In pursuit of sustainable returns

With a focus on finding companies that use strong management to minimize ESG risk, Max Anderl and his team highlight the companies that are driving impact and those that aren't

01 Apr 2020

One of UBS-AM's largest strategies employing a rigorous process of risk assessment, analysis and engagement is the Global Equity Concentrated Alpha Strategy.

Integral to this strategy, is a three-circle assessment which combines fundamental, quantitative and qualitative and information sources. This is done with aim to limit the downside through risk assessment and drive upside opportunities through engagement.

The Concentrated Alpha team, which manages a range of global and European strategies, provides an assessment of the ESG profiles of the companies they invest in. This is conducted formally every month as well as on an ad-hoc basis.

For any company that may be flagged for elevated ESG risks, the team will obtain a more in-depth analysis from the Sustainable Investment research team, which includes a discussion of the appropriate actions for the team to take. The dialogue considers whether the sustainability risks that have emerged justify finding alternatives in the portfolio or whether there might be potential in the company addressing the sustainability risks identified.

Company description

  • Software company operating in health care sector

Trigger

  • Hold and drive impact
  • The company flagged as high risk due to a low ESG risk score.

Review

  • The Sustainable Investing "SI" research team reviewed the company and noted that the low ESG rating was mainly due to a lack of disclosure on material ESG information.
  • They also acknowledged that there were areas for improvement in corporate governance, including remuneration and board composition, specifically on gender diversity. We engaged with the company over a call, during which they revealed that improvements were being made to its governance arrangements, as well as enhancements in disclosures, despite them having been listed for only a few years. These efforts were ongoing and they sought our advice for best practices.

Decision

  • We recognized that implementing best practices can take time and viewed the company's receptive attitude toward investor feedback positively. We decided to maintain our position in the stock following the constructive dialogue with management, who we agreed to maintain contact with. As a follow up, we provided the company with input regarding the development of their remuneration plan, among other issues.

Impact

  • The company reached out to us a few months after our engagement call to inform us of the addition of a qualified female director to their board, where previously there were none. The company also no longer flags as high risk following an improvement in the ESG score.

Company description

  • European financials company

Trigger

  • Decision to sell
  • While the company did not flag on the ESG risk score, issues surrounding money laundering came to our attention.

Review

  •  Following news reports that the company was alleged to have been involved in money laundering activities at one of its non-residential branches, we monitored the developments surrounding the stock closely.
  • It quickly became clear that the amount of suspicious transactions under investigation was substantial, leading to uncertainties around the potential size of fines, management changes, compliance costs and capital charges from regulators.
  • Experts reported that the bank had ignored several red flags and did not take corrective measures.

Decision

  • The case was at a relatively early stage and a formal investigation had not yet started, which made it difficult for us to draw any conclusions regarding the potential risks for the company. However, we recognized that the risks were elevated, especially given the regulatory scrutiny surrounding financial institutions.
  • Additionally, if those risks turn out to be correct there would be little valuation support as many ESG focused investors would avoid that name irrespective of the price. We decided to sell the stock to limit the downside of our strategies.

UBS Asset Management in the United States

The website contains general information about UBS Asset Management (Americas), Inc., UBS Hedge Fund Solutions LLC, and UBS O'Connor LLC, collectively known as "UBS Asset Management". The information contained on this website does not constitute investment advice or a recommendation to purchase or sell any securities or other financial instrument or any particular strategy or fund. Market commentary, product information and related performance data available on this website has been compiled from sources believed to be reliable and is provided in good faith for informational purposes only. UBS Asset Management does not guarantee the accuracy, suitability or completeness of information contained on this website, and all such information, including but not limited to performance data and related metrics, is subject to change without notice. Certain content on this website is intended for institutional investors and their financial representatives only, and should not be relied upon by retail investors or members of the general public.

Market commentary and similar statements contained herein are based on current expectations and may be considered “forward-looking statements.” Actual future results, however, may prove to be different from expectations. The opinions expressed are a reflection of UBS Asset Management’s best judgment at the time of posting, and any obligation to update or alter any forward-looking statement as a result of new information, future events, or otherwise is disclaimed.

Investments involve risks, are not guaranteed and may not return the original principal amount invested. Past performance is no guarantee of future results. Investors should read all available product information carefully before making an investment decision, including information about applicable risks, fees and expenses. This website does not address the investment objectives, risk tolerance or financial needs of any particular investor. In addition, any statements regarding investment performance expectations, risk and/or return targets do not constitute a representation or warranty that such expectations or targets will be achieved.

This website is not intended for persons located in any jurisdiction where the availability of this website is prohibited or contrary to local law or regulation or would subject any UBS entity to any registration or licensing requirement in any such jurisdiction.

Please confirm you are a US resident to proceed.

Confirmation
Please select at least 1 checkbox


SI Foresight

 

Asset Management services and solutions in your location

Please select your region

 

For further information on what we can offer you, please get in touch.