UBP is expanding its impact investment offering with the launch of a third strategy dedicated to biodiversity restoration. This strategy complements the offer focused on listed companies, launched in 2018, and one devoted to emerging countries in 2020. The strategies have so far raised $1.4bn in assets under management.
Marc Fassone: What is your definition of impact investing?
Victoria Leggett: For me, it means that as an investor, you should target companies that solve problems rather than those that cause them. There are many 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. And whether their returns are a direct consequence of the problems they will have helped to solve and not just a coincidence.
How do you concretely implement these principles in your investment processes and decisions?
Firstly, by using a rigorous process. We have our own impact assessment tool that we call IMAP [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 score for a stock to be eligible for inclusion in the portfolio or added to our watch list. Next, we must ensure that the impact dimension is truly integrated into the company's strategy and implemented.
To do 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 a real challenge. Many of the companies we invest in are solving problems and making a real impact, but they don’t know how to showcase that. Helping them on their way to clearer reporting on that impact is good for both the companies and our portfolios.
Do you invest globally or do you have sectors of exclusion?
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 industries that we feel are inappropriate to invest in, such as arms, adult entertainment, alcohol and tobacco. We also have restrictions based on carbon intensity.
How do you go about measuring the impacts of the companies in your portfolio given the disparity of data on the subject?
We have introduced an annual impact audit of the companies in our funds. This year, 124 companies across three funds were interviewed. Among the questions we ask are whether there is a sustainability report and its objectives, whether there is a sustainability officer, and whether there is a biodiversity policy. What is interesting is to see 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 communicate all the information we have. We have an annual impact report and an impact advisory board. The minutes of the meetings of this board are published.
It’s a way of engaging in regulatory change. It is a real commitment. In the same spirit, UBP is an active member of a number of international working groups. For example, within the Institute of Sustainability Leadership at the University of Cambridge, which has set up a working group on nature-related financial risks. Or within the UNPRI [United Nations Principles for Responsible Investment] to which we have been a signatory since 2012.
How do you view the EU’s Sustainable Finance Disclosure Regulation and the taxonomy? Are they accelerators of your commitment or potential sources of problems?
At first glance, I would say that these regulations have a net positive impact. Having your fund range labelled with Article 9--and we have--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 uneven. I think it is important that we manage to audit these data providers and ensure quality control. I think it is encouraging that the regulator is aware of this problem.
Responsible investment has moved from being a niche investment to 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 misallocation of capital. As efficient as the market is in valuing a company’s ESG performance--certainly because ESG ratings have developed strongly and have become more qualitative--it is 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 sight 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?
It’s a complex issue.
I think in every sector you can find companies that are making an impact. Let’s take the example of the mining industry. Everyone agrees that its net impact is negative. 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 or personnel. Do they have a positive impact? Is it socially positive to be able to divert people from a dangerous occupation, but also from a source of income? I think you have to think about it company by company.
Take the luxury sector. It is not driven by need, but by desire. Multinational companies operating in this sector also have the opportunity to create a positive business model for nature. I am thinking of companies that are doing exciting work, for example, in the area of silk mulberry farms, which can only grow under very specific conditions, and are trying to secure the future of the supply chain and the producer. The growers, if properly incentivised, will continue to grow these plants and you know, it will prevent deforestation. This approach promotes ripple effects.
UBP has just launched a biodiversity restoration fund, the UBAM Biodiversity Restoration fund. What is the objective of this fund and what are you selling to your investors?
The starting point is that over 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 is being done on climate change.
Our biodiversity fund is very much like our other impact funds: it’s about trying to access companies that are contributing to a particular problem. The biodiversity issue is closely linked to the food system and agriculture. So we are very exposed to the agricultural space and we are 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.
Originally published in French by and translated for Delano