Long-term value creation

Sustainable investing for institutional investors

24 Oct 2017

Sustainable Value

In the last few years, we have seen interest in sustainable investing grow rapidly, with sustainable assets under management doubling between 2012 and 2016. Though it is yet to become a truly mainstream investment strategy, larger global asset managers have had to develop new solutions to meet the sustainable investing needs of their clients. Hence, there is a need to truly understand the nature and goals of sustainable investing, and the ways in which mainstream investors can approach it to best meet their clients’ needs.

Unfortunately, sustainable investing has long been burdened by misconceptions, such as being a strategy that limited choice, or one that compromised fiscal objectives. Though the entry of ESG norms was a step forward, it was far from enough. Sustainable investing through ESG screening was a wholly isolated and inadequate approach for larger investors.

ESG norms were originally used only on risk management metrics while a progressive development, they did not provide a holistic approach, as they did not account for the positive external impacts of companies' products and services.

Moreover, ESG screening remained a step independent of financial analysis and thus distinct from the traditional investment process. Historically, providers of ESG information generated data for screening, but did not alter the approach to financial analysis by incorporating sustainability factors into investment models and recommendations.

Academic research shows a positive correlation between corporate environmental responsibility and long-term stock performance. There is much research suggesting that the integration of ESG information does not harm returns and may mitigate the downside risks. It is clear that sustainable investing is not about screening away opportunities and limiting choices; on the contrary, it is about finding new opportunities by identifying long-term sustainability trends and accounting for longer-term risks.

Key sustainability issues, such as climate change, impact company performance and risk over a longer-term time frame. Strategies which explicitly integrate these issues are particularly appropriate for larger investors, given their long-term investment horizon. Sustainable investing is thus more aligned to the goals and requirements of larger investors, presenting new possibilities and remaining consistent with their longer-term fiduciary obligations.

Furthermore, this is a unique opening for clients and their asset managers to establish a dialogue around the clients' specific needs. This helps build relationships of openness and trust, and provides an important opportunity for collaborative innovation.

There are many ways for larger investors to successfully approach sustainable investing. We at UBS strongly believe that this is a compelling opportunity to transform sustainable investment, from a form of normative investing driven by screening, to a more fundamental means of driving long-term value creation for larger-scale clients.

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.

Please select at least 1 checkbox