Marisa, you’re the CEO of a newly created department at Crédit Suisse dedicated exclusively to impact: Impact Advisory and Finance (IAF) Department. What was the motivation for Crédit Suisse to create the Department, and how do you think it will influence the group’s global strategy toward a greater volume of SDG-aligned investment?
The motivation for establishing this department stems from the belief that the business community can be an essential driver for sustainable development and human prosperity and that a global financial services company like Credit Suisse has the ability to influence and foster meaningful change. Credit Suisse is in a privileged position as a pre-eminent wealth manager and a leading capital markets house to utilize our investment platforms, structuring expertise and extensive client connections to help attract capital to where capital is needed most in the world in order to support the UN’s SDG agenda.
“Our clients across the board request us to identify opportunities to invest for financial return while making a positive environmental or social impact.”
As much as we believe the rationale for the IAF Department fundamentally begins with the bank’s responsibilities as a global citizen, it is equally a response to the demand we see from our key client segments across the board – our private wealth clients, our institutional clients and our corporate and financial sponsor clients – to identify opportunities to invest for financial return while making a positive environmental or social impact.
The creation of the IAF Department has brought Credit Suisse’s extensive impact investing and sustainable finance efforts globally into one overarching organization that is mandated to define, guide and coordinate the firm’s activities in this sector. The Department reports directly to our Group CEO, Tidjane Thiam which itself signifies internally and externally the strategic importance of its mandate to the bank and facilitates the execution of our strategy which includes the ambitious objective to help close the gaps identified by the UN SDGs. Our centralized IAF organizational structure means that there is a single focal point globally for impactful investment opportunities that arise or that we create. It also allows us to more efficiently share best practice, leverage and promote regional impact initiatives across the bank and deliver holistic sustainable and impact solutions for our clients.
Could you give us some examples of the types of investment vehicles the department is developing/using?
We currently offer impact investment opportunities for our clients on our wealth platform across a breadth of asset classes and diverse types of structures, ranging from bespoke impact investments that we have created in-house to ‘best-in-class’ third party impact fund managers. These investments can have a thematic focus, most often aligned to one or more of the UN SDGs or via a regional focus with the express intention to create positive impact as the unifying theme.
“We have reached 5.8 million low income people with our investments across South East Asia in education, healthcare, and sustainable agriculture through our private equity fund”
Examples of proprietary investments include our 7 series of Higher Education Notes (“HENS”), which are debt instruments targeting SDG 4. The HENs have financed access to higher education at the world’s finest universities for over 5,000 bright students from frontier markets. We have a thematic version of this note technology targeting financial inclusion and have reached 30,000 individuals at the base of the pyramid (“BoP”), many of whom are women so aligned with SDGs 1, 5, 8, and 10. We have yet another version of these notes addressing conservation, SDG 15. Our Asian Private Equity Fund, which is a regionally focused impact private equity fund targeting the BoP, has reached 5.8 million people with our investments across SE Asia in education, healthcare, and sustainable agriculture (SDGs 3, and 15 amongst others). On the liquid end of the investment spectrum, we are an active underwriter of green bonds (SDG 13) and we offer listed impact funds along themes such as electric mobility and alternative energy.
On the development side, we are working as we call it to ‘fill in the white spaces’ in order to add additional attractive investment opportunities along more SDG verticals that are important to our clients and across an even wider range of asset classes (cash alternatives, liquid equity and debt, private equity and debt, etc). Some of the topics that are generating significant client interest today include gender-lens investing, ocean conservation and the overall ‘Blue Economy’, and the effect of plastics on the environment.
Credit Suisse has been a pioneer in the Impact Investing field: “2017 marks the 15th year of microfinance and impact investing at Credit Suisse, a field in which the bank has been a pioneer.” In your opinion, what has been the major progress in the field?
There has clearly been enormous progress over the last 15 years. This sector has moved from being something that was truly on the ‘fringe’ of the investment universe to increasingly becoming main-stream. Certainly promulgated in part by the creation of the SDGs, there is now broad global acknowledgement of the world’s biggest challenges and the need for a globally coordinated response. The SDGs provided a much needed framework and a unifying language which the global investment community has adopted. The SDG framework also allowed the investment community to be able to quantify the size of the gaps and led to the realization that government and philanthropic capital is not sufficient – the for-profit private sector needs to participate if the SDGs are to be met.
“Increasingly the world’s largest asset managers apply ESG strategies to their entire portfolios and the vast majority align their sustainable and impact investments with the UN SDGs: Impact Investing cannot be viewed as a passing fancy”
Sustainable investments, which reached a market size globally of $23 trillion in 2016, and impact investing, which reached $228 billion in 2018, are both so material in size and growing annually well into the double digits that they cannot be viewed as a passing fancy. Survey after survey suggests that not only are more players allocating capital to both sectors, but that in the case of sustainable investing, increasingly the world’s largest asset managers are applying ESG strategies to their entire portfolios and that the vast majority of them are aligning their sustainable and impact investments with the UN SDGs. The recent annual Global Impact Investor Network (GIIN) survey also suggests that for impact investing, we have moved from the ‘why to the how’—when people no longer need convincing, it is a sign that broad adoption is in the making
Beyond the traditional players in development finance, such as the DFIs and MFIs, we have seen the entrance of a wide range of professionals from all walks of financial services actively promoting and participating in the space—asset managers, banks, insurance companies, pension fund managers, private equity and the like, as well as other supporters from the fields of consulting, accounting, and academia--lending structuring and capital markets expertise, thought leadership, rigorous research, data and analysis all to support the development of this field. These participants are helping to provide much needed investment benchmarking and performance data as well as more comprehensive, and in some cases, more standardized forms of tracking and measurement for understanding the true impact our investments are making. I also have to applaud the media for their active engagement in keeping the topic in the spotlight which is also helping to push our collective agenda.
