Failure to manage environmental, social and governance (ESG) risks and opportunities means losing out financially, according to General David Petraeus, the former Central Intelligence Agency director now with private equity giant KKR.
“In our business, we’ve learned that successful commercial investment results depend heavily on a variety of environmental, social, and governance (ESG) factors,” Petraeus is quoted as saying in a new White Paper on sustainable investing published by Swiss banking and asset management giant UBS.
“If you don’t manage ESG risks or seize opportunities to improve ESG fundamentals, you inevitably lose out financially,” he adds.
The former four-star general, who led forces in Iraq and Afghanistan before heading the CIA under President Obama, added: “Climate issues, social unrest, governance challenges, geopolitical risks – these can all have negative effects on long-term performance if you’re not aware of them and actively mitigate the risks posed by them.”
He was speaking to UBS in his capacity as Chairman of the KKR Global Institute, a think tank within the firm.
The UBS paper – Partnerships for the goals: Achieving the United Nations’ Sustainable Development Goals – outlines UBS’s push to make the SDGs investible.
It said it has designed what it says are the world’s first 100% sustainable, cross-asset strategic asset allocations for private clients that contribute to achieving the SDGs. During this process, UBS found “very clear” gaps in the current sustainable investing strategy universe.It said: “The lack of available instruments for generating positive societal impact in publicly listed equities and the heavy skew toward exclusion based equity instruments at the expense of fixed income and private market solutions are particularly apparent.” It is partnering with Hermes Investment Management to “define and develop” a shareholder engagement strategy on the SDGs.
The report, timed for the World Economic Forum in Switzerland, is also critical of “greenwashing”, at one point calling for sustainable investment standards to prevent companies from raising funds for renewable energy while using them to fund fossil fuel power stations, citing a $150m “green bond” from Tianjin SDIC Jinneng Electric Power Co Ltd in August last year.
It also teaming up with the World Bank on a pooled highly rated debt allocation and working with organizations including PwC, Linklaters, the International Finance Corporation (IFC) and Hamilton Lane to support Align17. Align17 (reported by RI in January last year) is an independent, open architecture direct investment platform initiated by the WEF’s Young Global Leaders.
Align17 was developed over the past year, and UBS says it “stands out in connecting a wider range of public, institutional, and private wealth investors with SDG-related investment opportunities”.
UBS says Align17 is key to the effort to expand private market impact investments that deliver market rates of financial return and measurable societal impact: “We call on others to join us in backing it.” UBS stresses that it will not be involved in selecting the investments on Align17, nor will it perform due diligence or sustainability reviews of them.