As the integration of ESG into the investment process has become a key priority for many investors, our Stewardship Annual Report 2020 showcases the crucial role of stewardship with a summary of our activities over the past year.
2020 was a pivotal year for sustainable investing. As the COVID-19 pandemic took hold globally, the social and economic ramifications led the capital markets to intensify their focus on sustainability. Despite a period of significant market volatility at the start of the year, inflows to sustainable funds rose significantly, closing the year at an all-time high of USD 1.6 trillion1. It is against this backdrop that we highlight our stewardship activities in 2020.
Key highlights:
Introduction
This year’s report has been written in alignment with the new UK Stewardship Code. This is widely acknowledged as one of the most rigorous stewardship frameworks globally, and we welcome the transparency it demands of asset managers as they report on their stewardship activities.
UBS Asset Management (UBS-AM) has a long history of being a strong and effective steward of the assets we manage on behalf of our clients. We became signatories to the United Nations’ Principles for Responsible Investment (PRI) in 2009 and were one of the first signatories of the UK Stewardship Code in 2010, receiving Tier 1 status from the UK Financial Reporting Council in 2016.
Our commitment to outcomes focused stewardship is reflected by the evolution of our processes and growth in our resources and capabilities. We continually review and enhance our approach to make sure we meet the standards of key frameworks, such as the UK Stewardship Code. In 2020, we strengthened the resources dedicated to proxy voting and stewardship on governance issues, and further developed our expectations of companies on purpose, people, climate and controversies across the UNGC Principles.
In the last two years, we have been widely recognized as market leader in voting and engagement across Environmental, Social and Governance (ESG) matters, particularly climate change.
ESG integration across asset classes
Prioritizing research and dialogue with investee companies is, in our view, critical to unlock shareholder value across all the indexed and active strategies that we manage globally. We define our corporate engagement priorities by assessing a comprehensive range of factors, including financial exposure, high ESG risks, poor performance on thematic issues of concern and controversies.
As a leading manager of indexed and active strategies, we enjoy dual benefits. On the one hand our indexed portfolio managers provide access to information on a vast number of companies that comprise the major indices. On the other, our active portfolio managers and equity analysts have a detailed knowledge of, and deep relationships with, the senior management of listed companies.
The consideration and analysis of ESG factors is an integral part of our investment process across all our active equities and fixed income strategies.
UBS-AM has a proprietary process for integrating ESG into our listed equity and fixed income investment process, based around two key tools:
Stewardship plays a vital role in the overall investment process. Two thirds of our engagements in listed equity and fixed income are led by active portfolio managers and/or in conjunction with the sustainable investment analysts.
Turning to alternatives, our Real Estate and Private Markets' (REPM) Sustainability Workgroup have developed a responsible investment strategy which is applied to investment in real assets. While financial objectives remain the primary focus, we believe a direct link existsbetween responsible property investing and long- term returns. For individual properties, sustainability performance is measured against recognized external benchmarks, such as the GRESB key performance indicators and third-party certifications (LEED, ENERGY STAR, BREEAM, MINERGIE®). Infrastructure also utilizes the GRESB Infrastructure key performance indicators and benchmark reports for individual investee companies.
Stewardship: proxy voting
Voting at shareholder meetings is a vital component of our overall approach to the effective stewardship of our clients' assets. Voting allows us to voice our opinion to a company and it is linked to our research and investment process.
In 2020 UBS-AM:
Stewardship: engagement
UBS-AM sets a high benchmark for defining engagement. It is far more than simply asking a question about ESG. Engagement is a two-way dialogue, which aims to exert a positive influence on a company’s performance. We believe the quality, not quantity, of engagement is key to driving corporate change. Our structured approach, well-defined objectives and vigilant monitoring of milestones have yielded outcomes.
The relevance of engagement is not limited to listed equity and fixed income holdings. GRESB key performance indicators are used by our Real Estate and Private Markets' (REPM) to engage and benchmark individual investee companies. Our Multi-Manager Real Estate (MM-RE) team conducts engagements directly with underlying fund managers on ESG issues. Engagements can be routine in nature or based around specific transactional circumstances, such as the release of GRESB results.
In 2020 UBS-AM:
Collaboration, regulatory development and standard setting
We are committed to helping to further ESG best practices across the investment industry. For example, we are currently involved in 29 and lead on eight coalitions within Climate Action 100+.
Not only are we an active member of key investor and civil society initiatives focused on ESG and responsible investment around the world, we are also a member of advisory boards and working groups established to set the standards for best practices.
We have a well-established a dedicated policy team which leads our global engagement with policymakers and standard setters. During 2020, we engaged on a range of topics, with a focus on sustainable investing (SI). A core part of our policy engagement has been in the E, given its leading role in developing a comprehensive SI framework. Alongside, we have also been active in Switzerland, the United States and APAC region as SI initiatives take hold globally.
UBS AG is involved in 50 initiatives related to ESG and sustainability, while UBS-AM is involved in a further 19 including:
UBS AG’s annual sustainability report and UBS-AM’s annual stewardship report detail the complete lists.
