Sustainable Investing: Measuring Impact

Former Director, Impact Investing at UBS

Why is this interview interesting?

  • How regulation is driving increased investor interest in ESG
  • Asset management frameworks for ESG investing
  • Typical measurement frameworks for social impact investing
  • Challenges in measuring impact and potential solutions to drive accountability

Executive Bio

Tenke Zoltani

Former Director, Impact Investing at UBS

Tenke was the Director, Impact Investing at UBS where she built the impact investing advisory offering for UHNW clients. Prior, she was an Investment Manager at Islan Asset Management in Switzerland and has worked in the emissions markets in London and Geneva analysing private market opportunities in emerging markets. She specialises in environmental finance, and advises international corporations, private foundations, financial institutions, and HNW individuals on direct investments. Notably, she also worked alongside Lord Nicholas Stern, author of the seminal Stern Review, in climate research and publications. She is a Committee Member in Geneva for 100 Women in Finance, a member of Sustainable Finance Geneva, a former GES Fellow, and sits on two impact investing fund boards. Read more

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Interview Transcript

To begin, could you lay out how you’ve seen the behavior of wealthy individuals, or high net worth individuals and institutions change, over the last decade, towards ESG?

I think it’s easier to answer on the institutional side, because it’s been very pronounced. I work largely with European institutions, so not very much exposure in the US. I work a little bit with Asia, as well. What I would say is, speaking from the European perspective, institutions and institutional investors, in particular, are having a greater focus on ESG. I think it’s driven by two components. On the financial institution side or the asset management industry, they feel that regulation is coming, especially in London, that is going to mandate that they consider environmental, social and governance factors, especially material ones, in how they conduct business and how they report, especially. This is so their shareholders and their investors are aware of potential risks, more than potential upsides.

I think potential regulation, on the one hand, is changing behavior. At the same time, I think the other factor is that there is just an awareness of environmental issues. I think, certainly, we can say climate change, but also everything from water scarcity and food security and energy efficiency. All these factors are being considered now, in how businesses are run and how investments are made.

On the social side and the governance side, as well, we have the same issue. Socially, how employees are treated, how customers and clients are handled, how business contracts are written, how well people are compensated and, of course, looking at gender issues. All of these things are more and more in the mainstream and this is changing weekly. You never used to have headlines about these issues and now, it really is every day. On the governance side, we’ve had quite a few fantastic blow ups and very obvious key man risks and, certainly, PR issues. I’m thinking of Elon Musk, in particular. If you look at how Tesla is rated, I know it’s a public company, but there’s huge governance issues there. I think an awareness of these issues, a fear of regulation and then, at the same time, I would say there is a little bit of pressure now, from either shareholders or stakeholders, to consider these, in how businesses are operating. These are coming together and changing institutional behavior.

On the private side, I think it’s less pronounced. In my experience, working with private investors, there has always been a focus on impact, inherently, with some of these people. They have been mission driven by certain passions. Whether it’s finding interesting technologies, whether or not they are good for environment, they still want to innovate. Looking at new building materials that can be applied to low-income communities. I think there have always been things that people are passionate about, and it’s manifesting itself in impact and now it’s got an impact investing name, so people can combine their passions and how they are spending their money. I think it’s less pronounced, but now we have a way of categorizing these types of investors and how this money is being put to work. I think it’s more prominent, just because we are hearing more about it, but I don’t really feel that of the older generation, that here are more impact investors. I do feel that is the case in the younger generation, but I think it’s more of an institutional shift.

Relating to the point you made on institutional investors thinking that regulation is coming, you mentioned Elon Musk there. He’s a character himself and there’s governance issues there. But we’ve seen WeWork or even Zuckerberg, and the questions over his control. Just in terms of the regulations, do you think the asset managers believe that there’s going to be some kind of compulsory reporting required? How do you think it’s going to work, when you have Musk, Zuckerberg, Adam Neumann, that have such great control, in some of these corporations?

On the asset management side, first, certainly the clients I work with in London, the asset managers, part of their motivation working with me, it’s very transparent, is that they think that regulation is coming, so they want to get ahead of the curve. It’s also informed, because they are often raising money for new strategies, new funds and they’ve realized that they can’t raise money from the development finance institutions of the world, or some of the banks, or certainly the pension funds, unless they have a very clear system for how they are measuring, or at least reporting, ESG. I think it’s moved very quickly. One client said, actually, “I’m having trouble raising money from the European Investment Bank. They have very strict criteria on having environmental and social management systems. We don’t have one; we don’t have an ESG policy. What do we do? How do we start?".

They are middle tier asset managers, so they don’t have hundreds of billions, but they do have the low, 5 to ten billion under management and under advisement. This trend is going to carry and is going to move very, very quickly. Whereas, on the governance side, with people like Musk and Zuckerberg, yes, I think it’s a very dense issue. You have the very nature of how the share classes are put together, particularly, what strings are attached to governance, when IPOs take place. I think this is going to change. It’s a bit delicate, dense, with venture capital and private equity firms, right now, especially in the US, that have tons and tons of cash and are willing to pay exorbitant amounts of money for accessing these companies. But this is certainly not going to continue forever. I think we need to strike a better balance.

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Sustainable Investing: Measuring Impact(December 2, 2019)

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