Passive strategies | Sustainable investing How can passive strategies benefit from sustainable investing principles?

The trend toward passive investing and growing interest in sustainability are closely related. How so?

14 Sep 2018

1. Passive investors expect asset managers to factor in sustainability issues in their investment decisions1

Firstly, as asset owners move their equity assets increasingly toward passive strategies, they are less exposed to stock or manager specific failures. However, they are increasingly exposed to unmanaged, longer-term systemic and socioeconomic risks, which impact the long-term returns of the markets as a whole. As a result, they are placing increasing emphasis on longer-term sustainability issues.  Increasingly, they expect asset managers to take these longer-term issues into account when making their investment decisions1.

2. Passive managers can be more proactive given popularity of asset class

Consequently and secondly, the rise of passive investing has provided an opportunity for  passive managers to take a more proactive role in solving large, systemic sustainability issuesthrough stewardship, in the form of engagement and proxy voting.

As passive assets have grown, so too has the potential power to influence and shape corporate agendas.

3. Emergence of smart beta has coincided with a move toward differentiating active strategies through sustainability integration

Finally, the emergence of smart beta and rules-based strategies has coincided with a move toward differentiating active strategies through sustainability integration. Increasingly sophisticated quantitative approaches have replaced many more traditional fundamental strategies.

This in turn has created a demand for new methodologies within active asset management that cannot be replicated by rules-based approaches by focusing on longer-term drivers of performance, which inevitably overlap with sustainability issues. This entails integrating material sustainability signals in order to invest in line with the long-term value of companies.

How does active stewardship add value?

UBS Asset Management has conducted quantitative research into the impact of sustainability on returns.

Our internal back-testing has examined the UBS proprietary factor driver score which identifies the most relevant sustainability factors per industry.2 Through this quantitative analysis, we can better understand and control the inputs into our sustainability variables, as well as control how the score correlates with financial performance.

We examined the performance of an MSCI World Index strategy that is tilted using the UBS factor driver scores, where companies with higher scores are given a higher weighting while companies with poor scores are underweighted compared to the MSCI World benchmark.

The overall back-test showed a positive signal, as the portfolio outperformed the benchmark by 8% over the whole time period, or 0.39% on an annualized basis3.

While the performance was relatively neutral, to slightly negative during the 18 months leading up to the credit crisis, the portfolio began to out-perform the MSCI benchmark in June of 2008, just before the worst period of the crisis in the fall of 2008, and nine months prior to the market bottom in March 20093.

The portfolio has been generally positive since the end of 2012 as markets recovered from the European sovereign crisis of that year.4

Interestingly, these results are similar to those of recent research conducted by the quantitative research team of UBS Investment Bank (IB) which tested the performance results of various tilted portfolios using sustainability scores from Sustainalytics.5

What is UBS Asset Management’s approach to stewardship?  
We organise our stewardship activities into four pillars:

1. Thematic

1. Thematic

2. Reactive

2. Reactive

3. Proxy Voting related

3. Proxy Voting related

4. Proactive

4. Proactive

1. Thematic

Engagements on specific sustainability topics, including climate change and impact 

2. Reactive

Engagements on topical events and UNGC breaches

3. Proxy Voting related

Engagements centered around shareholder meeting research

4. Proactive

Engagement following identification of material ESG risks and opportunities

Stewardship is relevant for both active and passive strategies. In the case of active, it facilitates enhanced investment decisions for long-term value creation. For passive, it addresses broader negative externalities to the economy which could cause instability and inefficiencies within the financial markets.

More insights

Singapore Retail Investors


This website is not intended for and should not be accessed by persons located or resident in any jurisdiction where (by reason of that person's nationality, domicile, residence or otherwise) the publication or availability of this website is prohibited or contrary to local law or regulation or would subject any UBS entity to any registration or licensing requirements in such jurisdictions. It is your responsibility to be aware of, to obtain all relevant regulatory approvals, licenses, verifications and/or registrations under, and to observe all applicable laws and regulations of any relevant jurisdiction in connection with your entrance to this website. Each investment product and service referred to on this website is intended to be made available only to residents in Singapore.

UBS reserves the right to change, modify, add or remove content on the website as well as these terms at any time for any reason without notice. Such changes shall be effective immediately upon posting. You acknowledge that by accessing our website after we have posted changes to these terms, you are agreeing to these terms as modified.

The materials on this Website are distributed by UBS Asset Management (Singapore) Ltd (company registration number: 199308367C), which is licensed by Monetary Authority of Singapore ("MAS") in Singapore pursuant to the Securities and Futures Act (Chapter 289 of Singapore). UBS Asset Management (Singapore) Ltd is part of the Asset Management business division of UBS Group AG. UBS Asset Management (Singapore) Ltd together with UBS Group AG and its group companies shall collectively be referred to as "UBS".

The information contained in this Website has been prepared and is intended for general circulation. The information does not constitute advice and does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The investment services or products referred to in this Website may not be suitable for all investors. UBS recommends that you independently evaluate particular investments and strategies and seek independent advice from a financial adviser regarding the suitability of such investment products, taking into account your specific investment objectives, financial situation and particular needs, before making a commitment to purchase any investment products. Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is not indicative of future performance.

