UBS Fund Management (Luxembourg) S.A.

Sustainability related disclosures

Summary document

Statement on principal adverse impacts of investment advice on sustainability factors

Principal adverse impacts are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti‐corruption, and anti‐bribery matters. UBS Fund Management (Luxembourg) S.A. (hereinafter also known as “UBS-FML” or “the management company”) acknowledges the need for transparency of principal adverse impacts of investment decisions on sustainability factors. The management company carries out investment advisory services exclusively in the meaning of marketing / distribution of funds managed by UBS Asset Management (UBS-AM). The extent to which adverse impacts are considered depends on the individual product features and the client preferences obtained through the investment advisory assessment process. The adverse impacts considered by UBS-AM may include one or more of the following measures:

Standard exclusions to industries with unacceptable adverse impacts. The UBS-AM Exclusion Policy lays out the details of the product scope to which exclusions are applied. The following PAI indicators, as set out in SFDR RTS Annex I Table 1, are considered by means of exclusions from the investment universe:

“Exposure to companies active in the fossil fuel sector”:

  • Companies that exceed a certain revenue threshold (as per the UBS AM Sustainability Exclusion Policy) from thermal coal mining and its sale to external parties or from oil sands extraction are excluded
  • Companies that exceed a certain revenue threshold (as per the UBS AM Sustainability Exclusion Policy) from thermal coal-based power generation are excluded.

“Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises”:

  • Companies violating the United Nations Global Compact UNGC) principles which do not demonstrate credible corrective action as determined by UBS-AM’s Stewardship Committee are excluded

“Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)”:

UBS-AM does not invest in companies involved in: cluster munitions, anti-personnel mines or chemical and biological weapons, nor does it invest in companies in breach of the Treaty on the Non- Proliferation of Nuclear Weapons. UBS-AM considers a company to be involved in controversial weapons if the company is involved in development, production, storage, maintenance or transport of controversial weapons, or is a majority shareholder (>50% ownership stake) of such a company.

Creation of SI focus / SI Impact products designed to reduce principal adverse impacts.

UBS-AM has developed a number of financial products that are designed to provide performance similar to that of standard benchmarks, but with a reduced level of adverse impacts. Companies that exhibit elevated sustainability risks are actively avoided through the rule set for portfolio construction of SI focused products. Impact products go one step further, actively seeking to invest in companies and projects with positive social and environmental external impacts on society or the environment. UBS-AM considers an investment to be sustainable according to SFDR Article 2(17), if the issuer or investment meets the three given criteria, namely:

  1. it contributes to an environmental or social objective;
  2. it does not significantly harm any of such objectives; and
  3. it follows good governance practices.

When assessing “do no significant harm” (DNSH), UBS-AM considers selected principal adverse impact indicators based on availability and appropriateness. These indicators are combined into a signal based on individual thresholds defined per indicator. A fail on a single indicator leads to an investment failing the DNSH criteria, meaning the investment cannot be counted as a sustainable investment according to SFDR Article 2(17). The following PAI indicators are additionally part of this signal:

1.7 “Activities negatively affecting bio-diversity-sensitive areas”
1.13 “Board gender diversity”
1.15. “GHG Intensity”
1.16. “Investee countries subject to social violations”

Consideration of principal adverse impacts as part of the ESG risk integration process

Traditional Active Fixed Income and Equity Products with ESG Risk Integration consider principal adverse impacts as a source of investment risk. As part of the risk assessment, UBS-AM screens issuers for ESG controversies. The screen is based on data from the United Nations Global Compact and United Nations Global Norms, which contain an assessment of 26 separate adverse impact indicators covering a broad selection of environmental and social topics. Identification of significant adverse impacts leads to an unfavourable risk rating, which may result in exclusion of the investment.

For passive products (e.g. index-tracking funds), ESG risk integration takes place if the index methodology considers ESG criteria in the construction of the index. Principal adverse impacts are considered as part of the relevant index selection process, in the screening methodology of the index provider and its ESG data providers.