Entrepreneurs have created “exceptional” amounts of wealth over the past 25 years, and this has ushered in an “unprecedented, exponential increase” in philanthropy today, says Tom Hall, global head of social impact and philanthropy at UBS.
Citing Forbes, Hall says total capital in foundations and donor-advised funds is set to grow from some US$2 trillion ($2.7 trillion) to US$10 trillion by the mid-2030s.
But beneficiaries of the intergenerational wealth transfer have different priorities. Hall cites UBS’s Billionaire Ambitions Report 2022, where 95% of surveyed billionaires said they should use their wealth or resources to help tackle global challenges.
Also, the next generation may choose not to add to the philanthropic “bucket” that their family has already established, says Hall in an exclusive interview. “80% of [the] next generation say they want to get an impact alongside financial returns. That’s game-changing.”
A fast-moving consumer goods (FMCG) business may sell a popular, unhealthy snack, for example. “That might generate short-term revenues, but it could be contributing to [a] medium-term diabetes crisis, which is going to cost you in the long term in society. How do you factor that into the P&L of that company? We currently don’t have a way to do that.”
See also: Investing for impact? Learn these lessons from ESG investing
The investing community is still unsure about whether impact can truly be measured, says Hall, who has spent more than a decade at UBS. “Some things are harder, some things are easier to count. We believe everything is measurable; it’s just about working out what’s the right metric to measure, making it simple and standardising it.”
Still a Wild West
Speaking on the sidelines of the UBS Social Impact Forum Southeast Asia 2024 in January, Hall says the impact industry requires a “standardised system”, similar to how bonds are rated.
See also: T Rowe Price’s Global Impact Equity Fund seeks returns and measurable impact
“It’s a little bit of a Wild West at the moment. One fund will have its own proprietary report [that] is 72 pages long; it may be quite robust, but I can’t even understand it and I’ve been working in this space for 20 years.”
Rather than attempting to calculate an aggregated score, however, Hall hopes for a system “that tells us certain critical things”.
The most critical thing, according to the London-based executive, is “core additionality”. “ESG looks at all these factors in aggregate, but that’s not the impact we’re driving; that’s just: ‘Do you have good governance? Do you have good supply chain management?’ When you’re talking about actual specific driving of impact, then you specifically measure a certain outcome,” he adds.
Hall cautions against conflating investments into an activity with actual impact. “Impact isn’t how much I’ve invested in trying to solve a problem. Okay, I’ve trained 1,000 teachers. Well, that’s actually an activity. The question you need to ask is: ‘Did training those teachers lead to the kids that they taught learning more than they would have done otherwise?’”
Ultimately, all impact is about measurable outcomes, he adds. “What has been the tangible change as a result of the investment and the activities that I’ve driven? Using that example of education, what you want to understand is, a child should pass an exam at grade nine, or even earlier than that, [or] they should reach a [certain] reading age level.”
Billionaires want in. Should you?
See also: ‘Strong storytelling, clear visual aids’ help ABC Impact explain impact of investments
For some, impact as an investment consideration has elbowed its way into the typical risk-return conundrum. But this is not everyone’s game.
“If it’s your granny’s pension, risk and return are probably the most important factors; you can’t lose that money. And obviously, the financial services industry has a fiduciary duty to make sure that they are investing in the safest possible investments based on the suitability of the investor and what they’re looking for.”
Philanthropic capital — that US$10 trillion in projected funds by the mid-2030s — might be willing to accept zero returns in exchange for maximum impact, but “middle ground” pools of capital might be more conservative, says Hall.
“Social finance, or that sort of middle ground, is maybe somewhere in between. It’s not your ‘don’t lose it’ money, it’s not really your philanthropy [fund] yet, so you definitely want capital preservation.”
He adds: “If you have two investment opportunities, and one is going to pay you a 15%–17% return, [it] looks really attractive [but] it’s not measuring impact at all; and the other pays you a 9% return but it’s causally proving, as part of its investment thesis, that it’s going to educate 10,000 students from disadvantaged communities — for you, if that’s what you want to do with your money, that might be a better investment for you.”
Minimal risk, acceptable returns and maximum impact may sound like a pipe dream, but Hall hopes such opportunities become more rife in the future. “Ultimately, what we need to do as an industry is have investment opportunities across that spectrum of different risk, return and impact profiles.”
Photos: UBS
Read the full cover story:
