UBS Optimus Foundation (UBS OF) is an independent philanthropic foundation associated with UBS, the world’s largest wealth manager. UBS OF uses a range of grant making and investment tools, and approaches such as blended finance and outcomes-based finance, to fund scalable, evidence-based approaches.
UBS OF’s approach is based on a recognition that in order to achieve the Sustainable Development Goals (SDGs) we need a combination of more financing and better results. To raise more financing, UBS OF follows a dual approach of engaging more UBS clients to donate philanthropically, while at the same time making use of investments, through blended finance structures, to engage more commercial capital into social and environmental development. To achieve better results, UBS OF has strongly engaged in promoting outcomes-based finance, which at its core is simply a shift to paying for results, rather than paying for action. This approach puts the emphasis and ownership on the partners implementing programs, giving them flexibility to innovate, change, and focus on continuous improvement.
We spoke to Dhun Davar, Global Head of Social Finance at UBS OF about how they engage in blended finance as a foundation, how they measure impact, their focus on outcomes-based finance, and much more.
In your own words, can you tell me about UBS OF and how it engages in blended finance?
By being closely associated with UBS AG, a major wealth and asset manager managing over USD 5 trillion in assets, UBS Optimus Foundation is in a unique position to draw commercial capital into social and environmental programs that otherwise would not receive funding. This is made possible by approaches such as blended finance and the unique collaboration opportunities with various parts of UBS. Why is that? Because many UBS clients are seeking exposure to impact, and while UBS already has a significant offering, UBS OF engagement expands this offering to further opportunities that would have previously been impossible. These opportunities are of interest to philanthropists that are supporting UBS Optimus Foundation and keen to leverage their impact - while also offering UBS clients - investment opportunities that did not exist previously or that they would not have had access to.
Can you describe one or two blended finance transactions that UBS OF has been involved in? In what capacity did the foundation participate?
UBS OF started making impact investments in 2015 and we launched the first blended finance fund in 2022. Two examples are:
The SDG Outcomes Fund, which is a Luxembourg domiciled fund that invests in outcomes contracts (outcomes-based funding program). UBS OF provides 20% first-loss capital to unlock additional capital from investors in the fund, the UBS OF investment is in turn supported by donations from over 30 UBS clients.
Investors will receive returns linked directly to verified social and environmental outcomes. As the junior/philanthropic share class investor, the Foundation takes the highest risk and lowest return, but if the fund overperforms the foundation can even catch-up to the highest return share class. This is attractive for UBS OF as a fund like this builds on our successful track record in outcomes-based financing, but at the same time raises five times more capital than would have been possible if the Foundation had done it alone.
Other investors include the United States International Development Finance Corporation, British International Investment, as well as four family offices that are leading the private investment component. The fund is being managed by Bridges Outcomes Partnerships, who have a strong track record in outcomes-based finance in the UK, and who have partnered with UBS OF to apply this experience globally in lower and middle income countries. The fund focuses on education, employment, health and the environment.
Another example is the Future of Work fund (FWF), run by Chancen International, a fund that provides financing for students in the form of income share agreements. Given the early nature of this initiative, to date we’ve supported the FWF fund with a grant and with an investment. Student financing is an area we are doubling down on. With global demographic changes currently underway, a large part of the future youth and working age population will live in Africa, the Middle East, South Asia, and Southeast Asia. Ensuring people in these regions are well educated and productive will be key for their personal growth and outcomes, the health of the communities they live in, as well as global prosperity.
How do you measure the impact of your blended finance activities? What does that impact look like?
We measure impact in blended finance transactions the same way we measure impact in any of the foundation’s other grants and investments. In 2023, we developed and rolled out our own industry-aligned impact rating tool that aims to assess programs against three impact categories: intentionality, additionality, and measurability. What we add or emphasize in blended transactions is the financial leverage and scale that the transaction can achieve. It is important to achieve scale, but also to leverage commercial capital, which is the main point for considering a blended finance transaction.
What advice do you have for foundations who may be interested in entering the blended finance space?
We see opportunities for corporate and philanthropic foundations to play a bigger role in de-risking blended finance transactions, catalyzing innovation and enterprise and achieving a much greater multiple in terms of scale than they would otherwise be able to do. Our advice would be to get experience and develop your team and knowledge on approaches, actors, and get access to opportunities. A great way to get started is partnering on a deal or transaction. Perhaps consider partnering with other experienced foundations as a route for engagement and building your capabilities. In short, get engaged!
UBS OF has been a big supporter of outcomes-based finance transactions, especially in the education and health sectors. What have been some key learnings for supporting these transactions? What are you doing in order to scale up this approach and ensure that such transactions are more efficient/have larger deal sizes.
The SDG Outcomes Fund is our answer to scale. It is the biggest investment fund in this space so far. In order to develop the market, we are working closely with stakeholders to continue shifting the social development and environmental space to focus on results.
The SDG Outcomes fund is also a way in which we are seeking to transition from investments with concessional capital to pure commercial investments. In early programs, UBS OF acted as the sole investor, however with the SDG Outcomes Fund, we’ve reduced this exposure to 20%, with an aim of such structures being fully funded by commercial investors in the long run.
At the same time, we are working with like-minded partners to build the market for outcomes-based finance by getting more programs into the design and scale stage. One of our key initiatives in this area is the Outcomes Accelerator, which we have launched together with the UK Foreign, Commonwealth and Development Office (FCDO) and the Swiss State Secretariat for Economic Affairs (SECO). The objective of the Outcomes Accelerator is to fund promising outcomes based programs to launch and scale. As part of this work, we support an annual conference of practitioners, the Outcomes Finance Alliance.
Finally, we work with partners such as FCDO, SECO, the Organisation for Economic Co-operation and Development, the World Economic Forum, and others to advocate for better effectiveness in development funding, with outcomes-based financing being a key lever for this. Next year’s 4th International Finance for Development conference, in Seville, Spain, is an opportunity for the global development community to consider how the use of outcomes-based financing, with its focus on better results can help unlock better outcomes in our mission to achieve the SDGs.
UBS OF has recently become more active in the climate finance space, especially in sectors like nature-based solutions. What has been the motivation for this and what role do you expect to play in this space?
UBS OF has traditionally been focused on children and young peope, and as it is universally recognized that climate and climate change have a disproportionate effect on children, this is an area that is naturally of interest and importance to us. At the same time, we see significant interest from philanthropists to focus on climate and environments issues and would like to play a role in connecting the dots between well meaning funders and strong project opportunities on the ground. We have decided to focus on nature-based solutions (NbS) in particular as we see these as more sustainable in the long run with emphasis beyond carbon on biodiversity and communities.
In our first work in this space we have partnered with Mana Impact to study best practices in Monitoring, reporting and verification (MRV) in NbS and are now engaging with Terratai a “nature venture builder” that builds businesses to protect and restore some of Asia’s most at-risk land and seascapes.
As we engage more deeply we are now working on the design of a blended finance fund focused on carbon using NBS. We are developing this fund in collaboration with UBS Asset Management, with an aim of offering this to UBS clients globally.
How do you see UBS OF’s blended finance activities evolving in the future?
We're aiming to grow and scale the number of blended finance transactions in collaboration with UBS. Themes we are particularly interested in are employment and climate though we continue to build on healthcare and education as well. Drawing on our experience and track record we would also like to continue to innovate on the role of concessional funding and see if we can reduce the level needed in each transaction, because rather than volume it is the strategic use of this capital that is important.
