Discretionary Mandates

Product information for UBS ManageTM [Sustainable Investing], UBS ManageTM Advanced [Sustainable Investing], UBS ManageTM Premium [Sustainable Investing]

UBS ManageTM [Sustainable Investing], UBS ManageTM Advanced [Sustainable Investing], UBS ManageTM Premium [Sustainable Investing] («UBS Manage SI») promotes sustainable development by considering environmental, social and governance (ESG) characteristics alongside financial criteria when selecting an investment opportunity. UBS has defined a set of SI approaches with specific ESG attributes. All funds selected, and all single security selection portfolios constructed, must follow one of these approaches to be included in UBS Manage SI.

What are the binding elements for the investment selection?
The strategy is based on the risk-return profile that the client has chosen. ESG factors are key drivers, but not the only drivers, of investment decisions. The mandate follows an ESG integration approach that combines ESG factors with traditional financial considerations. It involves understanding how fund managers and companies handle ESG risks that could entail significant costs or capture opportunities arising from major sustainability-related themes and trends.

UBS Manage SI portfolios are constructed exclusively using SI approaches defined by UBS CIO. These SI approaches currently include (and may be expanded in future):

  • Development bank bonds: bonds issued by multilateral development banks (MDBs). MDBs are backed by multiple governments with the aim of financing sustainable economic growth
  • Green bonds: bonds that finance environmental projects. Issuers include corporations, municipalities, and development banks
  • ESG engagement equities: an approach where fund managers take active equity stakes in order to engage company management to improve their performance on ESG issues and opportunities
  • ESG engagement high-yield bonds: an approach where fund managers take active bond positions in issuers with credit ratings below BBB- in order to engage company management to improve their performance on ESG issues and opportunities
  • ESG thematic equities: equity shares in companies that sell products and services that tackle a particular environmental or social challenge, and/or whose businesses are particularly good at managing a single ESG factor, such as gender equality
  • Improving ESG equities: equity shares in companies that are getting better at managing a range of critical ESG issues and opportunities
  • ESG leaders equities: equity shares in companies that manage a range of critical ESG issues and seize ESG opportunities better than their competitors
  • ESG leaders bonds: bonds issued by companies that manage a range of critical ESG issues and seize opportunities better than their competitors

Depending on the strategies used to optimize for overall portfolio risk and return, the portfolio will contain differing exposures whose sustainable investments and ESG characteristics varies The allocation percentage depends on a client’s risk profile. The allocations are implemented primarily via investment funds. When UBS invests via directly held securities UBS is focusing on an ESG Leaders approach, evaluating issuers on six sustainability topics (climate change, water, pollution & waste, products & services, people, governance).

What is the policy to assess good governance practices?
As a funds distributer, when selecting investment strategies for SI-specific portfolios, UBS has a research process that repeatedly assesses funds across several research dimensions, for example people, process, philosophy, performance, risk and pricing. For a fund to be put on the shelf, it needs to be strong across several dimensions on an ongoing basis. In the people category UBS looks at the governance of a fund management company, including experience, quality of investment manager, and the firm’s incentive structures. A breach in any dimension, may impact the future expectation for the fund. This leads to a heightened monitoring or removal.

When selecting direct investments for client portfolios, UBS looks for companies that are fair and transparent on issues such as executive pay, board independence, tax and anti-corruption, and governments that promote strong institutions and rule of law and commit to international treaties on environmental and social issues.

Funds
UBS conducts in-depth due diligence that is performed on the final candidates of external fund providers before on-boarding the funds to the UBS product universe (all funds, not only SI/ESG focused funds). Based on the collected information UBS develops a view on the quality of that investment process, including its approach to ESG integration. The view is documented in the formal due diligence report. The due diligence process includes questionnaires and interviews where investment managers are asked to provide fund-specific information including ESG, e.g., how ESG is integrated within their investment process or what the company-wide ESG efforts are.

To be selected for an SI discretionary mandate or portfolio, the fund investment approach must fit into one of the SI approaches defined by UBS CIO in the Sustainable Investing Strategic Asset Allocation, e.g., ESG Leaders, Improvers, Engagement etc. (see UBS CIO white paper "Investing for returns and good (PDF, 660 KB)").

