Purpose Matters: Investing for Purpose

Posted on 18 November 2020

In our fourth in the Mishcon Purpose series, on Monday 9 November Rupert Welchman, Positive Impact Equity Manager at Union Bancaire Privée (UBP) and Partners Alexandra Whiston-Dew and Filippo Noseda of Mishcon Private discussed the emerging trends in ESG and impact investing, the difference between various approaches and their role for private clients in a post-COVID world.

The session was chaired by Alex Rhodes, Head of Mishcon Purpose.

The Mishcon Academy Digital Sessions.   

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

Welcome everyone.  I’m Alex Rhodes, the Head of Mishcon Purpose and I will be your host today.  We’re going to discuss the subject of investing for purpose and we’re incredibly lucky to be joined by Rupert Welchman, the Co-Manager of the Positive Impact Equity at UBP and he’s going to be in conversation with our partners, Alexandra Whiston-Dew and Filippo Noseda from our Private Department and they’re going to discuss emerging trends in ESG impact investing and the different approaches that clients can take, and individuals can take, to investing for purpose, particularly in a post-Covid world.  Rupert, maybe I could ask you to start us off.  If you could talk to us a little bit about the Positive Impact Equity team at UBP and how the way that you invest sort of differs from a classical investment approach.

Rupert Welchman, Co-Manager, Positive Impact Equity

Union Bancaire Privée

Alex, thanks very much and good afternoon to all of you.  So, your first question sort of, you know, what are we… what does impact investing mean to UBP and the first real catalyst for Victoria Leggett and I who are the Co-Managers and the sort of Founders of Positive Impact at UBP, really came with the publication of the STGs, the Sustainable Development Goals, and the Paris Agreement.  The second thing that really struck is in planning to launch impact funds was working the company… institutions like the Cambridge Institute for Sustainability Leadership who’s been running since 1988 and has been advising corporate and individuals on how to tread more softly on the planet.  The final shoe to drop, I would say, was at UBP we had great support from within so, really UBP is a privately owned bank set up in the ‘60s, it’s now managed by the second generation of that founding family and we found quite quickly that once we had formulated the idea of an impact fund that the family were keen to be involved, and indeed they are both personally invested but they’ve also directed the Swiss pension fund for UBP into the impact fund as well.  There’s something about impact investing which I think is much more magnetic, attractive and meaningful to those both who are around it professionally but also invested in it personally versus ESG.  The other element that we come across a lot is this misconception that if you invest in sustainable funds then you have to in some way give up some investment performance and this is why the slide here I think is so important because this is a report that was published by Morning Star at the beginning of this year so it doesn’t include a year that has definitely been unanimously pro-sustainability and responsibility and what the table shows you is that the green examples are where funds that are linked to sustainability are outperforming funds that are just traditionally invested and to give you some numbers here, this survey covers about 5000 funds overall, of which 750 or so are sustainable funds so, it’s a big, big cross-section of the investible market and what strikes me about this is, for me this puts to bed that argument about having to sacrifice returns to invest responsibly and maybe just to bring this up-to-date, if you look at the next slide you can see I’ve just taken two very general ETF indices here so, the yellow line is the MSCI world index, developed market and emerging markets, and then you’ve got the MSCI low carbon leader SRE, sorry SRI, leaders so, a mixture of lower carbon and also being responsibly invested and you can see that over the last five years, you’ve made really quite a considerable improvement on your returns by just passively allocating to responsibility and towards low carbon.  So, you know, that gives you the juxtaposition I hope of both the origins at UBP but then really why these funds, you know, these funds had been doing well as well.

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

Alexandra, if I could come over to you.  You look after large, complicated families and I just wondered whether you could share with us a bit about how they see their wealth and how they decide to invest it, you know, what purposes they seem to invest if for.

Alexandra Whiston-Dew, Partner, Mishcon Private

Mishcon de Reya

Yeah, thanks Alex and it’s really interesting to see what evidence Rupert has for that kind of investing because I think there is a general consensus around the families that we look after that they have a commitment and a responsibility with the wealth that they have, not only just to preserve it or to make more of it but also to think about the wider points of legacy and with the general public consciousness around impact on the environment and their local communities, I think that that kind of investing is something that’s coming more and more in terms of their strategy. 

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

Because Filippo, you’ve got years of advising European business families and of course the European model for family business holdings is slightly different from the Anglo-Saxon one, perhaps putting larger emphasis on families investing in the family business over time and for generations and generations, and I thought, you know, hearing from Rupert in terms of the way that they investment world is going but it would be interesting to hear from you in terms of whether you see with those families an increased focus in the way that they’re running their own businesses on these issues. 

