Why this institutional investor’s impact play matters
UBS makes a move toward impact investing
Last week, Swiss bank UBS announced the launch of a new Global Impact Equity fund that’s focused on “long-term growth opportunities which aim to generate a positive social and environmental impact, alongside a consistent financial return”. The bank will invest in somewhere between forty to eighty publicly traded companies that have “positive and tangible impact on human well being and environment quality” — industries like clean energy, clean water and food security.
This is a big moment for impact investing. I’ve written before about how investors need to shift from two-pocket thinking (a pocket for profits, a pocket for charitable giving) to a one-pocket mindset (investing for both profit and social good). When a big multinational corporation embraces this mindset, it’s a big deal.
Why? Nearly all the investable capital in the world sits in large institutions like UBS, other banks, and insurers. These organizations control the pension plans of school teachers and government employees; university endowments; and the savings of the world’s richest people.
When a large institution does something like this, it not only has the potential to move a lot of money around; it also signals a trend to investors across the investment spectrum. Basically everyone who participates in the current financial system is affected, directly or indirectly.
This also affects us as consumers. CEOs of public companies often make decisions based on what their major investors want. If UBS has a large stake in public company X, then company X will pay close attention to UBS’ actions. If UBS hints that they value long-term, environmentally productive investments over short-term, environmentally harmful ones, then public company X will notice. If we have more mission-aligned stockholders, Fortune 500 companies will pay attention.
UBS’ move suggests that there is demand from consumers for more one-pocket investment opportunities, and it suggests that large institutions are seeing the long-term profitability of one pocket investing.
Why do we care about big institutions? This spring, the Kauffman Foundation brought together a gathering inspired by President John F. Kennedy’s ambitious proclamation that America would be the first to land on the moon. The meeting brought together investors, foundations, Wall Street firms, community banks, micro-lenders, financial technology companies, and nonprofits to imagine solutions that might help make another moonshot possible — a trillion-dollar collective investment in entrepreneurs across the United States to restore the American Dream. We put together a great report with our good friends at Access Ventures that you should read now!
It’s a bit early to call this a movement — it’s just one bank (though a big one!) and just one type of investment (quite different than what we are doing here at Village Capital) — but it’s a step in the right direction. The movement from where we are today to trillion-dollar collective investments is going to take players from across the investment spectrum. UBS’s announcement is definitely a positive thing, but also a reminder that we have a long way to go before we get to a financial system that works better for everyone.