Sustainable investing has moved firmly into the mainstream. No longer a niche add-on, it's now an integral part of what we do. And it's redefining the way we think about investing overall.
Industries that are developing solutions to sustainability challenges are expected to be the fastest growing in the coming years. And companies exposed to these industries have greater growth potential. Companies with superior labor practices will have increased productivity, and be less prone to labor strife. Companies that follow governance best practice will likely be better and more sustainably managed, and less likely to experience corruption. All these factors affect the way we invest, and over time they will impact corporate performance.
Sustainable investing (SI) changes the way investors think about the companies they invest in. It provides them with a new kind of transparency into their investments, one which comes from material investment information, derived from a set of criteria, most commonly referred to as ESG, or environmental, social and governance.
"I must say, a couple of years ago, I was a skeptic. It was hard to find an investor who would pay up for a green bond, for example," says Suni Harford, head of Investments, UBS Asset Management. "But I'm in a different seat now and it's a very different world. We now have the data and technology necessary to facilitate a really robust change in the way that we invest and the impact that investment has."
More and more, ESG is becoming integral to driving our client engagements.
But it's not just technology or data. Growing client demand has also been an important factor in driving the increasing focus on sustainable investing. While it has been a clear trend with retail investors for a couple of decades or more, for institutional investors it's only in the last five years that SI has become a mainstream activity, as they look to engage with assets that score highly on ESG metrics and have positive impact on society.
And the research backs this up. According to a survey from Responsible Investor, 78% of asset owners consider ESG management to be one of the key issues they look at when choosing an asset manager – a clear demonstration of the extent to which the mainstreaming of ESG has evolved in recent years.
UBS Asset Management (UBS-AM) has seen this trend play out very clearly in its own business. In 2018, ESG integrated assets under management tripled from over USD 63 billion to over USD 200 billion. This growth is testament to the sheer scale of the work which has been done to develop, refine and propagate our sustainability portfolio. Accomplishing it meant incorporating ESG information into investment research as well as in the mainstream of our offering across all asset classes. And that didn't happen overnight.
Michael Baldinger has been head of Sustainable and Impact Investing within UBS-AM since 2016. He works to establish sustainable investing across the various asset classes. So if anyone can speak to the way in which SI has developed and what the growth drivers have been, it's Michael.
"Most clients have different requirements and needs when it comes to SI," says Michael. "Many times the product they envision or need hasn't existed as an 'off-the-shelf' solution, so we've had to create an SI engine that can be used across the firm to create precisely the offering that the client is looking for."
The next step in this process for AM is collaboration with Global Wealth Management, the Investment Bank and external partners, to develop a comprehensive sustainable investing toolbox that can be used to create solutions that fully address clients' needs.
A key consideration in developing this toolbox has been the United Nations 17 Sustainable Development Goals. Close attention is paid to their objectives to ensure the solutions we offer align with them. Some notable examples of such solutions include:
- A fund that works to quantify the positive impacts of equities on issues like climate change, reduction of pollution and emissions, water scarcity, food security and health care so that companies can reduce carbon-intensive equities over time while gradually increasing holdings in energy-efficient manufacturing and transport, clean energy and green business sectors. [SDG 13: Climate action]
- A medical fund that invests in early-stage cancer treatments, supports academic research and provides better access to cancer care in the developing world [SDG 3: Good health and well-being]
- An index of 100 companies with strong track records in equal compensation, work-life balance, gender balance and sustainability policies [SDG5: Gender equality]
- Our new offering for innovative notes issued by the World Bank. The notes will provide equity exposure to up to 100 UN Global Compact Signatories selected according to their environmental, social and governance (ESG) ratings from Sustainalytics, a leading global provider of ESG research and ratings.
- Multilateral Development Banks (MDBs) bonds, which gather capital to provide loans for developing nations at favorable interest rates with the aim of improving social and physical infrastructure to facilitate global progress.
"More and more, ESG is becoming integral to driving our client engagements," notes Michael. "It demonstrates the strength of our collaborative efforts across the divisions and our ability to transform our solutions to fit clients' needs."
Finally, developing an offering with strong sustainable investing opportunities is about more than just highlighting organizations that are doing well, and excluding those who don't meet standards. Increased interest in sustainability from our clients can also open unique opportunities. Due to the influence SI now holds in terms of shareholding, we can also help those companies who want to change their policies in order to attract new investment – something we actively do and have already seen results from.
"Our goal at UBS is to be the world's leading sustainable financial institute," says Michael. "And being ahead of the curve, playing a material role in the mainstreaming of this important new approach, this requires a collaborative mind-set – something UBS is supremely well placed to deliver."
Sustainable investing at UBS