EU Sustainable Finance Disclosure Regulation
This content is intended to provide transparency on offerings for investors of selected UBS Legal entities in the scope of the Sustainable Finance Disclosure Regulation (SFDR), as well as on the integration of sustainability risks, the consideration of principal adverse sustainability impacts, sustainable products that promote environmental or social characteristics and on products that have sustainable investment as its objective.
Sustainability risk information
Sustainability risk information
Sustainability risks are financial risks that are defined as environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investment (art. 2 para. 22 SFDR).
UBS believes that sustainability risks may affect the performance of investment portfolios. To enhance the long-term performance of clients' investments, UBS integrates sustainability risk into its investment decision making process, investment advice and insurance advice where relevant. The integration of sustainability risk is implemented in line with UBS`s policies governing the creation of investment research views, portfolio construction and product selection.
Additional information on how GWM integrates sustainability risk in the investment decision making process
The integration of sustainability risk in investment decision making and advisory processes is included in UBS`s policies governing these processes. The policies, amongst other things, include guidelines that analysts need to observe when forming their independent views. The investment decision and advisory processes of UBS are multi-step processes, a part of which is the selection of preferred instruments based on their market outlook.
When assessing securities of single issuers (equity and bonds) or investment funds, sustainability risks, among other financial risks, are considered when conducting the financial analysis of issuers and fund due diligence:
- The evaluation of sustainability risks and their materiality is one of the numerous factors determining whether or not securities of single issuers are recommended and, therefore, in how far such instruments should be selected in investment management mandates and in investment advice. Sustainability risk is explicitly referred to in the Principles and methodology of research in Global Wealth Management CIO Investment Office (available at ubs.com/cio).
- Fund due diligence focuses on strategy, and how a fund manager captures risks and opportunities (including ESG risks and opportunities) in their investment process. It is not an assessment of the individual holdings within a portfolio. As part of standard fund due diligence, UBS WM evaluates an ESG rating to each fund. While sustainability and other risk topics should be considered by every manager, it is likely that funds with higher ESG intentionality ratings carry less sustainability risk given that more focus and resources are placed on research, investment decisions and/or active shareholder engagement. A fund manager`s lack of integration of sustainability risks in its investment decision making process will typically result in a lower ESG rating.
During investment research and due diligence, UBS aims to identify financial risks (including sustainability risks) with a view to managing overall portfolio risk.
UBS’s approach to compensation globally is underpinned by the Total Reward Principles, which establish a framework with a focus on conduct and sound risk management practices. Employees are assessed and rewarded for their performance against a range of financial and non-financial goals, including risk management. Where applicable, the risk management goal will include a consideration of sustainability risk. Where sustainability risks form part of an employee’s performance objectives, they are taken into account in the qualitative performance assessment, which, in turn, is one of the factors that determines an employee’s total remuneration. This approach to an employee's remuneration is outlined in the relevant remuneration policies.
Principal adverse impact
Principal adverse impact
UBS acknowledges a need for transparency of principal adverse impacts of investment decisions on sustainability factors. UBS has defined and follows internal procedures on identification and prioritization of the adverse impacts and considers these as part of its investment decision making process. Currently, UBS is working to further enhance the internal framework in line with EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector. Therefore, further information about policies on the identification and prioritization of principal adverse sustainability impacts, a description of these impacts and of any actions thereto will be enhanced, and further information will be published accordingly.
Principal adverse impacts ("PAI") are considered as part of our UBS Advice Sustainable investing (SI) solutions, where relevant for clients subject to associated European regulations.
At present, UBS Advice SI considers principal adverse impacts on sustainability factors via its investments in funds with a minimum proportion of sustainable investments. Investment managers must provide information related to whether the fund considers principal adverse impacts on sustainability factors, including contraventions of UN Global Compact principles. Additionally, managers must share information related to controversial business activities which may lead to exclusions of companies whose business activities fall into the following categories: tobacco, gambling, adult entertainment and weapons.
UBS considers environmental and social impacts as part of its investment advice in UBS Advice SI solutions. At present, the consideration is based on UBS CIO sustainable investing scoring methodology, which is viewed as an equivalent to Principal Adverse Impacts framework as defined in EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”). The methodology is based on a systematic process of sourcing and processing data on sustainability indicators. The indicators are aggregated into six sustainability topics: pollution and waste, climate change, water, people, products and services and governance. The approach produces scores from zero to ten for each of the six topics, as well as a final headline zero-to-ten score that reflects a weighted average of individual topic scores based on the topic’s materiality to each industry. Companies that score in the bottom 20% of the operations-related topic scores are considered to have poor ESG practices. Only investments that reach a defined minimum threshold on the topic scores are considered to be sustainable investments. In addition, for sustainable investments, controversial business activities and incidents are considered, leading to excluding from the sustainable share of a portfolio companies whose business activities fall into the following categories: adult entertainment, alcohol, weapons, gambling, genetically modified organisms, nuclear power, tobacco, or which suffered a severe incident. Additionally, the exclusion strategy enables investor personalization and preferences to be incorporated into investment advice. UBS is continuously working to further onboard all PAI indicators in line with the SFDR.
