Product information for UBS ManageTM [Sustainable Investing], UBS ManageTM Advanced [Sustainable Investing], UBS ManageTM Premium [Sustainable Investing]
Product information for UBS ManageTM [Sustainable Investing], UBS ManageTM Advanced [Sustainable Investing], UBS ManageTM Premium [Sustainable Investing]
UBS Manage SI offerings promote environmental or social characteristics but do not have as their objective sustainable investments (SI). The promotion of the environmental and/or social characteristics is done by selecting instruments that aim to finance sustainable economic developments and environmental projects by engaging companies to improve their performance on ESG issues and opportunities, and by investments that support businesses generating positive outcomes for people and the environment.
The portfolio construction for UBS Manage SI offerings is based on the risk/return profile. ESG characteristics are key drivers, but not the only drivers of investment decisions. UBS Manage SI offerings incorporate material ESG information into the fundamental analysis of assets and investments to ensure relevant risk and performance factors are considered (ESG integration). SI discretionary mandates are constructed exclusively using SI strategies defined by UBS (excluding cash).
UBS commits to the following proportions in the Manage SI offerings:
- Aligned with E/S characteristics: 40%
- Sustainable Investments: 30%
- Taxonomy alignment: 0%
UBS Manage SI follows a fund selection process, where ESG criteria are integrated in the fund research process to ensure the selected funds support the aforementioned ESG characteristics of the portfolio. UBS conducts in-depth due diligence (incl. evaluating sustainability performance by corporates and issuers) in its fund selection process, before onboarding funds to the UBS product universe. UBS checks how funds integrate ESG within their investment processes and that there are processes in place to ensure sustainable investments do not cause significant harm to any environmental or social SI objectives. These processes (performed by the target funds) include the assessment of adverse impacts on sustainability factors such as like exposure to controversial activities such as weapons or violation of UN Global Compact Principle. Companies violating the UN Global Compact principles who do not demonstrate credible corrective action will be excluded from the investment universe. Selected funds are monitored annually alongside normal investment reviews. It is assessed if the fund still meets the criteria for one of the SI strategies and thus remains eligible for the selection of UBS Manage SI portfolios.
Whenever an investment is labelled sustainable at UBS GWM, the above-mentioned due diligence and monitoring processes need to be applied. UBS does not only measure fulfilment of SI criteria as ‘eligible’ or ‘not eligible’, but rather provides clients with both quantitative and qualitative information (e.g. scores) to illustrate how their investments are making a difference to sustainability.
Limitations are currently set by the fact that the funds selection assessment is reliant on the subjective review of funds by research analysts. Some SI strategies are newly established, therefore, not many market comparisons are yet available. However, ESG data, e.g., SI scores, is available to fund analysts supporting them with due diligence process and enabling consistent evaluations.
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.
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This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investments.
How have the indicators for adverse impacts on sustainability factors been taken into account?
Funds
As part of the due diligence and fund selection process, UBS checks if there are processes in place by the target funds to ensure that the sustainable investments do not cause significant harm to any environmental or social sustainable investment objective. These processes (performed by the target funds) include the assessment of adverse impacts on sustainability factors such as exposure to controversial weapons or violation of UN Global Compact Principle.
Single Securities
At present, the consideration of principal adverse impact is based on UBS CIO sustainability scores methodology for issuers, where sustainability data from the best-in-class data providers is sourced and systematically processed to calculate a score for six sustainability topics: (i) Climate Change, (ii) Water, (iii) Pollution and Waste, (iv) People, (v) Governance and (vi) Products and Services. The score of a topic, ranges from zero to ten, (zero demonstrating weak performance and ten demonstrating a strong performance in a given topic). The companies that score below the bottom 20% percentile threshold of the topics (i)-(v) are considered not to pass principal adverse impact requirements and thus are excluded from the sustainable share of portfolio. The selection of PAI indicators corresponds to the environmental and social topics on which UBS focuses as part of the scoring methodology and screening process.
Details on the consideration of PAIs can be found on www.ubs.com/DNSH
How are the sustainable investments aligned with the “OECD Guidelines for Multinational Enterprises” and the “UN Guiding Principles on Business and Human Rights”? Details:
International frameworks such as the UN Global Compact the “UN Guiding Principles on Business and Human Rights” as well as the “OECD Guidelines for Multinational Enterprises” address rules of environmental and social conduct for companies to act upon responsibly worldwide. UBS takes these guidelines into account in its investment selection process.
Funds
For UBS Manage SI, we consider only funds with an SI Approach of “Sustainability focus” or “Impact investing”. As part of the due diligence and funds selection process, companies violating the UN Global Compact principles who do not demonstrate credible corrective action will be excluded from the investment universe.
The SI Approach indicates the extent to which the fund manager considers environmental, social and governance issues in the investment decisions, and/or engages in active ownership. It is a top-down assessment of the manager's philosophy and process, and hence a reflection of intentionality rather than outcome.
Traditional investing: While the fund manager's research and portfolio construction may contain environmental, social, and governance (ESG) considerations, there are no material, explicit sustainable objectives for the strategy. For example, the portfolio may simply exclude companies based on their involvement in controversial business activities or use ESG tools to manage sustainability-related risks to investment performance. There may also be limits on the exposure to sustainability related risks, but these elements do not drive the strategy itself.
Sustainability focus: ESG considerations inform the research process and are actively taken into account when constructing the overall portfolio. For example, they may inform the position sizing and determine the overall portfolio characteristics or thematic exposure. Such funds have explicit sustainable intentions or objectives that drive the strategy.