What are the remaining challenges for the SDGs aligned investment sector to grow?
While the progress highlighted is tremendous, the sector is still young and faces similar challenges to those of other asset classes in their formative stages. One of the most significant is the lack of a sustained track record of performance through different market cycles. There simply has not been enough history to convince the sceptics and those with a fiduciary responsibility to their stakeholders that they can genuinely point to market-based returns. Increasingly, however data is emerging to show that these investments can satisfy a range of investment objectives – risk mitigation, diversification, dampened volatility – all while generating attractive returns for their investors. The most significant supportive data today exists for sustainable and ESG investments, but in the latest GIIN survey, even the impact investing community overwhelming reports that their investments are meeting or exceeding their return expectations.
“It is just a matter of time before investment opportunities surface to meet investors’ needs”
The second biggest challenge today is the lack of investment opportunities that meet existing demand. In some cases, this is a function of size (i.e. the size of the investments are too small for the scale of capital that bigger fund managers are seeking to deploy). In other cases, the investments do not offer the structural requirements of the investors such as liquidity or short enough duration. In still other cases, investments in the themes of most interest to investors do not exist, or do not exist in enough depth. As significant as the SDGs have been as a catalyst for sustainable and impact investing market growth, I do not believe they were established purely as an investment tool and therefore some SDGs lend themselves more easily to returns generating investments and perhaps others are better served by the non-profit sector.
I call the second challenge a ‘high class problem’ in that more investor demand exists than supply – I would far rather see this than the other way around. History proves that whenever the supply side is a fundamental market constraint, it is just a matter of time before investment opportunities surface to meet investors’ needs. There are great minds at work across the financial services sector seeking to address this challenge (including at Credit Suisse!), and I have no doubt we will be able to close much of the for-profit investing opportunity gaps in due course.
What are your top priorities to make impact investing mainstreamed within Credit Suisse and how do you think you can influence the sector at large?
Our top priorities are directed at fostering both the demand and supply side of the equation. We seek to raise further awareness among our relationship managers, so that when they engage with clients they are better able to stimulate and capture the demand for sustainable finance and impact investing.
At the same time, we are acutely focused on adding more investment opportunities to meet the demand. For our private wealth clients, we broaden the depth and reach of the investments on our platform that allow our clients to express their families’ values and passions for making an impact through their investing. For our institutional clients, we deliver investment opportunities at scale and in liquid structures that satisfy their fiduciary requirements. For our corporate clients, we provide investment banking advice in order to assist them in achieving their sustainable objectives. This may be in relation to Mergers & Acquisitions - for instance, purchasing a wind or solar asset - or in the context of these clients being issuers of green securities.
Beyond the ability to influence the sector by raising capital and directing it towards closing the SDG gaps, we also want to continue to help the sector mature and “professionalize”. One of the ways we can do this is by using our platform and voice to engage pro-actively with other industry participants to set the bar for ‘what good looks like’. To this end, we have participated in industry-led forums to help promote industry principles, measurement guidelines, research white papers and the like with such partners as the IFC, the GIIN and academia. We also feel that we can collaborate with others in the industry to use our structuring and capital markets experience to help unlock some of the barriers to crowding in larger scale capital and in this respect, we are members of initiatives such as the Blended Finance Taskforce sponsored by the World Economic Forum. We admire and are in dialogue with numerous other progressive thought leaders and partners around the topics of innovative social and environmental finance with such organizations as the World Bank, OPIC, The Nature Conservancy, The Milken Institute, the Gates Foundation and many others. The theme running through all of this of course is SDG 17: Partnerships which is one of the key hallmarks of the effectiveness of the UN’s approach to the Development Goals in the first instance.
Credit Suisse has shown strong leadership and commitment to some of the UN’s Sustainable Development Goals (SDGs). As you align your business with the SDGs, what role do you expect the UN to play?
As we go forward, the UN can and should continue to advocate for the global community to stay engaged on this topic. The extensive outreach and publicity that surrounded the launch of the SDGs was extraordinary and can be done effectively with only the type of global platform and convening power that the UN has. A developing market needs to ensure that it captures consistent mindshare so I would encourage the UN not to reduce the intensity and level of its general broad-based external SDG communication. However, I believe it can also use its position and voice to more specifically advocate for greater capital markets engagement in financing the SDGs.
Additionally, two of the challenges that hold back progress and feature high on financial industry participants’ worry lists are the lack of a common definition and segmentation of the impact investing market, and limitations on the level of governmental support for the market. Despite the framework provided by the SDGs, there is not a universal set of agreed definitions for the terms ‘responsible investing’, ‘socially responsible investing’, ‘sustainable finance’ and ‘impact investing’. Perhaps the broad adoption of the UN framework would allow it to become the standard setter for definitions in the first instance and then to follow with helping to further segment the SDGs into investor-friendly categories. On the second challenge, once again the UN is uniquely positioned to promote further government and public sector engagement and act as host for a global debate and progress on such topics as tax and other incentives (such as capital relief) for sustainable investments, universal agreement on regulated sustainable financial disclosure and impact reporting.
Finally, I would encourage the UN to continue to commission and produce rigorous research and data on the market. Proving out the returns story and showcasing examples of good investments aligned with the various SDGs would all positively contribute to what the private sector is now doing. More data to corroborate and support the underlying ethos and mission of the SDGs for the investor community will only serve to enhance its development and success.
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