THE BLOG

Furthering the Fight Against Poverty

07/08/2014 03:44 pm ET | Updated Sep 07, 2014

While we actually live in a golden age of wealth creation, poverty reduction remains one of the biggest challenges facing us today. Twenty-five years ago, close to half the world's population lived on less than a dollar a day. Rapid economic growth since then has lifted hundreds of millions out of poverty.

Growth is what solves most of the big economic and social problems: poverty, government deficits, quality of life, rising healthcare and retirement costs. Today less than 1-in-5 live in extreme poverty, which we now measure at $1.25 a day. But we live on a populous planet, so that is still more than one billion people.

There is a problem though. To achieve the same reduction in poverty again requires a much higher growth rate than we actually have today. And falling living standards in many places in the last years, especially among poorer sections of society, have produced surges of populism and heightened risk that 'protest politics' might damage economies. So UBS has produced a white paper, Furthering the fight against poverty, which focuses on practical ways that business can help.

You might wonder why UBS, which is the world's largest wealth manager and serves some of the most affluent clients around the world, cares about this. Particularly at a time in which it would be much more popular to join the chorus on the now hot topic of inequality. Well, we firmly believe that business has also a role to play and a responsibility to help address the issue of poverty.

And as a wealth manager with many successful entrepreneurs as clients, we see firsthand their importance in creating the enduring businesses that provide the jobs, generate the tax revenues, and support the supply-chain and infrastructure spending that underpins economic growth. While government clearly plays the major role in fighting poverty through policies on things such as education, tax and trade; business creates the wealth that matters.

Furthering the fight against poverty has identified ways business can make a difference. One is to ensure workforces in both the developed and emerging markets have the skills to meet changing labor market needs.

Businesses are among the first to see changes in the labor market, but few countries have the necessary close relationship between business and educators to ensure this information reaches the education system. Building this link will help.

Youth unemployment is a massive problem in both developed and developing countries; in the Middle East, North Africa and Southern Europe where unemployment rates range from 20 to over 60%. Re-skilling those whose current skill sets are mismatched to employment needs is a pressing issue where business can help directly, for instance with apprenticeships.

In addition, we see opportunities for major philanthropists -- who are often also successful entrepreneurs -- to engage as strategic partners, rather than simply donors, to tackle social challenges such as education, healthcare and financial inclusion. As I talk to our clients around the world, it is clear to me that many are already thinking deeply about how they can best contribute.

Philanthropic funding can play a vital role in testing and stimulating innovation that, when proven, can be implemented at scale by business or government. One way to do this is through impact investing, which aims to achieve both social and financial goals, creating a win-win that can appeal to mainstream private investors. Development Impact Bonds (DIBs) are also a tool that UBS is using to encourage "pay for performance" in a model where investors provide financing for an essential and effective development project and, if agreed outcomes are achieved, returns are provided by an "outcome payer."

The UBS Optimus Foundation has just launched the first ever DIB in education to fund a program to enroll girls in school and improve learning outcomes for all enrolled children in Rajasthan, India. Optimus is the investor, and The Children's Investment Fund Foundation will pay a return depending on the results achieved in enrollment of girls and learning outcomes. We hope this bond will become a 'proof of concept' that encourages more money to go to effective education programs delivering measurable and positive outcomes which can lead to jobs and economic growth.

Jim Yong Kim, President of the World Bank, has been vocal about the critical role of the private sector in tackling poverty. I agree. Business people can make a real contribution by partnering with government and non-profits and applying business skills like innovation and creativity.

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Sergio Ermotti is Group Chief Executive Officer of UBS, the world's largest wealth manager.