Creating a new calculus for sustainable investing

Can working with the world’s top academics help improve investment outcomes?

Today's investors are facing growing pressure from asset owners to invest sustainably and to show how their investments are making a positive difference for society and the environment. Sustainable investing has focused on the integration of environmental, social and governance (ESG) data, which is increasingly available for publicly traded companies. ESG data tells us how well companies manage risks in their operations and supply chains. But it does not help us assess whether the products companies sell can have a positive impact on society and the environment.

What good companies do for society and the environment, and how well they manage the ESG risks inherent in their operations and supply chain is at the heart of a new, more balanced approach that is being pioneered by our team. The core of this approach is data, not only ESG data disclosed by companies, but also data used to assess the impact of a company's products on society and the environment. UBS Asset Management has partnered with research teams from the City University of New York (CUNY) and Harvard to develop science-based robust impact metrics that can be applied to companies with global sales of products that help solve critical issues such as climate change. The work was published in renowned academic journal Science, whose past contributors have included E=MC2 physicist Albert Einstein, geneticist Barbara McClintock and astronomer Edwin Hubble. 

For two years our unique partnership with these leading universities has been testing impact measurement methodologies for companies held in a USD 2.1 billion portfolio of public equities, managed by us on behalf of a large Dutch pension fund. The diversity of the fund's make-up has allowed us to develop impact models across a range of products that address climate change and air pollution, access to clean water and health. Research on food security began earlier this year together with Harvard and the University of Wageningen, Netherlands.

Our research leverages recent advances in scientific disciplines, including earth observation and modeling, epidemiology, and public health. We then linked this data and scientific models to corporate operational and financial data to assess how products can contribute to more sustainable environmental and human systems. For investors, this work provides an invaluable system to evaluate and compare corporate practices, the impacts of which vary based upon differences in regional stresses on human and environmental systems.

We are proud to have initiated this ground-breaking impact measurement framework that provides investors with transparency into the impact of their portfolios on environmental and social challenges. Our hope is that our framework creates a 'new calculus for sustainable investing' and guidance for assessing the longer-term impact of business practices.

About the author

Dinah Koehler is Executive Director, Sustainable Investment Research. One of her roles is to develop partnerships with academic institutions to create our Global Sustainable Impact Equity methodology.

Dinah joined UBS Asset Management in 2015. Previously she advised and worked for large global corporations, national governments and international organizations on sustainability issues. Dinah holds a Science Doctorate from Harvard University.

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