The information contained in this Website is not an offer to buy or sell or the solicitation of an offer to buy or sell any investment product or to participate in any particular trading strategy. UBS, its officers and/or employees may have interests in any of the investment products referred to on this Website by acting in various roles. UBS, its officers and/or employees may receive fees, commissions or other benefits for acting in those capacities. In addition, UBS, its officers and/or employees may buy or sell investment products as principal or agent and may effect transactions which are not consistent with the information set out in this Website.

You fully understand and agree that, by making available this Website, UBS should not be construed as making: (a) any endorsement of any investment product referred to in this Website; (b) any representation that UBS has performed any due diligence on any investment product referred to in this Website; or (c) any representation that the information in this Website is complete, accurate, clear, fair and not misleading. The use or reliance on any such information contained in this Website is at your own risk and any losses which may be suffered as a result of you entering into any investment are for your account and UBS shall not be liable for any losses arising from or incurred by you in connection therewith. UBS is not responsible or liable for the accuracy and completeness of any such information or the performance or outcome of any investment made by you after receipt of such information, irrespective of whether such information was provided at your request.

Using, copying, redistributing or republishing any part of this Website without prior written permission from UBS is prohibited. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such objectives or expectations will be achieved or risks are fully disclosed. The information and opinions contained in this Website is based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any misrepresentation, errors or omissions. All such information and opinions are subject to change without notice. A number of comments in this Website are based on current expectations and are considered “forward-looking statements”. Actual future results may prove to be different from expectations and any unforeseen risk or event may arise in the future. The opinions expressed are a reflection of UBS’s judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed.

UBS does not hold out any of its officers and/or employees as having any authority to advise you, and UBS does not purport to advise you on any investment product. Any investment will be made at your sole risk and UBS is not and shall not, in any manner, be liable or responsible for the consequences of any investment.

This Website and its contents are provided on an “as is” and “as available” basis. UBS does not warrant: (a) the accuracy, timeliness, adequacy commercial value or completeness of this Website or its contents, and expressly disclaims any liability for errors, delays or omissions in the contents, or for any action taken in reliance on the contents; (b) that your use of and/or access to this Website or its contents, will be uninterrupted, timely, secure or free from errors or that any identified defect will be corrected; (c) that this Website or any content will meet your requirements or are free from any virus or other malicious, destructive or corrupting code, agent, program or macros; (d) that any information, instructions or communications posted or transmitted by you through this Website is secure and cannot be accessed by unauthorised third parties; and (e) that use of the contents in this Website by you will not infringe the rights of any third parties. No warranty of any kind, implied, express or statutory, including but not limited to the warranties of non-infringement of third party rights, title, merchantability, satisfactory quality or fitness for a particular purpose and freedom from computer virus or other malicious, destructive or corrupting code, agent, program or macros, is given in conjunction with this Website.

You hereby agree to indemnify UBS and any of its officers, employees or agents against, and to keep UBS and any of its officers, employees or agents harmless from, any claims (actual and threatened), settlement sums, liability, loss, damages, costs (including solicitor and client costs and expenses (legal or otherwise)), charges, expenses, actions, proceedings, whether foreseeable or not which we may sustain, suffer or incur, directly or indirectly out of or in the course of or in connection with any the following: (a) any use of this Website or the contents by you, or any part thereof; (b) UBS having made available the Website; (c) any breach of these Terms by you, however arising; or (d) any negligence, act or omission, wilful default, unlawful act, fraud and/or misconduct on your part or violation of any rights of another person or entity by you.

The funds referred to in this Website have been authorised or recognised by the MAS for sale to the public in Singapore (the “Funds”). Copies of the registered Singapore prospectuses ("Prospectuses") referred to in this Website have been lodged with and registered by the MAS. The MAS assumes no responsibility for the contents of the Prospectuses. The registration of the Prospectuses by the MAS does not imply that the SFA or any other legal or regulatory requirements have been complied with.

MAS registration is not a recommendation or endorsement of a Fund nor does it guarantee the commercial merits or performance of such Fund. It does not mean that a Fund is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. UBS Asset Management (Singapore) Ltd has been appointed as the representative for the Funds in Singapore for the purposes of performing administrative and other related functions relating to the offer of Shares under Section 287 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and such other functions as the MAS may prescribe.

You may not assign your rights under the Terms without our prior written consent. UBS Asset Management (Singapore) Ltd may assign our rights under the Terms to any third party.

No person or entity who is not a party to the Terms shall have any right under the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore or other similar laws to enforce any term of the Terms regardless of whether such person or entity has been identified by name, as a member of a class or as answering a particular description. For the avoidance of doubt, this shall not affect the rights of any permitted assignee or transferee of the Terms.

These Terms shall be governed by, and shall be construed in accordance with, the laws of Singapore. The courts of Singapore shall have exclusive jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with these Terms and, for such purposes, you agree to submit  to the jurisdiction of the courts of Singapore. Each party hereby waives any objection which it might at any time have to the courts of Singapore being nominated as the forum to hear and determine any proceedings and to settle any disputes and agrees not to claim that the courts of Singapore are not a convenient or appropriate forum.

© UBS 2020 - the key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.