Single securities
A section of single securities follows an ESG Leaders approach. UBS maintains a database of corporate sustainability scores that indicate how well an issuer scores against a set of ESG-related metrics. UBS has developed an in-house proprietary methodology to generate the scores. The process relies on data sourced from multiple best-in- class ESG data providers chosen based on their area of expertise, covering nearly 11,000 equity and bond issuers in 170 countries. Our methodology is also in line with the Sustainability Accounting Standards Board (SASB) Materiality Map, which identifies the sustainability issues that impact value creation and financial performance. To be selected for an SI portfolio, the issuer must meet the criteria for inclusion in the relevant global or regional SI universe. When issuers are no longer eligible, portfolio managers must sell those securities from SI portfolios (if they are held).

Funds
In the course of a normal fund monitoring process, adherence to the SI approach is monitored. Fund managers are asked annually to update the questionnaire to monitor any potential changes to our overall view. During periodic meetings the funds’ results and people or process changes (incl. SI approach and ESG integration) will be discussed, assessed and reported. The analyst recommendation level will be re-evaluated in all aspects.

The ESG rating is reviewed annually alongside normal investment reviews. If the ESG rating deteriorates significantly, then a fund analyst may recommend that a fund no longer be eligible for SI portfolios. Similarly, a significant improvement in the ESG integration rating may lead to a fund meeting the criteria for one of the SI approaches in the SI Strategic Asset Allocation (SAA) and becoming eligible for selection for an SI portfolio.

Single securities
The methodology is created, reviewed and updated (if necessary) by the Sustainable Investing Methodology Committee. The Committee meets every six months and comprises various members of the SI focused investment and research teams. An independent academic is an advisor to the committee, by appointment of the GWM CIO Sustainable Investing Research team. All changes to methodology must be approved by the committee.

In addition, there are quarterly updates of the SI scores, and at each update quality and accuracy are being checked. Also, ad hoc interim updates are done if there are any new severe controversies that would lead to the exclusion of issuers from the eligible SI universe. If an issuer’s score falls below the threshold for inclusion in the SI portfolio, portfolio managers must sell those securities from SI portfolios (if they are held).

By applying the due diligence and monitoring process, UBS decides whether an investment is labelled sustainable. UBS does not systematically measure fulfilment of SI criteria beyond the level of ‘eligible’ or ‘not eligible’. However, UBS endeavours to provide clients with both quantitative and qualitative information to illustrate how their investments are making a difference to sustainability. However, the reporting of sustainable outcomes is not portfolio-specific and depends on the information that UBS receives from third-party fund manufacturers.

Please see latest version of CIO Scoring Methodology paper. It describes our approach to evaluating sustainability performance for corporates and issuers, aggregating ESG information from multiple data providers to form a view on the sustainability performance of potential investments. There is no universally agreed approach to evaluating corporate sustainability, but the UBS methodology is based on current industry best practices, and is subject to continued evaluation and iteration to ensure relevance in this evolving space.

With our in-house scores, we hope to contribute to informed decision-making by private investors, whilst navigating and addressing the challenges of data quality, investment applicability, and transparency.

Funds
For fund selection, UBS uses a portfolio approach that considers which SI approach a fund fits into. 

  • Limitations – assessment is reliant on the subjective view of fund research analysts. Some SI approaches are less well established, so there are fewer comparisons available in the market.
  • Mitigations – ESG data, e.g., SI scores, is available to fund analysts to help with due diligence if they want it, and to help make consistent evaluations. UBS also runs ESG trainings for fund analysts, and there is close collaboration between fund analysts and SI specialists.

Single securities
For the single securities ESG Leaders approach UBS relies on a rule-driven data methodology for scoring and aggregating ESG data, with no fundamental research input.

  • Limitations – there are some widely acknowledged limitations to this process, including data gaps, differences in regional corporate disclosure, sector differences, differences between score methodologies with weighting of issues, etc.
  • Mitigations – UBS has developed a robust data processing methodology where UBS sources data from multiple best-in-class providers and aggregates it according to an internal methodology (see methodology paper described above). UBS owns and calculates our proprietary process in-house so it is fully transparent and controllable. UBS has an independent academic advising our methodology committee.

UBS does not currently vote proxies on behalf of investors in discretionary portfolios. UBS works with external fund management companies and their ability to vote and engage is a key part of UBS's ESG funds assessment.