Sustainability is expressed through impact-focused, long-term thinking and acting. We help private and institutional customers consider not only potential financial returns, but also potential environmental and social impacts when making their financial decisions. We understand impacts to mean both risks and business opportunities. Accordingly, we give attention to sustainability in all business processes, from analysis and risk management to advisory and investment activities.
Sustainability and philanthropy are part of our advisory process. We define sustainable investing as a set of investment strategies (impact investing; exclusion; integration) that incorporate environmental, social and governance (ESG) considerations into investment decisions. Sustainable Investing strategies seek to fulfill at least one of the following goals: achieve a positive environmental or social impact, align investments with an investor's personal values, or improve portfolio risk and return characteristics by better understanding how sustainability factors impact the value of securities. Applying a client's defined personal criteria may exclude certain activities and assets from a portfolio, such as tobacco, alcohol, weapons; ESG integration uses the analysis of ESG factors for portfolio decisions; and impact investing includes a variety of structures such as microfinance or tailored lending or private equity.
We launched our first sustainability fund in 1997. Our investment themes include energy efficiency, environment, social and health systems as well as demographics. In 2009 UBS signed the Principles for Responsible Investment (PRI), an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact. These provide a voluntary framework for investors to take into account environmental, social and governance issues in their decision-making and ownership practices and to align their objectives with the broader societal objectives.
As of 31 December 2014, sustainable investments increased to a total CHF 586 billion, representing 21.4% of our total invested assets. While invested assets in all our sustainable investment classes increased throughout 2014, the proportion of sustainable investments declined from 22.8% in 2013, due to stronger increase in our total invested asset base. Major increases were observed among our institutional clients in particular for screened mandates and for funds subject to the Asset Management responsible property investment strategy.
More and more clients do not solely want to invest according to their values but also actively tackle social or environmental challenges through their investments. UBS therefore offers targeted investments in companies, institutions and funds, which have a social or environmental business purpose and achieve financial return at the same time.
In 2013, we launched the Impact Investing SME Focus Fund - the largest privately funded vehicle of its kind, which invests in emerging markets sectors and businesses that drive social or environmental change. In 2014, we further expanded our impact investing offering. We launched an impact investment platform that intends to take private equity stakes in inclusive financial institutions across Asia and Latin America (in collaboration with a third-party provider specialized in developing markets).
In response to increasing client demand for integrating sustainability issues into fundamental investment analysis and advisory processes, we research the impact of ESG issues on various sectors and companies. Our specialized teams regularly publish research on topics that will shape our future, including climate change, energy efficiency, resource scarcity and demographics. Our experience and sector knowledge help us determine what is material by raising questions about the effect environmental, social and governance issues are having on the competitive landscape for the global sectors we cover, as well as about how companies are affected in relative terms.
Corporate and private clients financing and advisory
UBS provides capital raising and strategic advisory services globally to companies offering products that make a positive contribution to climate change mitigation and adaptation, including those in the solar, wind, hydro, energy efficiency, waste and biofuels, and transport sectors.
In Switzerland, we help SMEs to save energy and launched a new offering to support SMEs when upgrading utility vehicles to the new EU 6 Norm. We also support retail clients when undertaking energy-efficient renovations as part of our climate change commitment.
We believe that voting rights have economic value and should be treated accordingly. Where Asset Management has been given the discretion to vote on behalf of our clients, we will exercise our delegated fiduciary responsibility by voting in the manner we believe will be most favorable to the value of their investments. In 2014, we voted on more than 74,600 individual resolutions at 7,325 shareholder meetings. We take an active approach to corporate governance and we integrate it in our investment process. We are an active member of a number of collaborative shareholder bodies.
Since 2010, Asset Management in Switzerland has been offering UBS Voice, a service enabling holders of Swiss institutional funds to express voting preferences ahead of shareholder meetings of major Swiss corporations. This provides additional shareholder input into the voting decisions of the funds’ management company. 45% of invested assets for which UBS Voice is offered are covered by this service.
UBS Global Real Estate teams pursue a responsible property investment strategy (RPI). Their success is reflected in ratings like the 2014 Global Real Estate Sustainability Benchmark, where they received "green star" awards for eight out of the 13 funds they submitted.
Given that the building sector accounts for up to 30% of all energy-related greenhouse gas emissions, UBS has the potential to significantly contribute to climate change mitigation in this area. So how does UBS implement its RPI strategy? A good example is Narupark, a neighborhood shopping center in Nagoya, Japan, managed by a joint venture between UBS Realty Inc and Mitsubishi Corporation. Following a large scale renovation of the property undertaken with sustainability in mind, the revamped center reopened for business in March 2011. The renovations cost 530 million yen, of which approximately 15% was invested to ensure the center's sustainability.