Filippo Noseda, Partner, Mishcon Private

Mishcon de Reya

Yeah, absolutely, a lot of the families I look after tend to have a connection with continental Europe.  A lot of them still live in the community, they might have a bigger gate, higher hedges but they are still very much, they are plugged in their communities, so for them considering the impact of their businesses on the local community in terms of pollution, also sustainability in terms of an impact, in terms of shifting production abroad which was an imperative in the 1990s to a very a short time ago where production had to shift to the Far East but now a lot of families are thinking about bringing production back into Europe.  Zara, for example, sources a lot of its garments from the Maghreb because it’s quite easy to come into Spain.  In Covid and recent scandals about supply chains, in particular in China with the allegations that big companies have used Uyghur camps to produce stuff, have been very, very damaging.  So, in a way, it’s interesting, Alex, that when we started discussing about sustainability and what Rupert and his team are working on, looking at it from a funds perspective, it was not something that I had the privilege or I was asked to comment on and I thought, mmm, is it not relevant for my clients and then I realised that, actually, a lot of what my clients do is about sustainability and impact but perhaps more still in a production world rather than an investment world but it’s interesting to see that the other families, for them, impact and sustainability is very much at the core of what they are doing which I find fascinating. 

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

Reputation is pretty important in all of this, not only if you’re one of Filippo’s clients with a big business and you need to be running it in a way that’s, you know, playing it’s social and environmental part but also in terms of the way that you’re investing.  How important do you see that in terms of the way that people are actually deploying their capital? 

Alexandra Whiston-Dew, Partner, Mishcon Private

Mishcon de Reya

I think it’s important but there’s often a factor alongside other factors, of course, but I think it’s certainly growing in importance when you think about what I was talking about earlier about the increased scrutiny and the spotlight on people and what they do with their money now.  But I think what is interesting about reputation is also the question of control and whether the reporting mechanisms and the difference between ESG and impact and various other gradations of what you can invest in and how that creates an impact on the environment or on your reputation and how those with money feel that they can control that investment so, going, juxtapositioning that between what Filippo is saying in that if you live close to your factory or your community then you have a stronger control mechanism over what your investment is doing and how that reputation may be attacked or perceived, whereas investing in companies where you have little reporting or perhaps less detailed reporting, there’s a different reputational risk between those two things and I wonder whether Rupert you’ve seen that from your experience how people approach that investment and whether they prefer actually to look at something closer to home because it has, you have more control over it?

Rupert Welchman, Co-Manager, Positive Impact Equity

Union Bancaire Privée

Its, yeah, it is a tricky question because I think we’re still, you know, we’re still battling it out with the investment returns priority over the doing good priority and, you know, the truly focussed impact funds niche is still tiny really, it’s absolutely tiny and I mean it’s definitely growing, we get a lot of interest but it is tiny and with our funds, I think you can, and there are five or six really good providers that do this I would say and they can argue the case of reputation with investment returns, what we feel when we are trying to provide these types of funds is that it’s much more harmful to us to have a controversial company than it would be say for a general fund and that kind of reputation is something we take quite seriously.

Alexandra Whiston-Dew, Partner, Mishcon Private

Mishcon de Reya

And I think from what you are saying that of course if you are setting yourself out to be an honourable investor then you are raising the bar by which the public or the media or your partners or your children are going to challenge you by so there is more of a reputational risk if you are going to aim high than if you were just going to say actually, I’m just trying to preserve the wealth for the next generation.

Rupert Welchman, Co-Manager, Positive Impact Equity

Union Bancaire Privée

Alexander, I totally agree, we’ve got, you know, this company which I’ve known for a long time called Corticeira Amorim down in Portugal who are the world’s largest cork stopper maker so, they use cork for lots of different products but mainly for good wine, and they produced something called a lifecycle analysis of cork showing that cork was a negative carbon stopper, you know, compared to what you might have at the top of your bottle, i.e. plastic or metal, and but they produced it in 2007 and it was only in a conversation with them, and to Filippo’s point, you know, they live around their factories, it’s really sort of a very sort of geographically focussed operation and they said look here, we’ve done the analysis on… third party analysis on the benefit of using cork and, you know, sometimes great companies and great families have actually done all the work beforehand and it’s, you know, there can be a sort of… the timeframe can get split behind what you read about say about responsible investment and actually what’s going on in the ground and we try to use those examples of companies that have already done it, you know that are already expert at this kind of information and had it all, you know, give that on to other companies and say this is the way to do it. 

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

So, happily, responsibility isn’t an entirely new thing in business?

Alexandra Whiston-Dew, Partner, Mishcon Private

Mishcon de Reya

Sorry, I was just going to say that it’s quite hard sometimes to get businesses or family officers or families to do that work in advance but if they’re thinking about impact or ESG in advance and preparing and looking at the risks then that obviously is very helpful when it comes to trying to deal with a crisis at the end but also being able to have the correct communications to reach out with that risk analysis that they’ve done, it’s quite hard to land that when the public agenda is moving so quickly and so from a reputation perspective, that can be quite difficult.

Alex Rhodes, Head of Mishcon Purpose

Mishcon de Reya

Thank you, all three of you, we’ve run through our time but it’s been a really wide-ranging but fascinating conversation and thank you very, very much for joining us.

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated, please visit Mishcon.com.

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