Aligning activities

As the integration of ESG into the investment process has become a key priority for many investors, our Stewardship Annual Report 2020 showcases the crucial role of stewardship with a summary of our activities over the past year.

31 Mar 2021 10 min read

2020 was a pivotal year for sustainable investing. As the COVID-19 pandemic took hold globally, the social and economic ramifications led the capital markets to intensify their focus on sustainability. Despite a period of significant market volatility at the start of the year, inflows to sustainable funds rose significantly, closing the year at an all-time high of USD 1.6 trillion1. It is against this backdrop that we highlight our stewardship activities in 2020.

Key highlights:

  • The expansion of stewardship beyond listed equity, to include fixed income and alternative asset classes
  • A clear focus on stewardship outcomes, with case studies drawn from engagements across a variety of asset classes and addressing a broad range of ESG topics
  • An update on our work with the world’s sustainability and regulatory standard setters

Introduction

This year’s report has been written in alignment with the new UK Stewardship Code. This is widely acknowledged as one of the most rigorous stewardship frameworks globally, and we welcome the transparency it demands of asset managers as they report on their stewardship activities.

UBS Asset Management (UBS-AM) has a long history of being a strong and effective steward of the assets we manage on behalf of our clients. We became signatories to the United Nations’ Principles for Responsible Investment (PRI) in 2009 and were one of the first signatories of the UK Stewardship Code in 2010, receiving Tier 1 status from the UK Financial Reporting Council in 2016.

Our commitment to outcomes focused stewardship is reflected by the evolution of our processes and growth in our resources and capabilities. We continually review and enhance our approach to make sure we meet the standards of key frameworks, such as the UK Stewardship Code. In 2020, we strengthened the resources dedicated to proxy voting and stewardship on governance issues, and further developed our expectations of companies on purpose, people, climate and controversies across the UNGC Principles.

Ratings and rankings

In the last two years, we have been widely recognized as market leader in voting and engagement across Environmental, Social and Governance (ESG) matters, particularly climate change.

  • A+ or A across all modules of the annual PRI Assessment (including A+ in Stewardship, A+ for Strategy & Governance, 'A' in both Listed Equity and Fixed Income and, for the 4th year running, A+ for Property and Infrastructure)2
  • Top investment manager for climate voting by ShareAction3
  • A+ leadership band for engagement and voting on climate by InfluenceMap4

ESG integration across asset classes

Prioritizing research and dialogue with investee companies is, in our view, critical to unlock shareholder value across all the indexed and active strategies that we manage globally. We define our corporate engagement priorities by assessing a comprehensive range of factors, including financial exposure, high ESG risks, poor performance on thematic issues of concern and controversies.

As a leading manager of indexed and active strategies, we enjoy dual benefits. On the one hand our indexed portfolio managers provide access to information on a vast number of companies that comprise the major indices. On the other, our active portfolio managers and equity analysts have a detailed knowledge of, and deep relationships with, the senior management of listed companies.

The consideration and analysis of ESG factors is an integral part of our investment process across all our active equities and fixed income strategies.

USD 441 billion5
actively managed assets integrating ESG

Integration and stewardship: an intrinsic part of the investment decision making process in active strategies

Integration and stewardship: an intrinsic part of the investment decision making process in active strategies

A look at the relationship between stewardship and investment research, as well as its application within the investment decision making process in active strategies.

UBS-AM has a proprietary process for integrating ESG into our listed equity and fixed income investment process, based around two key tools:

  • Our ESG Material Issues framework which identifies the 3 to 5 most financially relevant factors per sector that can impact the investment thesis and fundamental bottom-up analysis across 32 different industry sectors.
  • The ESG Risk Dashboard which combines data from UBS-AM’s proprietary ESG database and numerous external providers to identify companies with elevated sustainability risks.

A proprietary process
for integrating ESG

Stewardship plays a vital role in the overall investment process. Two thirds of our engagements in listed equity and fixed income are led by active portfolio managers and/or in conjunction with the sustainable investment analysts.

Turning to alternatives, our Real Estate and Private Markets' (REPM) Sustainability Workgroup have developed a responsible investment strategy which is applied to investment in real assets. While financial objectives remain the primary focus, we believe a direct link exists between responsible property investing and long- term returns. For individual properties, sustainability performance is measured against recognized external benchmarks, such as the GRESB key performance indicators and third-party certifications (LEED, ENERGY STAR, BREEAM, MINERGIE®). Infrastructure also utilizes the GRESB Infrastructure key performance indicators and benchmark reports for individual investee companies.

Stewardship: proxy voting

Voting at shareholder meetings is a vital component of our overall approach to the effective stewardship of our clients' assets. Voting allows us to voice our opinion to a company and it is linked to our research and investment process.

Supported 64%
of 600 ESG shareholder resolutions

Meetings voted 2020

Meetings voted 2020

In 2020, we voted at 3,814 meetings in APAC ex Aus and ex Japan, 2,772 meetings in North America, 1415 in Europe ex UK, 1,332 in Japan, 1,043 in the rest of the world, 878 in the UK and 361 in Australasia.

