Discretionary Mandates

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 investor’s risk/return profile. Sustainability characteristics are key drivers, but not the only drivers of investment decisions. UBS Manage SI offerings incorporate material sustainability-related information into the fundamental analysis of assets and investments to ensure relevant risk and performance factors are considered. The offering is constructed exclusively using instruments defined by UBS Global Wealth Management as applying sustainable investing approaches (excluding cash, certain structured products and non-sustainable expressly requested instruments (ERI), if any).

UBS commits to the following proportions in the Manage SI offerings:

• Aligned with E/S characteristics: 40%
• Sustainable Investments: 30%
• EU 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 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 underlying funds) include the assessment of adverse impacts on sustainability factors such as exposure to controversial activities like weapons or violation of the UN Global Compact Principles. 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.

Your portfolio follows a fund selection process, where UBS assesses carefully if underlying funds are sustainable. Since as of today, there is no common, objective definition of sustainability, this assessment is reliant on the subjective view of fund research analysts. As the result, UBS might have a different view on what is to be considered sustainable than others. ESG data is available to UBS’ fund analysts to support due diligence. There is close collaboration between UBS fund analysts and UBS SI specialists, which develop in-house SI methodologies. Furthermore, UBS assessment is documented and subject to internal approval processes, with proper governance and controls. This assessment is monitored and reconfirmed by the analyst on an annual basis.

When UBS makes direct investments into stocks and bonds as part of the UBS Manage SI offering, these instruments are assessed using a quantitative data-driven methodology that relies on best-in-class sustainability data providers and industry frameworks to identify sustainability performance of issuers of equities and bonds.

For funds in the portfolio, UBS portfolio manager monitors the percentage allocation to assets aligned with E/S characteristics on a monthly basis (based on data submitted by underlying managers through European ESG Template).  The allocation for each individual client portfolio is then aggregated and reported annually.

For single securities in the portfolio, UBS measures fulfilment of sustainability-related criteria on instruments considered ‘eligible’ for the Manage SI offering, and provides clients with both quantitative and qualitative information (e.g. scores) to illustrate how their investments are aligned to sustainability.

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.

In case you would like to further discuss the disclosures or require additional translations please contact your client advisor.

This financial product promotes environmental or social characteristics but does not have as its objective sustainable investments. 

How the sustainable investment does not significantly harm any of the sustainable investment objectives? 

For funds, as part of the due diligence and selection process, UBS checks if there are processes in place by the underlying funds to ensure that the sustainable investments do not cause significant harm to any environmental or social sustainable investment objective. For single securities (if applicable) this is ensured via excluding issuers with adverse impacts.

How have the indicators for adverse impacts on sustainability factors been taken into account?

Funds

UBS invests in underlying funds with a minimum proportion of sustainable investments, and therefore considers principal adverse impact on sustainability factors. As part of the due diligence and selection process, UBS checks if there are processes undertaken by the underlying fund to consider principal adverse impacts on sustainability factors, such as exclusions of controversial weapons or contraventions of UN Global Compact principles. In addition, investment managers must share information on their exclusion policies, i.e. whether exposure to controversial business activities such as weapons, tobacco, gambling and adult entertainment etc., may lead to exclusion of such companies/issuers from the portfolio.

Single Securities

Principal adverse impacts (the “PAI”) are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti-corruption, and anti-bribery matters. UBS integrates PAI indicators in its decision-making process.

At present, the following PAI indicators are considered by means of exclusions from the investment universe, while others may be considered in the investment process depending on their materiality:

1.4 “Exposure to companies active in the fossil fuel sector”:

• Companies that exceed a certain revenue threshold from thermal coal mining and its sale to external parties or from oil sands extraction are excluded
• Companies that exceed a certain revenue threshold from thermal coal-based power generation are excluded.

1.14 “Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)”:

• UBS does not invest in companies involved in: cluster munitions, anti-personnel mines or chemical and biological weapons, nor does it invest in companies in breach of the Treaty on the Non- Proliferation of Nuclear Weapons. UBS considers a company to be involved in controversial weapons if the company is involved in development, production, storage, maintenance or transport of controversial weapons.

When assessing “do no significant harm” (DNSH), we consider selected principal adverse impact indicators based on availability and appropriateness. These indicators are combined into a signal based on individual thresholds defined per indicator. A fail on a single indicator leads to an investment failing the DNSH criteria. The following PAI indicators are additionally part of this signal:

1.3 “GHG intensity of investee companies”

1.4 “Exposure to companies active in the fossil fuel sector”

1.7 “Activities negatively affecting biodiversity-sensitive areas”

1.10 “Violations of UN Global Compact principles and Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises”

1.13 “Board gender diversity”

1.15. “GHG Intensity” for sovereigns

1.16. “Investee countries subject to social violations”

Information on consideration of PAIs on sustainability factors is also available in the annual Asset Statement. 

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

As part of the due diligence and selection process, UBS checks if there are processes in place by the underlying funds to align sustainable investments with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Single securities

As part of our SI methodology, we exclude companies involved in certain controversial business activities (e.g., thermal coal, 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 also excludes companies violating OECD Guidelines for Multinational Enterprises” and “UN Guiding Principles on Business and Human Rights”.

UBS Manage SI promotes 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:

• 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.

Funds
All underlying funds are assessed with regards to their sustainability intentionality. The assessment is based on a proprietary SI Approach classification) and indicates the extent to which fund managers are considering sustainability issues in their investment decisions, from security evaluation and selection to portfolio construction. It is a top-down assessment of the manager’s philosophy and process, and hence a reflection of intentionality rather than outcome. For your sustainable portfolio, we consider only funds categorized as “SI Focus” and “Impact”, as explained below as well as cash-like instruments for hedging purposes. Additionally, all the invested funds fulfil the requirements of art. 8 or 9 SFDR products.

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 sustainability-related 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, certain structured products and non-SI ERIs).

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.
  
• Sustainable hedge funds: Strategies that invest long-short across hedge fund styles and the spectrum of sustainable investing approaches, including ESG thematic, ESG leaders, ESG improvers, and carbon.
  

Information on policy to assess good governance practices of the investee companies, including with respect to sound management structures, employee relations, remuneration of staff and tax compliance

Funds
For your portfolio, UBS selects funds that fulfil the requirements of  Art. 8 or Art. 9 SFDR classification (excluding liquidity) for which adherence to good governance is a regulatory requirement. 

Single Securities
Good corporate governance is a key driver of sustainable performance and is therefore embedded in UBS investment strategy. Assessment of good governance includes consideration of management structures, employee relations, remuneration of staff and tax compliance. UBS relies on an external provider’s data and excludes companies which cause, contribute or are linked to violations of those 4 pillars in a material manner. In addition, good governance is supported by assessing whether companies adhere to minimum standards as defined by the ten principles of the United Nations Global Compact Principles.

All instruments selected (excluding liquidity, certain structured products and expressly requested non-SI instruments (ERIs)) 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: 30%
  
•  EU Taxonomy: 0%
  

 UBS Manage SI does not commit to making EU Taxonomy aligned investments. However, certain investments in the portfolio may happen to be aligned with the EU Taxonomy.