Assets Sustainable investing: how to do it

Are you thinking of investing your money (more) sustainably? Here’s how to succeed.

29 Oct 2020
Sustainable funds and ETFs offer good opportunities for sustainable investment.

Investors have long since ceased to aim “just” to obtain returns. They also want to achieve something positive with their assets. This is illustrated by the UBS Investor Watch study In five years’ time, female investors will have more sustainable investments in their portfolios than male investors.

In this article, discover how you too can invest your assets sustainably, what the common approaches are and which investment opportunities are available to you.

Exclude or include? Three approaches to sustainable investing

Investors can pursue three different approaches to sustainable investing: 

The exclusion method: exclude companies and sectors

With the exclusion method, you eliminate from your portfolio all the companies and industries that are not in line with your values. For example, you can exclude investments in companies that are involved in the defense or tobacco industry. 

Investing according to environmental, social and governance criteria (ESG criteria)

The second approach is the inclusion method. Only companies that meet certain sustainability criteria are considered. ESG criteria are usually taken as a guide.
The acronym ESG stands for environmental, social and governance:

  • E for Environmental, i.e. ecological aspects.
  • S as in Social, i.e. social activities, both internally and externally. 
  • G for Governance, i.e. the way the company is managed.

Investment according to ESG criteria is currently widespread. This is because this approach allows you as an investor to structure your portfolio according to your personal values and goals, whilst evaluating companies according to ESG issues.

UN’s 17 sustainable development goals are often used as a basis for this evaluation. These goals include no poverty, gender equality, clean water and responsible consumption.

For example, the ESG criteria of an investment are met if a company actively reduces its own CO2 emissions (E), ensures good working conditions, is socially committed (S) and applies diversity principles for its Board of Directors (G).

Impact investing: pursuing specific, measurable environmental and social goals

Impact investing means attempting to achieve a measurable ecological and social impact with your investment as well as seeking return opportunities. This measurement of the social or ecological effect is the key element of impact investing. At the same time, however, it also makes the investment and reporting process very complex, which is why widely available, profitable investment opportunities are limited.

The sustainable investment opportunities that are available to you

Whether ETFs, bonds, funds or shares – in principle, a full range of investment instruments is available and will allow you to invest sustainably on the basis of your values and goals.

While it is very time-consuming to evaluate individual securities on the basis of ESG factors, there are certain investment instruments that are explicitly committed to sustainability:

  • Green bonds: green bonds are bonds in which the issuers undertake towards investors that they will use the funds invested to finance measures in favor of the environment and the climate. Renewable energies can be financed through green bonds, for instance.
  • Sustainable funds: as an investor, you also have the opportunity to invest in sustainable funds, which combine various sustainable investment instruments. One example of this is the UBS Long Term Themes Equity Fund, which invests in long-term sustainable topics and combines them with megatrends such as aging, urbanization or population growth.
  • Sustainable passively managed index funds (ETFs): sustainable ETFs allow investors to invest in sustainable companies in a broadly diversified manner. Sustainable ETFs replicate indices consisting of globally active companies that are leaders in the field of sustainability, e.g. UBS Socially Responsible Investing ETFs.
  • Development bonds: development bonds are another instrument you can opt for. These are bonds issued by a development bank that pursue the goal of sustainable economic development, for instance. The financial return is closely linked to the achievement of objectives.
  • Individual investment solutions: as an investor, you also have the opportunity to have a sustainable portfolio created and managed that is tailored to your needs. For example, with UBS Manage Sustainable Investing.

Investing money sustainably: how to approach the topic

When it comes to your investment strategy, the same applies to sustainable investments as to traditional investments: your investment strategy is determined according to your goals, your investment horizon and your risk profile. As with any portfolio, you should also diversify your risk when investing sustainably. Investment solutions such as sustainable funds or sustainable ETFs sometimes allow this type of diversification right from the start, as the risk is spread across different investment instruments or companies.

If you already invest your money, would you like to do so more sustainably? Then as a first step, it’s worth evaluating the sustainability of your portfolio. And the next step, depending on the approach chosen, is to make it more sustainable.

No matter whether you want to make your existing portfolio more sustainable or begin making sustainable investments for the first time, we will be happy to offer you advice and assistance. You can find out more at ubs.com/sustainable investments.

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