ESG integration in active equities

One of the most remarkable trends within asset management over the last few years has been the growth in Sustainable Investing.

15 Jan 2020

One of the most remarkable trends within asset management over the last few years has been the growth in Sustainable Investing. The United Nations Principles for Responsible Investment now has over 2,500 signatories, who represent more than USD 80 trillion in assets.

This has led to a growing number of investors, particularly institutional investors, wanting to integrate sustainability within their investment processes. In this paper we explain our approach towards ESG integration, focusing on:

  • The UBS taxonomy of sustainable investing, and how we use it to define our approach to ESG integration across our investment strategies;
  • The way we identify ESG risks in our research process;
  • ESG integration in practice. Using examples taken from existing strategies we illustrate the integration of ESG risks, how it helps mitigate existing risks and how it can improve the ability to generate long-term returns.

What is sustainable?

First we need to understand exactly what we mean by Sustainable investing as it is a broad concept. Our definition is based on three different approaches:

ESG integration strategies

Sustainability is included in the research process in order to enhance risk and return.

Sustainability focus strategies

The portfolio construction process leads to a better sustainability profile than the benchmark.

Impact investment strategies

Those with an explicit goal to have a positive environmental and social impact while generating competitive financial returns.

Key steps to integration

Having defined what we mean by sustainable investing we can then think about the process of ESG integration. There are three key points to keep in mind:

First

ESG integration entails an expansion of the scope of information used in the research process to include environmental, social and governance factors, rather than a limitation of the investment universe.

Second

ESG integration does not involve a formal change in the investment guidelines or prospectus, but enhances the underlying research process to better account for material sustainability risks that can negatively impact financial performance.

Third

Most fundamentally, integration is not driven by a normative or ethical perspective; it is focused on the potential material and financial impact of sustainability.

Learning more

To read more about the ways in which our approach to ESG integration works in practice, download our white paper.


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Views and opinions expressed are presented for informational purposes only and are a reflection of UBS Asset Management’s best judgment at the time a report was compiled, and any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Commentary is provided at a macro level and is not with reference to any investment strategy, product or fund offered by UBS Asset Management and is provided in Canada generally pursuant to the registration exemption provided for in Section 8.25(2) of National Instrument 31-103 and in Ontario pursuant to Section 34 of the Securities Act (Ontario) and does not purport to be tailored to the needs of the person or company receiving the advice.. The information contained in the materials should not be considered a recommendation to purchase or sell any particular security. The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Plan fiduciaries should determine whether an investment program is prudent in light of a plan's own circumstances and overall portfolio. UBS Asset Management services offered to Canadian persons are provided by UBS Asset Management (Canada) Inc., a Nova Scotia corporation. UBS Asset Management (Canada) Inc. is an indirect wholly-owned subsidiary of UBS AG and is registered as a portfolio manager and exempt market dealer (in all provinces of Canada), commodity trading manager (Ontario), adviser – commodity futures (Manitoba) and investment fund manager (Ontario, Quebec and Newfoundland), all pursuant to Canadian securities law. Materials may include forward-looking statements. Actual future results, however, may prove to be different from expectations. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss.

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