Breakdown of meetings voted by region in 2020

Breakdown of meetings voted by region in 2020

By region we voted at 33% of meetings in APAC ex Aus and ex Japan, 24% in North America, 12% in Europe ex UK, 11% in Japan, 9% rest of the world, 8% in UK, 3% in Australasia.

In 2020 UBS-AM:

  • Voted in 60 countries globally on over 11,000 meetings or 96% of shareholder meetings where we had an eligible position to vote
  • Voted on more than 115,000 resolutions of which we voted against management in 17% of cases. In the case of North America, this percentage increased to 23% of resolutions.
  • We voted against management on 614 occasions because of a lack of gender diversity as measured against our defined thresholds by markets
  • Overall, 84% of votes against management resulted from proposals which fell into three main categories: director related remuneration and capital allocation and management.
  • Supported 64% of over 600 shareholder resolutions on ESG issues including 88%6 of environmental resolutions
  • Identified 600 companies in our core stewardship universe to conduct more in-depth research and engage in dialogue related to proxy voting.
  • Started to publicly disclose the rationale for voting against management

Stewardship: engagement

UBS-AM sets a high benchmark for defining engagement. It is far more than simply asking a question about ESG. Engagement is a two-way dialogue, which aims to exert a positive influence on a company’s performance. We believe the quality, not quantity, of engagement is key to driving corporate change. Our structured approach, well-defined objectives and vigilant monitoring of milestones have yielded outcomes.

Our engagement activities

Our engagement activities

We engaged with companies across a number of sectors including communication services, consumer discretionary, consumer staples, energy, financials, healthcare, industrials, IT, materials, real estate and utilities. Regions include EMEA, Americas and Asia Pacific.

The relevance of engagement is not limited to listed equity and fixed income holdings. GRESB key performance indicators are used by our Real Estate and Private Markets' (REPM) to engage and benchmark individual investee companies. Our Multi-Manager Real Estate (MM-RE) team conducts engagements directly with underlying fund managers on ESG issues. Engagements can be routine in nature or based around specific transactional circumstances, such as the release of GRESB results.

In 2020 UBS-AM:

  • Assessed the outcomes of our 3-year engagement program on climate change, measured against weighted engagement objectives aligned with the recommendations of the Taskforce on Climate-related Financial Disclosure. Out of 45 companies engaged, 20% showed an excellent progress (more than 75% objectives met), 38% a good progress (between 50-75% of objective met), 36% some progress and 7% limited progress. We are currently finalizing the escalation strategies to be taken for companies with limited and partial progress. Those actions will be implemented and communicated during the course of 2021
  • Developed expectations on companies in relation to risks and opportunities on company purpose, climate change and people
  • Conducted over 1,200 meetings with prospective or investee companies, of which 429 involved proactive engagement with 277 companies across regions and sectors. These engagements were a two-way dialogue (sometimes on more than one topic) where UBS-AM, in its role as a shareholder, provided feedback to companies to influence their practices and increase value to shareholders.
  • Met with the CEO/CFO or another C-suite representative in 54% of the engagement meetings. In approximately 36% of cases we met the Chair or an independent Board member.
  • 1,229 portfolios linked to 96,000 alternative assets from 64 countries, representing USD 4.8 trillion AUM, responded to the 2020 GRESB survey. Between 2012 and 2020 UBS-AM has achieved 113 Green Star rated funds in the GRESB assessments, and between 2016 – 2020, recorded 50 five-star rated funds

Collaboration, regulatory development and standard setting

We are committed to helping to further ESG best practices across the investment industry. For example, we are currently involved in 29 and lead on eight coalitions within Climate Action 100+.

Not only are we an active member of key investor and civil society initiatives focused on ESG and responsible investment around the world, we are also a member of advisory boards and working groups established to set the standards for best practices.

We have a well-established a dedicated policy team which leads our global engagement with policymakers and standard setters. During 2020, we engaged on a range of topics, with a focus on sustainable investing (SI). A core part of our policy engagement has been in the E, given its leading role in developing a comprehensive SI framework. Alongside, we have also been active in Switzerland, the United States and APAC region as SI initiatives take hold globally.

Actively supporting and involved in
69 initiatives
related to ESG

UBS AG is involved in 50 initiatives related to ESG and sustainability, while UBS-AM is involved in a further 19 including:

  • GRESB Advisory Board and Benchmark Committee
  • IIGCC Paris Aligned Investment Initiative
  • IIGCC Climate Action 100+ European Advisory Group
  • Impact Management Project’s Advisory Group
  • Investment Association’s Climate Change working group
  • PRI Academic Network Advisory Committee
  • PRI SDG Advisory Committee
  • SASB’s Investor Advisory Group

UBS AG’s annual sustainability report and UBS-AM’s annual stewardship report detail the complete lists.

See more information at:

1 Morningstar
2 Source: 2020 UN PRI Assessment
3 Source: ShareAction 2019
4 Source: InfluenceMap 2021
5 As at 31 December 2020
6 These figures exclude proposals in the Japanese market requesting to change the articles of association to address environmental issues.