Impact investing: ESG considerations play a significant role both in investment research and portfolio construction. The manager has explicit intentions to generate measurable, verifiable, positive sustainability outcomes, and impact is attributable to investor action/contribution.
Single securities
As part of our SI methodology, we exclude controversial business activities (i.e., weapons) as well as high severity environmental, social and governance-related incidents that may negatively impact stakeholders, the environment or the company's operations. Examples of such incidents could include bribery or damage to the environment, when the company is directly responsible for such misconducts (e.g., oil-spills).
UBS Manage SI aims at promoting environmental, social and governance (ESG) characteristics such as, climate change, water, pollution and waste management, gender-related matters and governance. This is done by selecting instruments that aim to finance sustainable economic developments and environmental projects by engaging companies to improve their performance on ESG issues and opportunities, and investments that support businesses generating positive outcomes for people and planet.
Since UBS Manage SI follows a fund selection process, ESG criteria are integrated in the fund research process to ensure the selected funds support the ESG characteristics of your portfolio. As part of this, we intend to
- identify fund strategies that follow specific sustainable investing (SI) approaches with intentional sustainability benefits and
- evaluate and rate the extent to which any fund strategy incorporates ESG considerations.
The portfolio construction for UBS Manage SI is based on the risk/return profile that you have chosen. ESG characteristics are key drivers, but not the only drivers of investment decisions. UBS Manage SI incorporates material ESG information into the fundamental analysis of assets and investments to ensure relevant risk and performance factors are considered (ESG integration). This 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. SI discretionary mandates are constructed exclusively using SI strategies defined by UBS (excluding cash).
SI strategies currently include (and may be expanded or changed in the future at UBS’s discretion):
- Multilateral development bank bonds: Investments in bonds issued by multilateral development banks (MDB), such as the World Bank.
- Thematic sustainable fixed income: An investment strategy that incorporates fixed income investments that finance environmental and/or social projects and activities, as well as a transition process toward stronger ESG credentials. Bond investments in this asset class include green, social, sustainability and sustainability-linked bonds issued by public sector and corporate borrowers.
- ESG engagement: Strategies where fund managers actively engage company management to improve corporate performance on ESG issues and opportunities.
- ESG thematic: Strategies that invest 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.
- ESG improvers: Strategies that invest in companies that are improving at managing a range of critical ESG issues.
- ESG leaders: Strategies that invest in companies that manage a range of critical ESG issues and seize ESG opportunities better than their competitors.
- ESG multiple approaches: Strategies that incorporate several sustainable investing approaches in the portfolio construction and investment process (for example, ESG leaders and improvers). This includes cross-asset solutions based on the sustainable investing strategic asset allocation.
- Thematic multilateral development bank bond: Investments in bonds issued by multilateral development banks (MDB), that finance environmental and/or social projects and activities, as well as a transition process toward stronger ESG credentials. Investments in this asset class include Green, Social, Sustainability and Sustainability-Linked bonds.
- Emerging market sustainable finance: Strategies that comprise fixed income and currency solutions to provide private funding in emerging markets and support the efforts of development finance institutions.
- Securities with ESG leader attributes: Equities or bonds that have been selected in line with the UBS CIO view on ESG leaders’ approaches.
- Securities with ESG thematic attributes: Equities that have been selected in line with the UBS CIO view on ESG thematic approaches.
- Impact private markets: Strategies that finance private companies with the aim to generate incremental measurable positive environmental and social impact; investable through fund structures.
UBS Manage SI offerings follow a fund selection process. However, for UBS Manage Advance / Premium SI, SI single securities can be added to the portfolio based on client instructions. Newly, SI structured products had been added to the portfolio that follow the ESG leader approach.
All instruments selected (excluding liquidity, certain structured products and expressly requested non-SI instruments (ERI)) for UBS Manage SI are either aligned with E/S characteristics or even sustainable investments with an environmental or social objective. In this respect, the planned minimum proportions in UBS Manage SI offerings are as follows:
- Aligned with E/S characteristics: 40%
- Sustainable Investments: 10%
As there is currently insufficient data on investments with an environmental objective with the EU Taxonomy, the Taxonomy-alignment of UBS Manage SI is to be indicated at 0%.
Funds
In the course of a normal fund monitoring process, adherence to the SI strategy 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 strategy 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 strategies in the SI Strategic Asset Allocation (SAA) and becoming eligible for selection for an SI portfolio.
Single securities
The SI 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 SI expert is an advisor to the committee. 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).
For an investment to be labelled sustainable at UBS GWM the above mentioned due diligence and monitoring processes need to be applied. UBS does not only measure fulfilment of SI criteria as ‘eligible’ or ‘not eligible’, but rather provides clients with both quantitative and qualitative information to illustrate how their investments are making a difference to sustainability.
For information on data sources and processing, 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 strategy a fund fits into.
- Limitations – assessment is reliant on the subjective view of fund research analysts. Some SI strategies 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 strategy, 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 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 the proprietary process in-house so it is fully transparent and controllable. In addition, an independent academic SI expert advises the methodology committee.
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 strategies 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").
Single securities
The majority of the single securities invested in UBS Manage SI 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. 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 in-house criteria for inclusion in an SI universe as well as comply with relevant regulatory requirements. When issuers are no longer eligible, portfolio managers must sell those securities from SI portfolios (if they are held).
UBS does not currently vote proxies on behalf of investors in discretionary portfolios. UBS sources funds from external fund management companies and their ability to vote and engage is part of UBS's ESG funds assessment.
Last update: June 2023
