Moving ESG into fixed income

We believe embedding Environmental, Social and Governance (ESG) criteria at the core of the investment process leads to better informed investment decisions and constructing better risk-adjusted strategies.

Investing in a sustainable fixed income strategy allows investors to dig deeper as sustainable investing enhances insight on the risks by broadening the data set to include material, non-financial ESG metrics alongside financial data. As we incorporate sustainability at the core of the investment process, we are convinced this will allow:

• A more complete view of significant risks issuers are exposed to 
• A better way of anticipating and taking a cautious stance on issuer specific event risks caused by sustainability issues, which may lead to a better risk/return profile
• Anticipation of broader sustainability issues that are not yet fully reflected in the market. As such, forecasting changes in credit ratings may be more accurate and effective

ESG integration has become a loose-term that refers merely to the use of sustainability data or ratings in the investment process. We think this is a good starting point but simply not enough! At UBS-AM, our approach goes beyond simple screening and is differentiated through:

• Integrating material ESG data into our credit research alongside financial data
• A proprietary UBS ESG score, also providing a forward looking view
• UBS Fixed Income SI Advisory Board providing oversight
• Placing credit analysts at the heart of integration
• Experienced sustainable research team providing macro views and engagement

The investment team follows a disciplined, consistent, fundamental research-driven investment process, in which diversification of return sources as well as active portfolio and risk management are key to generate stable returns for our clients. The UBS ESG research adds an additional dimension for assessing the credit quality of corporate issuers. Each strategy will take into consideration proprietary UBS ESG scores for security selection and apply negative screening on controversial sectors when constructing the portfolio to ensure a better sustainability profile.