Understanding climate awareness

Is there a better way to invest in climate-conscious returns?

10 Apr 2018

Climate change is one of the most significant risks that organisations face today. Yet the vast potential of physical, regulatory and technological impact is largely misunderstood.

The UN Climate Change Paris Agreement requires signatory countries to work towards reducing greenhouse gas emissions, limiting global average temperature to a maximum of 2 ̊ above pre-industrial levels and accelerating the transition to a lower-carbon economy. This requires widespread change, that will bring both risks and opportunities impacting industries around the globe.

To bring about global change, investors have a crucial role to play in urging companies to invest in climate solutions, implement TCFD disclosure recommendations and adopt a scenario analysis to assess climate-related risks and opportunities.

Some investors have chosen to simply invest in tracker funds that are benchmarked to ex-fossil fuel indices. However, by excluding any investment in fossil fuels, the passive investor is avoiding not just the risk but the opportunity of one of the major market segments. For instance, it is often the ‘oil majors’ that are the largest investors in renewable energy. Further, a blanket exclusion policy reduces influence on the means and timing of transitions.

At UBS, we believe that rather than adopt blanket exclusion policies, a more productive approach is one of proactive engagement with those companies in need of greater change. In this way we can play an active part in driving the processes which are needed to ensure effective and long-lasting solutions.

UBS has developed a Climate Aware World Equity Strategy, which aims to substantially reduce the carbon (CO2) footprint of a passive global equity portfolio, increase investment in companies benefiting from a growing demand for renewable energy and achieve long-term returns broadly in line with the net of costs and performance of a designated underlying index benchmark (e.g. FTSE Developed Index, MSCI World, etc.).

The strategy selects its investments by using a transparent, rules-based and optimised portfolio construction methodology and has generated positive results, in particular, enabling clear tilts towards renewables and away from fossil fuels.

Important legal information

To proceed, please confirm that you are a professional / qualified / institutional client and investor.

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 or other content was compiled. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice but any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Source for all data/charts, if not stated otherwise: UBS Asset Management.
Any market or investment views expressed are not intended to be investment research. Materials have not been prepared to address requirements designed to promote the independence of investment research and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this webpage does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. 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. A number of the comments in the content of this webpage are considered forward-looking statements. Actual future results, however, may vary materially. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss. 
© UBS 2021 The key symbol and UBS are among the registered and unregistered trademarks of UBS.