How Private Wealth Could Save The World

How Private Wealth Could Save The World
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Two things are everywhere in Hong Kong: money and bankers.

Which one came first is less important than the fact that both are here and that makes it an ideal place to think about what money, private wealth to be exact, can do. And it turns out that it can do a lot.

I travelled to Hong Kong this past week for the Asia Financial Forum (AFF), a giant two-day meeting every year for the rich and their bankers along with a bunch of thinkers, fund managers, investors, regulators and every other type of person associated with the production of wealth and how to deploy it.

This year, 2,000 people attended the AFF, which was held at the same time as the week-long annual meeting of the World Economic Forum (WEF) in Davos. Another key gathering of rich investors, bankers, CEOs, economists and top government officials – including China’s President Xi Jinping.

The issue of private wealth came up in both. In Hong Kong, the conversations kept looping back to Donald Trump and Brexit, not to mention the US dollar and the record-breaking stock markets back at home in New York. Much of the conversation was also about how all these things distract from ongoing issues of economic development.

I think about this a lot and all the more since the United Nations launched the Sustainable Development Goals (SDGs) in September 2015, to replace the Millennium Development Goals.

On Monday, Jan. 16, UBS Wealth Management launched a white paper at the WEF on “Mobilizing private wealth for public good”. I’ve long held the opinion that channeling wealth effectively is key to sustainable development. Naturally, I was immediately interested in the UBS paper, which lays out a blueprint to channel private wealth towards the SDGs. The release of the paper in Davos was not coincidental but was in keeping with the meeting's theme of Responsive and Responsible Leadership. UBS also announced it will direct at least USD5 billion of client money into SDG-related impact investments over the next five years.

To learn more about what UBS discovered and its plans, I reached out to Simon Smiles, Chief Investment Officer for Ultra High Net Worth at UBS Wealth Management. His insights are very enlightening.

April Rudin: Why are the SDGs important?

Simon Smiles: The SDGs are 17 goals that the world should meet to be on a sustainable footing by 2030. They include targets relating to poverty, hunger, health, education, equality, peace, innovation, and the environment. They are important not only because sustainability is desirable, but because the world is falling so far behind in so many of these areas. For instance:

- In 2014, 780 million people in the developing world were chronically undernourished.

- In August 2016, human demand for natural resources exceeded what the planet can regenerate in a single year.

- For the first time in recent history, millennials have lower incomes than their parents.

However, judging from discussions at this year's WEF Annual Meeting, the world recognizes these problems and is prepared to invest significantly in workable solutions.

Rudin: How much money is needed to fund the SDGs?

Smiles: According to the Brookings Institute, it could be as much as USD5-7 trillion a year until 2030. To put this in perspective, world GDP was USD73.9 trillion in 2015. Given this, it will clearly be impossible to finance the SDGs using the world's annual economic output alone.

Thankfully, the world also has substantial savings it can invest towards the SDGs, lying with financial institutions, corporations, governments, sovereign wealth funds, and private individuals.

Rudin: How much funding for the SDGs is coming from private wealth?

Smiles: In our view, private wealth is an overlooked source of capital for the SDGs. Most SDG funding initiatives have failed to include a specific focus on private wealth, and most of the money still comes from institutional or public capital. This is especially surprising given that private household wealth globally totaled USD 250 trillion in 2015 – vastly more than the annual investment required for the SDGs.

Rudin: Which SDGs should private investors focus on?

Smiles: We think private investment can play a particularly important part in meeting six out of the 17 SDGs - those relating to:

- zero hunger;

- good health and well-being;

- quality education;

- affordable and clean energy;

- industry, innovation and infrastructure; and

- climate action.

In particular:

- investing in efficient agriculture and food distribution is key to alleviating hunger;

- investing in healthcare infrastructure and education should prevent ill health;

- investing in facilities and human resources should help education;

- investing in research and development will assist innovation;

- the right investments in renewables will make energy cleaner as well as more affordable and help counteract climate change.

Rudin: What's stopping private wealth from getting more involved?

Smiles: A combination of factors. It is unclear to what extent we are on track to meet each SDG because the relevant data is so poor. There are no standard terms, conditions, or disclosures on SDG-related investments. SDG-related investment is still relatively uncoordinated. Incentives for private investors are undeveloped.

Rudin: How can we mobilize private wealth more effectively?

Smiles: Again, a combination of measures. We need to improve data on the SDGs, specifically where goals are being met and where we are falling behind. We need to centralize the data and publicize it appropriately to raise awareness. We must standardize terms, conditions, and disclosures on SDG-related investments, to get private individuals more comfortable with how they work and what they can offer. We should improve connections between private investors, philanthropists, and other funders like institutions, through digital networks, in-person events and other means. We should scale up impact investments that generate additive, measurable sustainability benefits as well as competitive financial returns.

Rudin: What is UBS doing to help?

Smiles: We announced a range of commitments at the WEF Annual Meeting which should help mobilize private wealth towards meeting the SDGs.

- UBS will direct at least USD5 billion of client money into SDG-related impact investments over the next five years. This should help mainstream impact investing and its contribution to the SDGs.

- We plan to offer our clients at least one thematic and one pooled diversified impact investment a year. As part of this, our Group CEO Sergio Ermotti has announced a strategic alliance with private equity manager TPG Growth.

- We have committed to help launch Align17, a proposed new platform focused on connecting investors and philanthropists with SDG funding opportunities. A number of external partners have expressed interest in collaborating with Align 17, including the Gates Foundation, the SDG Philanthropy Platform, PwC, and The Rise Fund.

- Where appropriate, we will leverage our existing initiatives such as UBS's Optimus Foundation towards meeting the SDGs.

The SDGs are far too ambitious for one organization to meet, but hopefully our white paper and commitments can provide a blueprint for others to get involved.

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