Changing finance, financing change

The advent of impact measurement for public equities.

Ensuring Impact

Since the launch of the United Nations Environment Programme Finance Initiative (UNEP FI) in 1992 there has been an increased awareness of an environmental agenda in the banking industry. Viewing sustainability as the product of environmental, social and governance factors, banks today are working hard to integrate these into investment decisions. Despite this integration, measuring evidence of change has historically been missing.

There is not yet enough data from social initiatives by public equities to track overall impact. Much data that exists has been calculated by a, reductionist approach, as a simple function of revenue from products targeting renewable energy, education or sanitation, which often does not always give the full pictureAs aid organisations and multilateral banks have learnt over the decades, merely investing in a social initiative is far from ensuring positive impact. Revenues do not always reflect the reality on the ground, as many other factors need to be taken into account.

Evidence-based answers

There is a clear consensus that impact measurement should be based on evidence, with most also agreeing that measurement should be in units of human well-being. This can be done using frameworks developed in the disciplines of public health and environmental science which model industrial systems and activity impact on humans..

Impact on human well-being can be understood in a broad spectrum, from employee management, the usage of local water and energy systems to the emissions of pollutants. By translating these factors  as units of human well-being, using existing science, more holistic view of the social impact of the enterprise emerges.

Using this approach, it is possible to measure the impact of global equities, providing an opportunity to balance the negative impact of a company’s products and processes against the positive efforts being made to redress those factors.. We can thus identify companies that create net positive impact.

We at UBS, have seen a growing demand among institutional and private wealth clients who want to understand how their investment creates a measurable impact. To do this, we are working with leading scholars in the fields of public health and water risks to identify and develop credible and user-friendly metrics of social impact.