Davos a few months later to take urgent action to rectify the situation.
A report published by Oxfam in January 2016 on the basis of the Credit Suisse data states that the world’s 62 richest people possess more capital than the poor half of the world’s population - 3.6 billion people - compared with the world’s 388 richest people who held that portion of wealth in 2010. The capital of the 62 mega-rich grew by 44% in 2010-2015 ($542 billion) to $1.76 trillion, whereas the capital of the world’s 3.6 billion poor shrank by $1 trillion.
To try and tackle the wide range of problems, the UN Sustainable Development Goals (SDG) program came into effect early last year, the second program of its kind. According to the Brookings Institute in the US, $5-7 trillion a year - 7-10% of global GDP - is needed to meet the program’s 17 goals.
The UN’s Millennium Development Goals (MDGs), which gained the support of 193 countries, include eliminating poverty and hunger, quality health and education for all, gender equality, clean and accessible energy and water, fair jobs and economic growth, the reduction of inequality, sustainable cities, and protection of the land and marine environment.
$1 billion a year
In the past few years, Switzerland’s UBS, the world’s largest bank in terms of capital under management, has been trying to show a new face, following investigations into capital flight into tax shelters in the previous decade. The bank’s policy document on the UN’s MDGs, is part of this effort. One of the document’s authors, UBS Wealth Management Global Chief Economist Paul Donovan, spoke at a conference, which the bank held at Tel Aviv University last May, giving a compelling lecture on the necessity of creating more diverse and equitable companies and how banking can help achieve this.
Currently, UBS is committed to making $1 billion a year in social and environmental impact investments over five years, an annual percentage that amounts to less than 0.6% of its capital under management and about 3% over the entire period. The bank has marked the millennial heirs of billionaires as potentially being major participants in impact investments, and forecasts that, over the next 20 years, 460 billionaires will bequeath $2.1 trillion to the next generation.
UBS Wealth Management’s Global Head of Sustainable Investing Rina Kupferschmid-Rojas spoke earlier this month at an event held at a Tel Aviv University conference as part of Thoughts Worth Sharing, a series of conferences which seeks to promote dialogue on challenges of the future.
Kupferschmid-Rojas, 42, grew up in Venezuela, where she is the fourth generation of Spanish immigrants. "I grew up surrounded by a lot of strong women, aunts and daughters of other family members, all of whom were engineers or economists," she told "Globes". "My grandmother never went to school and she taught herself to read and write. She taught me to strive and appreciate people, and to share what you have with others. The family was warm and unified; every December, at Christmas, our door was open to people who had lost their families. It was part of our DNA, to get to know people."
Kupferschmid-Rojas went to study business administration in Switzerland when she was 20, where she married and stayed for 17 years. "In my graduate studies at the University of Fribourg, I examined the social responsibility of companies, and devised the first index to examine the impact of business and corporate activity on communities, employees, and so on," she says. "At that time, I did not yet have tools, and I remember going every day to the library to read and photocopy newspaper articles. The work took me seven or eight months, but I was eager to know what a company’s mission was; what the shareholders were investing in."
"How much money do you need?
After obtaining her Master’s degree, Kupferschmid-Rojas began working for a private equity fund, while continuing to build a methodology to examine the social impacts of investments as a basis for the Ph.D that she wanted to write. "After three years, I had my ‘ah-ha’ moment when I realized that what I was doing could actually be an excellent business idea. I went to the company chairman and told him that we could build a basis for more transparent and sustainable investments by private equity funds and also create a threshold for public markets.
"The response was, ‘Great idea. How much money do you need? Go raise it.’ That is how I founded my company, and later sold the platform we had built to a rival of the fund I worked for, which was engaged in sustainability issues." While building the platform, she persuaded several private equity funds to share information about investments, which would be rated and exposed to other players. In the meantime, she had a daughter and abandoned her Ph.D in favor of moving forward with her company.
In 2012, Kupferschmid-Rojas and her family left Switzerland for the US, where she took courses on innovation and sustainability and on global leadership and policy at Harvard University. Since 2013, she has been a member of the World Economic Forum’s Young Global Leaders, which includes about 800 young people with prominent leadership potential. She also works for the Washington-based World Resources Institute, which focuses on advancing environmentally and socially sustainable economics. She has been in her current role at UBS for a year.
Globes: If you were to rate UBS on the basis of the methodology you developed during your studies in Switzerland, what would the results be?