What makes the Narupark center a green shopping experience? Converting from existing incandescent lighting to LED lighting reduced energy consumption while simultaneously reducing energy and maintenance costs. The installation of solar panels on the wall of the building enabled the property to further reduce energy consumption. There is a rooftop garden, wall greenery and, in a first for any Japanese shopping center, locals have the opportunity to rent the center's vegetable garden, which is under year-round cultivation.
Indeed, engagement with the local community is one of the central pillars of the Narupark strategy. Panels installed in the center display the power generated by the solar panels and also the resulting CO2 elimination on a day-to-day basis.
The figures speak for themselves. Since the renovation, the center has reduced its electricity consumption by 22%. CO2 emissions are down 20%, mainly due to efficient air-conditioning equipment and lighting. Overall, there has been a 6% reduction in energy costs despite electricity price hike during the period.
By signing the Kyoto protocol, Switzerland made an international commitment to achieve a 20% reduction in its domestic greenhouse gas emissions by 2020 compared with their level in 1990. In addition, the Federal Government's energy strategy 2050 calls for a step-by-step withdrawal from the use of nuclear energy and fosters renewable energy. Taking this challenging environment into account, UBS's climate change strategy supports clients in the transition towards a low-carbon economy. This strategy includes UBS's two-year commitment as a Prime Partner to the Swiss Energy and Climate Summit, which exists to facilitate dialog about energy transition in Switzerland between the worlds of business, politics and science.
UBS also supports Swiss clients in raising capital to finance the energy transition. Billions of francs are needed to finance the energy transition in Switzerland. Over half of Swiss electricity production is derived from hydropower and it is part of the federal government's energy strategy to further expand it. Capital for energy transition has to come from the market, and banks have a part to play in this. For instance, UBS supported Nant de Drance SA, owned by Alpiq, SBB, IWB and FMV, to raise capital for the construction and operation of a 900 MW pumped-storage power plant located in Finhaut, Switzerland. UBS acted as Joint Bookrunner in a CHF 550m inaugural bond issued in 2013 as well as Joint Bookrunner in a consequential second issuance of CHF 300m in June 2014. The plant is located in an underground cavern and has been designed to meet peak-time demand and level out the effects of fluctuating electricity production from renewable energy sources. Total investment costs are estimated to be CHF 1.9bn and commissioning is scheduled for 2017.
Adding value(s) to investing (March 2015)
Can investors do well, while doing good? Increasingly, the answer appears to be: yes. Sustainable investing (SI) is establishing itself as a field in the financial landscape. Whether investors are drawn to SI by a desire to align their portfolios with their values, to achieve a positive impact on society or the environment, or to improve portfolio performance, the set available of investment solutions growing. A report published by the Chief Investment Office (CIO) of UBS helps investors navigate this evolving landscape.
To integrate or to exclude (July 2015)
Do you want to sleep well at night, make a difference, and invest in a smart way? If so, the answer can be found in "To integrate or to exclude", CIO's latest report on Sustainable Investing (SI). This is the second report to be published on Sustainable Investing (SI) following "Adding value(s) to investing" launched in March: Integration and Exclusion, two main approaches to SI, are in focus.
Our wealth management businesses and Asset Management offer sustainable investment products and philanthropy services for wealth management and institutional clients. What is this all about? Let's look at three examples of how our teams provide thought leadership, advice, and sustainable portfolio management to our clients.
To offer sustainable portfolio management the UBS Wealth Management CIO has established a robust conceptual framework. It defines sustainable investing as a set of investment strategies (impact investing; exclusion; integration) that incorporate environmental, social and/or governance considerations into investment decisions. SI strategies seek to achieve one or several of the following objectives: achieve a positive environmental or social impact, align investments with an investor's personal values, or improve portfolio risk/return characteristics by better understanding how sustainability factors impact the value of securities. Applying a client's defined personal criteria may exclude certain activities and assets from a portfolio, such as tobacco, alcohol, weapons; ESG integration uses the analysis of ESG factors for portfolio decisions; and impact investing includes a variety of structures such as microfinance or tailored lending or private equity.
Since foundations typically follow a charitable mission, they have a special interest in aligning their investments with their values. Thus, we launched a dedicated Investment Mandate with focus on Sustainable Investments as well as on income generation for Swiss charitable foundations. It offers portfolio management following ESG integration and exclusion strategies.
In the philanthropy sector, our work is centered on using our convening power to bring clients together, foster collaboration and thus help bring projects to a scale where they could have a positive effect on society. A great platform to enable this was the 2014 UBS Global Philanthropy Forum, which was devoted to the subject "Scaling up: building on success and maximizing impact". It brought together around 120 clients and prospects from 20 different countries that gathered in St. Moritz, Switzerland. The impressive line-up of speakers and guests for which the Forum has become renowned included former UN Secretary General Kofi Annan, ex-President of Mexico Vincente Fox and world-famous musician Daniel Barenboim. Roundtable discussions and Venture Lab sessions provided opportunities for participants to exchange knowledge and experiences and receive feedback to their social initiatives in small groups.