Mid-year 2023

Panorama: The SI Edition

From value to value(s)

An introduction from Barry Gill, Head of Investments

“A fool knows the price of everything and the value of nothing.” Attributed to my fellow countryman, Oscar Wilde’s quip has always held relevance to investors. After all, unlocking value – whether at the stock, sector, or market level – is what drives portfolio returns.

However, a wider view of the term ‘value’ has rightly emerged in financial circles. By enhancing our understanding of what constitutes true value, such as incorporating longer-term thinking and the interconnectedness of society and earth’s ecosystem services, we can shift from a singularly financial interpretation of the word to more multi-dimensional one that places broader values at its heart.

Reflecting this, a (not-always-perfect) confluence of client demand and regulation has begun to drive significant amounts of money towards sustainable investing (SI). This special edition of Panorama is dedicated to the topic and places a marker in the ground for where we all head next.

In Alpha & outcomes, I argue that SI must prove its contribution and – dare I say – value on two key levels. My first point is that embedding the enriched insights gleaned from SI is critical to active investment performance. Client outcomes, on the other hand, can be elusive and properly grasping them will determine success in delivering for clients of all types. Hans Christoph-Hirt picks up the baton and elaborates on this theme in The Future of Stewardship.

To help understand a major element of SI, we explore the investment opportunities and potential risks arising from the transition to net zero in Green spending and clean energy investment. Lucy Thomas talks about customization and how it is unrealistic to expect all clients’ ESG preferences to magically align, along with what that means for asset managers (See Morals, markets & menus). And Michele Gambera, Alexander Eisele and Ryan Primmer analyze the various ESG benchmarks on offer to see the level and flavor of ESG they each offer (See Benchmarking ESG).

Natural capital is an area that can no longer be ignored. Inextricably linked to climate change, we cannot afford to think of the erosion of nature as a separate issue. Putting a price on nature tries to capture a wide-ranging conversation between Professor Dasgupta, one of the world’s foremost experts on environmental economics, and Adam Gustafsson. They start to explore how we might incorporate natural capital in valuation metrics and models. In Securing a sustainable food supply Olivia Muir, Darren Rabenou and Manisha Bicchieri build on this and remind of the need to balance a more productive global food system while reducing natural resource inputs if we are to tackle food security.

It is often said that geology can be boiled down to two factors: time and pressure. If we think about sustainability in these terms, the forces bearing down on us are huge: The window of time to fix things is getting smaller by the day; and the pressure on asset managers and sustainable finance to prove the validity and worth of our efforts has never been greater. We must sharpen our focus and allocate resources accordingly.

I hope you enjoy reading our latest thinking and welcome any feedback.

Barry Gill, Head of Investments, UBS Asset Management