By Victoria Leggett, Head of Impact Investing and Co-Manager of the UBAM – Positive Impact Equity fund at UBP
Simply put – for oversight, guidance and transparency.
In the words of Simon Pickard, Chair of the Impact Investment Committee at UBP:
“Impact investing in listed equities is young and industry standards are still being developed. Investors naturally require assurances that their savings really are furthering the UN SDGs. The Impact Advisory Board is a key part of that commitment, for its independent oversight and advisory role and for the expertise and experience of the SDGs that its members bring. It is a privilege to be able to call on their knowledge in our journey to create real impact through UBP’s impact investment fund platform.”
A key commitment of Impact investing in public companies is that we seek to measure the non-financial outputs of a company alongside its financial results. These measurements help us to assess if the company is making a positive impact with its products and services. The intent is to align our clients’ ethical and financial goals and move finance towards a more inclusive and useful role for society.
However, much of this data is subjective. If only a small proportion of revenues are dedicated to a positive impact product, but the intention is for this proportion to increase over time, how do we reward a company? Our answer has been to create a proprietary scoring system (IMAP), which uses a number of questions over 4 metrics to produce an end score. The system and the fund managers’ expertise are complemented by the all-important external perspective and diverse sustainability background of the Impact Advisory Board (IAB).
This has taken many forms, with each board member possessing different areas of expertise. When faced with an impact case for a portfolio holding, the board challenge the case and often task the portfolio managers with re-engaging with the holding company on various topics and reporting back.
For example, the portfolio manager set out the investment case for a Chinese company that engages in the research, development, manufacture, and sale of bus products, including New Energy Vehicles. The rather low IMAP score of 12 reflects the fact that the company is “on the cusp of IMAP acceptability”, with issues in particular around disclosure. Two board members highlighted issues around the value chain i.e. the sourcing of minerals for batteries and the electricity source, which need to be part of a circular, not a linear, economy. This brought the discussion back to how cultural differences can affect the level of disclosure and need to be a focus of engagement. The Board agreed with the IMAP score of 12.
Guidance can also be more thematic in nature as evidenced by our recent discussion on biodiversity and the IAB’s willingness to help both the Impact team and UBP more broadly establish a credible and ambitious biodiversity approach.
The minutes of the board meetings can be found on the UBP website alongside other documentation to meet our transparency commitments and empower the end investor with information on both the financial and the non-financial aspects of the funds.
Evolution and some surprises!
The IAB was designed with oversight in mind, not inspiration. And yet we are exceptionally fortunate to receive both. The thought leadership and encouragement has increased with every meeting as the board have developed a greater understanding of the product, the investment team, the underlying companies and UBP as an entity. It is also no coincidence that the role has broadened in this way as the board members feel they are heard and are making a difference.
This unique cluster of expertise has also witnessed and contributed to the evolution of our Impact franchise. From one fund, we are now a platform, with investments across the globe from France to India, Kenya to the US. Alongside the growth of the platform has come an increasing amount of regulation and fast development in the financial world’s approach to sustainability. The board remains a grounding and dispassionate voice in the face of so much change and such strong momentum.
The Chair of the IAB, Anne Rotman de Picciotto, sums her role up when she says, “The board is about more than helping individual companies to change... listening is vital in forming a response, which helps reform the very substance of our economies."