Vontobel: It's Time to Do More Than Just Talking About These Issues
Today’s world faces tremendous challenges from population growth, increasing urbanization, and prosperity in emerging markets. How do we address the harmful effects of climate change? It is time to do more than just talking about these issues, Vontobel's Lars Kalbreier writes.
By Lars Kalbreier, CIO Vontobel Wealth Management, based in Zurich
Governments and non-governmental organizations are not the only groups addressing these issues. Countless companies are successfully tackling these global challenges and helping create an environmentally sustainable and socially responsible economy for everyone.
They leverage economically viable and scalable business models to develop and sell sustainable solutions that have positive social and environmental impacts while generating financial returns. For investors, this is an opportunity for «impact investing» as a supplement to philanthropy, which is solely effect-oriented.
Popular Among Millennials
Impact investors aim to improve the world by their capital expenditures. Impact investing is particularly popular among millennials and charitable foundations, and these capital expenditures are growing at double-digit rates every year.
Some investors choose to invest in publicly traded companies whose products and services not only earn returns but also do good for society and the environment.
Targets Have to Be Measurable
These investors identify adequate equities, bonds, funds, or certificates. Other investors can, if they meet the eligibility criteria, buy equity directly or through funds in companies or projects that solve specific social or environmental problems and pursue agreed-upon impact targets. The targets have to be measurable and target people at the base of the income pyramid in order to have the greatest possible effect.
Good investment candidates include illiquid funds with lock-up periods (of ten years, for example) and regular impact reporting cycles. As described below, most impact investments are in healthcare, education, financial inclusion, and the environment.
High-Quality Healthcare and Prevention
Technological innovations like telemedicine provide affordable access to high-quality healthcare. Telemedicine saves time, is available online at home or on the road around the clock, and generally costs 70 percent less than a visit to the doctor’s office (USA).
It proves that high-quality healthcare can be made affordable and accessible everywhere, also in emerging markets. Prevention plays an important role as well. Positive consumer behavior changes to healthier dietary habits, such as replacing meat with plant-based food, can do much to significantly lower diabetes rates worldwide.
Make Good-Quality Education Generally Available
Affordable, good-quality education is out of reach for around one billion people, according to the UN.
Online learning platforms and educational services (such as online homework help or textbook rentals) make high-quality education affordable for students from economically disadvantaged families and have a «democratizing» effect by providing efficient access to education without discriminating based on race, national origin, or gender.
Financial Inclusion by Providing Access to Payment Services and Microloans
1.7 billion adults have no bank account, but 1.6 billion own a cell phone that can provide efficient access to banking services. Many governments worldwide recognize the disruptive, attractive price impact of fintech services that drive the financial inclusion of under-served populations.
The resulting efficiency gains are enormous and greatly benefit residents of remote areas. With a single click in an app, they can pay their bills or obtain loans.
Clean Energy, Sanitation, Drinking Water, and Efficient Resource Use
Air pollution is responsible for 4.2 million deaths worldwide each year, says the World Health Organization. According to government sources, China is investing $360 billion in renewable energy between 2017 and 2020.
Other important concerns include waste recycling and reducing the water and energy used to make products. Many emerging markets have largely ignored these issues despite their importance in helping people enjoy clean drinking water, decent sanitation, and less pollution. Numerous utility and recycling companies focus on tackling these very problems.