Relevant for GWM Luxembourg, France and Italy, where insurance advice is provided
Currently UBS does not consider any principal adverse impacts (“PAI”) of investment decisions on sustainability factors when advising on insurance products. As an appointed insurance intermediary, UBS currently distributes insurance products which are issued by insurance companies. The investment framework for insurance solutions is determined by each insurance company in accordance to its own investment policy.
As part of the existing arrangement, UBS acting as insurance distributor does not intend to consider principal adverse impacts when providing insurance advice. Where one or more of the underlying investment options offered by the insurance product promote environmental or social characteristics, the insurance product will promote the same characteristics, which will be met only where, following the selection by the policyholder, the products invest in at least one of those specific investment options and this option is kept during the holding period of the product.
- Applies to UBS Realty Investors LLC, UBS Farmland Investors LLC and UBS Asset Management (Americas) Inc. EU Investors click here for more information on UBS Farmland / Realty and click here for Americas.
- Applies to UBS AM (Funds) Limited. EU Investors click here for more information.
- Applies to UBS Fund Management (Switzerland) AG. EU investors click here for more information.
The UBS Asset Management (AM) Engagement Policy provides its definition of engagement and outlines how it is interrelated to UBS AM's integration and proxy voting processes. The document stresses how engagement is part of UBS AM's fiduciary duty towards clients and is an integral part of UBS AM's investment process across both passive and active strategies. The policy provides an overview of how we prioritize engagement cases based on UBS AM's financial exposure, the presence of high environmental, social and governance (ESG) risks, the consideration of major sustainability externalities and controversies. It also describes UBS AMs research process, the sources UBS AM uses, the topics UBS AM addresses and the company representatives we usually interact with. In the document, UBS AM provides more information on the system UBS AM has put in place to define engagement objectives and track progress against them as well as the UBS AM escalation process, should UBS AM be unsuccessful in its dialogue with companies. UBS AM's criteria in collaborating with other investors and our processes to deal with insider dealing and risks arising from conflicts of interest are also explained. Finally, the policy sets our commitments to engage in good quality dialogue with companies and providing useful disclosure to clients and the public more generally. The appendix to the document includes a complete list of the stewardship codes we subscribed to and a list of the most relevant ESG/stewardship initiatives UBS AM is currently supporting.
For further details please refer to the latest UBS Asset Management Global Stewardship Policy available.
UBS Global Wealth Management also regards stewardship as an important part of fiduciary duty as well as an important tool for impact within sustainable investment strategies. As UBS Global Wealth Management (UBS GWM) is primarily a fund distributor, we have embedded consideration of our external asset manager’s stewardship practices into UBS GWM’s fund due diligence. UBS GWM's Engagement Policy is geared towards asset managers’ own engagement in their capacity as shareholders. In the general case of individual wealth management, UBS merely receives authorization for the client custody account, i.e. UBS acts as a representative that submits declarations of intent on behalf of the client. However, the client remains the owner of the equities and thus the shareholder. With this in mind, UBS Engagement Policy sets the following procedures:
Exercise of shareholder rights - Rights to vote
Discretionary mandates with clients provide for no explicit authorization for UBS when it comes to voting rights or expressly exclude exercising of voting rights. Therefore, UBS does not exercise any of the rights to vote derived from its holdings of equities in a portfolio.
If UBS acquires fund units, the asset management company of the fund is normally authorized to exercise the rights to vote associated with the fund assets from the holdings of equities. During the fund selection process, UBS gives consideration to the Engagement Policy published by the fund management company.
Over the years UBS has committed to various business conduct codes, international standards for due diligence and reporting initiatives in order to meet the expectations of our stakeholders. UBS adheres to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Principles for Responsible Banking. In addition, UBS AM follows Principles for Responsible Investments and UBS GWM adheres to IFC Operating Principles for Impact Management. A full list of sustainability-driven initiatives (investment process and non-investment process related) is available in the Sustainability Report.
UBS Legal entities in scope of SFDR
- UBS Europe SE
- UBS Fund Management (Luxembourg) SA
- UBS Third Party Management Company SA
- UBS Asset Management (Deutschland) GmbH
- UBS Real Estate GmbH
- UBS Asset Management (Italia) SGR SpA
- UBS (France) S.A.
For the following entities SFDR disclosures are not covered here, but instead provided via the website links below:
Sustainability-related product disclosures
For website disclosures, please refer to your fund documentation
Location specific GWM offering
Last update: December 2022