"Impact investment must continue to develop"

Nicole Neghaiwi  photo: Ronen Mahlev

UBS Impact Investment Strategist Nicole Neghaiwi talks to "Globes" about how investment decisions can, and must, help make the world a better place.

A relatively new investment trend is the attempt to combine maximum returns with a positive impact on the society in which we live. This format - which is gaining momentum abroad, and is beginning to gain traction among local investors as well (currently mostly among wealthy ones) - is also known as “sustainable investing" or "impact investing."

"In impact and sustainable investments, the idea is to make an investment which has an impact on society, in areas such as the environment, education, and health. These investments are made with the intention of impacting significant areas of our lives, and are quite often conducted in cooperation with government or local authorities, health ministries, and so on," says Nicole Neghaiwi, Impact Investment Strategist at UBS WM's Chief Investment Office, in an interview with Globes. "But one needs to understand this is not about philanthropy, but rather about investments that must achieve returns. Such investments are measurable,” she emphasizes.

Thirty year-old Neghaiwi, who has been in her current role at UBS for two years, visited Israel the other week for an event held by the bank that focused on combining business, family and personal passions. Much like other financial institutions, UBS is currently active in the fields of sustainable and impact investing, mainly through private equity funds and family offices.

Should impact investors expect high returns?

“No, on the contrary. Needless to say, they don't want to lose money, but they are sometimes willing to compromise on the returns. Sometimes these investments involve greater risk, but investors in this field are willing to take risks on a small part of their portfolios."

Are there identifiable trends in this field?

“Yes, there are. Last year, education was highly popular. The environment, of course, is very, very important to the various private equity funds and family offices with which we work around the world. All in all, interest in impact investing has been growing, especially recently."

What investment strategies are there in this area?

“It's important to identify business models that can address problems, and adapt them to one another. Not every environmental, educational or health problem, for example, can be treated within a certain time frame. Sometimes technologies do not yet exist, or there are problems for which it is impossible to measure the impact of the offered solutions. And - as I pointed out - the solution has to be measurable.

"What we're trying to do is to maximize impact wherever possible. For example, divert 10% of the assets in portfolios and investment funds to impact investments while adapting to existing solutions. Or to match innovation in environmental or agricultural issues to investors’ desire to have impact, and divert part of their money to sustainable investments."

Making an impact without sacrificing returns

Do you believe that investors can have a real impact, or are these investments intended to salve the social conscience of the wealthy?

"If you mean direct investment in shares of public companies, then the impact is generally more on the conscience level. Although we meet with the managements of these companies before or after we invest in them, we have no real impact on their decisions. By the way, today impact investments are available in thousands of public companies around the world. On the other hand, if a direct investment is made in a private company, and it can be monitored and measured, then this can certainly have a significant impact. For example, if you invest in a company that has innovative solutions to reduce the incidence of a disease in a particular Asian or African country, you can definitely make an impact."

According to the latest report published by UBS on the activities of family offices with which the bank works, around 38% of the offices were involved in one way or another in impact or sustainable investing, and 45% plan to increase their activity in this area in the coming year.

"There is a basic assumption that impact and sustainable investments will hurt a portfolio’s performance, but this is not so. At any rate, it hasn’t so far been proven. In other words, it is possible to invest in these areas and make an impact without sacrificing returns,” says Neghaiwi.

How can a small investor make an impact through his ir her investments in public companies?

"For example, an investor or fund manager who invests in companies operating in the plastics sector can contact the company's management and demand that it should make an in-depth assessment of the possibilities for recycling materials and avoiding harm to the environment. Another example - to examine within each sector which companies have the least adverse impacts on the environment and invest in them. This is a way of sending a signal to the market, because the direct impact on managements is low."

Neghaiwi provides another example: "The purchase of bonds backed by the World Bank to encourage certain activities around the world, instead of buying US treasury bonds. These bonds are designated for investment in sustainable projects in various regions of the world, such as agriculture in India. The World Bank gives them an AAA rating, enabling you, as an investor, to make an impact by investing in green bonds, while enjoying a reasonable yield.

“Basically," she notes, "we advise investors with large portfolios to examine where they can make impact investments without hurting the portfolio’s overall return - that is, to divert funds from regular investments to impact investments, wherever possible."

What proportion of total investment today is impact investment, and what do you believe it will be five years from now?

“That depends to a great extent on the investor, on his or her individual character. Surveys we conduct from time to time show that, today, 30% of investors are interested in diverting part of their money to impact and sustainable investing. I do not have exact figures, but I estimate that currently it only amounts to a small percentage of all the portfolios. Bear in mind that the field of impact investing was established and got going only 10 years ago, and only in the past three years has the sector gained momentum, with many investors realizing that they can make an impact on the world and make it a better place without compromising their returns, and with very low risk. And there are many ways to do so."

Are younger people more aware of, and more open to, impact investing compared with older investors?

“Yes, they are. Generally speaking, younger investors are more attentive and open to this topic than older ones."

Are these investments more focused on emerging economies?

“That used to be the case, but today it is possible to make many investments in companies in developed economies, such as the US or Israel. In Israel, for example, you can invest in many start-ups in the field of agriculture that can make a positive change in the world; an impact investor can inject money into them and invest through various kinds of funds."

Will this field grow?

"I think so, absolutely. This field must continue to grow and develop. In fact, we have no choice. Government and philanthropists’ money alone cannot suffice to make a real change in the world, so investors of all kinds - whether institutional, private, or investment managers - must pay attention and focus more and more on areas related to sustainable and impact investing."

Published by Globes, Israel business news - en.globes.co.il - on November 5, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Nicole Neghaiwi  photo: Ronen Mahlev
Nicole Neghaiwi photo: Ronen Mahlev
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