Kupferschmid-Rojas: "I don’t think that 10-15 years ago, the market was ready for the change we are now making. Today, we are at the height of the initial implementation of the new approach, and UBS is the first bank to make such a large commitment to impact investing."
$5 billion over five years is negligible compared with the needs.
"We have pledged $5 billion out of a total of $30 billion in this field, which is a high portion of all investments and it’s just the beginning."
According to the 2017 Annual Impact Investor Survey by the Global Impact Investing Network (GIIN), the more accurate figure is $114 billion, which has been allocated to date for impact investment, a substantial portion of which was invested back in the 1990s. The survey, based on an analysis of the activities of 209 of the world’s leading impact investing organizations, found that, in 2016, they made $22.1 billion in impact investments, and that they planned to invest almost $26 billion in 2017.
Kupferschmid-Rojas emphasizes that UBS’s activity does not include only impact investments. "Almost all the investment products that we offer have a sustainability angle. Currently $980 billion of the capital under management by the bank undergo sustainability filtering, and 30% of the investments have a sustainability aspect. We will increase these numbers by 1-3% a year.
"We are now working with UBS analysts to participate in environment, society, and government (ESG) investments, and we are carrying out global studies. Whether or not you’re an investor seeking sustainable investments, we’ll offer you information on these subjects at companies you are considering investing in."
It’s great that the banking industry is trying to operate in that direction, but the investments compared with the needs are but a drop in the ocean. Is it possible that your activity is too little, too late?
"We identified the resource problem in a document prepared for Davos, which is why we are financing the Alliance 17 platform, an initiative of the Young Global Leaders. It will basically be a marketplace. This marketplace, which was jointly established with the World Bank, the International Monetary Fund, and large investment funds, will provide the private sector investment opportunities to transfer more capital. At Davos, our CEO said explicitly that we must create partnerships, so we are trying to recruit more financial institutions."
Some people claim that the method itself is problematic. For example, you talk about investment to improve health. Will you invest in a company that sells junk food, like McDonald’s?
"I think that that is a different discussion, and I cannot comment on specific companies."
So, in general, do you invest in companies that sell junk food?
"We have such companies in our portfolio, but it’s not my job to tell clients what companies are doing. Ultimately, it’s the client’s decision where to put the money. We only offer the options. If you, as a client, want to invest in an oil company, for example, that’s your decision. My job as a sustainable investments manager, is to tell you, ‘Look, these are the different options in the fuel industry.’ I cannot tell the client not to invest, but I can offer options. I don’t think that anyone in the industry is taking such a radical approach."
From your experience, what is the portion of companies, which meet the sustainability criteria that you would be happy to recommend, and what is the portion of companies that do not meet the criteria?
"That depends on the client’s profile; what he wants. We can rate companies in different ways. We can propose companies with higher ratings, but also companies with lower social and environmental ratings, which we think are undergoing strategic change in the right direction."
You have obviously reviewed thousands of companies.
"Between 4,000 and 5,000."
How many of them have the potential of meeting the sustainability parameters?
"That depends. I don’t have an exact number. I estimate that 80% of them have potential."
"Is the newer generation more moral? I don’t think so"
You emphasize the fact that millennials who will inherit a lot of capital over the next 20 years will have an important role in sustainable investing. Do you think that the new generation is more moral than the previous generation?
"Studies indicate that this generation is seeking meaning in its work, and I also see this in my work. Is the new generation more moral? I don’t think so. It seems to me that society has changed. New investors we meet, 90% of them, are seeking investments with social and environmental value. This is going to be the trend in the portfolios we will manage over the next 10-15 years. This change is not just happening in the banking industry in general, but is broader."
You teach a course on impact investing at Columbia University. What do you tell the students in the first class?
"The first thing I show my students is statistics - which are the companies that actually control the world, which is about 20 companies. They are very surprised, but that is how it is. When you buy Pepsi, you’re actually investing in about 2,000 companies owned by Pepsi.
"The second thing that I tell them is that, with $2,000, they can change a company. A person who owns shares in this amount has the right to file a proposal at a shareholders meeting and everyone must give him an answer. If you want to create change, all you need to do is to invest $2,000 in the company you want to change, and to be consistent. That is one of the strategies of sustainability investment."
Published by Globes [online], Israel business news - www.globes-online.com - on July 26, 2017
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