Prioritizing social impact

What is the state of global development today in comparison to ten years ago?

Maya Ziswiler: Great progress has been made globally. More than 1 billion people have been lifted out of extreme poverty since 1990 with major advances in health and education. Life expectancy at birth is now 80 years and over the last 65 years the global literacy rate increased by 4 percent every 5 years – from 42 percent in 1960 to 86 percent today. However, the most impoverished, marginalized and vulnerable are still being left behind. In light of the United Nations' Sustainable Development Goals (SDGs), we’re taking a leading role at UBS Optimus Foundation in driving impactful philanthropy that delivers breakthrough solutions to these pressing social issues.

Describe the UBS Optimus Foundation. What is its main goal?

Maya Ziswiler: At the UBS Optimus Foundation we’re taking smart risks on evidence-based, scalable solutions with diverse partners to improve health, education and child protection systems. In educating impoverished children and keeping them healthy and safe, they can build stable societies capable of pulling their countries and economies out of poverty. The Foundation was set up by UBS in 1999 with the aim to help clients make more of a positive impact with their philanthropic efforts. Around 90 percent of our High Net Worth clients are philanthropically active, but less than 20 percent are satisfied with the level of impact. In many cases simply building a school doesn’t necessarily guarantee that children are getting a quality education, for example. Our social finance solutions focus on if the children are learning versus the number of schools built.

How would you define social finance and how does it differ from impact investing or sustainable investing?

Maya Ziswiler: We define it as maximizing impact through the use of financially sustainable models. Social finance bridges philanthropy and commercial investing as it involves trying to attract new types of capital to the social sector and making it more effective by focusing on results. It prioritizes impact and some financial return when possible, whereas impact investing at UBS aims at market-based financial returns and impact. Sustainable investing is a way to invest in alignment with personal values by integrating companies in an investment portfolio that reflect environmental, social and governance (ESG) values.

How would you describe a typical social investor?

Maya Ziswiler: In recent surveys, 66 percent of today’s millennials see social investing as a way to express their values. 88 percent of women want to make an impact through investing. Another survey conducted in Switzerland revealed that one third of the participants is willing to compromise financial returns for higher social impact. At UBS, we service a spectrum of social investors, based on their different risk, return and impact needs.

Can investors really make a difference with UBS’ social finance solutions?

Maya Ziswiler: There’s an annual USD 2.5 trillion gap to reach the SDGs. Donors and governments alone won’t be able to fill that gap. While it is huge, it represents only one percent of global financial assets. Essentially, private sector funding is needed, and if the right mechanisms to channel private funds to developing countries are in place, it can make significant contributions. UBS has introduced investment vehicles whereby maximum social returns are directly linked to financial returns. This means investors get higher returns if social targets are achieved.

What is an example of a successful investment solution?

Maya Ziswiler: One great example is our Development Impact Bond (DIB). It’s actually not a bond, but rather a results-based funding mechanism whereby investors provide capital upfront to an implementer, usually an NGO, to reach a predefined target such as to improve learning. Investors only get money back from an outcome funder (usually a donor or a government agency) if, and only if, learning targets are reached. DIBs allow investors to diversify their portfolios and profit from returns uncorrelated to the market. Implementers have the flexibility to innovate. Our pilot DIB with Indian NGO, Educate Girls, aimed to improve learning and girls’ enrolment in remote areas of Rajasthan, India over the span of three years. During this timespan, enrolment targets were surpassed, as were learning outcomes, resulting in a 15 percent return for investors and a bonus payment for Educate Girls. This was then re-invested into other philanthropic programs.

How is the social impact measured for DIBs?

Maya Ziswiler: To avoid conflict of interest, an independent evaluator measures and determines whether social impact targets have been achieved. The extent to which targets are reached (or not) will determine if and how much investors are repaid.

What’s in store for the future?

Maya Ziswiler: Beyond our first impact bond pilot with Educate Girls, we have launched pilots on a much larger scale to improve education and maternal and newborn health. We are also testing impact loan instruments that lower interest rates for social enterprises delivering high social impact. Another goal is to launch larger fund structures that blend philanthropic and commercial capital and cater to different risk/return profiles while guaranteeing a focus on impact.

Finally, we are currently exploring how blockchain could make impact bonds more efficient via smart contracts and by standardizing result verification.