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UBS Asset Management

PRI reporting framework 2019

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
95 %
Percentage of active listed equity to which the strategy is applied
5 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Across our equity platform, we address ESG in two primary ways. The first is through integrating ESG in our fundamental research, which originates with each of our equity analysts. Equity analysts are best placed to be at the center of ESG integration in active equity strategies. They benefit both from in-depth knowledge of companies and experience in fundamental analysis. In addition, they have the skillset to place sustainability issues in the right context, thereby allowing them to produce a more accurate and holistic picture from which they can improve the alpha signal, compared to both internal and external databases.

Our equity analysts complete ESG specific questions in their company research notes (CRNs) and discuss their analysis with the wider investment teams. The investment teams are supported by the Sustainable and Impact Investing ('SI') Research and Stewardship team on company specific in-depth ESG analysis and in preparation for company meetings.

UBS analysts and portfolio managers monitor ESG risks and opportunities within portfolios using both internal and external ESG data. Our portfolio analytics platform provides analysts with access to external ESG data (including MSCI ESG Research data and controversy reports, Trucost, Thomson Reuters-Asset4 and Sustainalytics) as well as UBS proprietary ESG scores.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

UBS-AM's dedicated Global Sustainable Equities team manages a range of strategies that integrate material sustainability factors with a rigorous fundamental investment process. The team actively looks for companies that appear attractively valued, with a high sustainability profile and that can benefit from secular themes, such as energy and water conservation, health care, demographics and other long-term trends. The team's investment process combines time-tested financial analysis and valuation discipline with a modern consideration of material ESG factors that are indicators of a superior business model. The team projects future company cash flows and calculates the intrinsic value of securities using UBS AM's Global Equity Valuation System ("GEVS"). At the same time they rank companies using a proprietary ESG Model which assesses companies on multiple industry-specific indicators of sustainability performance. The Global Sustainable Equities team believes that these indicators help identify superior, better-managed business models that can generate better and more consistent financial performance over the long-run.


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

UBS Group has set standards in product development, investments, financing and supply chain management decisions, which include the stipulation of controversial activities and other areas of concern UBS will not engage in, or will only engage in under stringent criteria. As such, UBS AM will not invest in companies involved in the development, production or purchase of cluster munitions and anti-personnel mines determined to fall within the Swiss Federal Act on War Materials. Equally, we will not invest in any countries and/or regions that have been identified on the UBS Group Sanctioned List. In addition, on client request, we are able to (and do) apply client-specific exclusion lists to segregated mandates based on particular ESG themes such as tobacco, alcohol, gambling and/or adult entertainment. These exclusions are either based on particular sector classifications or based on the percentage of company revenues derived from particular activities.

Screened by

Description

Strategies managed by UBS AM's Global Sustainable Equities Team are primarily positive screening strategies that seek to invest in companies with attractive valuation and a strong sustainability profile. By incorporating a broader mosaic of material ESG data (i.e. intangible data) into the fundamental security analysis, the team constructs a more complete picture of a company's ability to drive shareholder value. The Global Sustainable Equities Team's overall goal is to identify companies that they think are attractively valued and that also rank well on sustainability metrics as they believe these characteristics are the hallmarks of businesses that generate shareholder value.

Screened by

Description

We implement a norms-based screening approach such that investments are screened based on whether or not they align with international standards and norms such as UN Global Compact. For this we work with a selected service provider to develop a list of companies that are seen as breaching one or more of the principles. Cases are assessed by our Sustainable and Impact Investing (SI) Research and Stewardship team and, where necessary, we initiate engagement to ensure that companies effectively close and remedy identified breaches and both communicate with stakeholders and ensure that they have addressed any management failures. Cases will be escalated for a discussion on exclusion in our SI focused strategies when we consider that the engagement objectives have not been met. 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

We use an external advisor to identify companies involved in the production, sale or distribution of cluster munitions and anti-personnel mines. The firm's Sanctions Compliance Committee issues a list of affected companies based on information provided by the external advisor. The list is updated periodically. Changes are implemented by the responsible Portfolio Managers and Trading and communicated to clients.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

We examine and assess financially material  ESG risk and opportunity through the following means:

1. Through our in-house ESG Research: Our Sustainable and Impact Investing team works closely with the Equity investment team to systematically integrate financially material ESG factors into fundamental research.

Our SI Analysts are responsible for:

  • Integration framework: Identification of financially material ESG factors to consider in bottom-up and top-down research. A materiality framework has been established which identifies the most financially material ESG topics per sector.
  • Top-down: Research on SI issues and trends
  • Bottom-up: Ongoing support for company analysis
  • Engagement: Proactively engaging with companies on material ESG issues

2. Though Data and Research:  We use the following external sustainability data and analysis resources to support our SI capabilities:

  • MSCI
  • Trucost
  • Thomson Reuters-Asset4
  • Sustainalytics
  • ISS
  • RepRisk

In addition to these sources, we further support our equity platform with insights from the UBS Proprietary ESG Model which includes fundamental sustainability data at the company and sector level. The data from this model is used alongside valuation data from our analysts to rank the investment universe on both fundamental, including sustainability attractiveness. The model follows the approach taken by the Sustainability Accounting Standards board in building its Materiality Map™. We believe that this model is unique and gives us a significant edge in the incorporation of fundamental, material sustainability data in the investment process.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Our dedicated Global Sustainable Equities team manages a range of strategies that integrate material sustainability factors with a rigorous fundamental investment process. This team actively looks for companies that appear attractively valued and can benefit from secular themes, such as energy and water conservation, health care, demographics and other long-term trends.

The Global Sustainable Equities team manages the Long-Term Themes Fund, a strategy launched in 2016 in partnership with UBS Wealth Management (UBS WM). Population growth, urbanization and an ageing society are three global and inexorable trends that continue to reshape society and the economy. Given the persistence of these trends, the Chief Investment Officer of UBS WM has identified 20 enduring long term investment themes connected to these mega trends.  These themes include water scarcity, healthcare in Emerging Markets, waste management and oncology. The UBS Long Term Themes Equity Fund invests in companies that have solutions to the challenges these trends represent to our societies.

In addition, the Global Sustainable Equities team is working with leading scientists from Harvard, City University of New York (CUNY), and the University of Wageningen to develop a robust impact measurement framework. The proprietary framework seeks to measure the impact of public companies on society and the environment on four selected themes: climate, water, food security & health. These themes touch on multiple UN SDGs, e.g. clean water and sanitation, clean energy, health and well-being, climate action and life on land. These models rely on publicly available data from companies, regulators and scientific publications along with UBS AM analytical resources. Partnering with academics is core to UBS Asset Management's philosophy to identify robust, credible and user-friendly impact metrics. This research partnership also includes a key pension fund client. The Global Sustainable Equities team is  leveraging this research for the stock selection and management of the Global Impact Equity Strategy, launched in October 2017.

In the passive space, UBS AM's Systematic and Indexing team manages a rules-based equity investment strategy focused on climate -related risks and opportunities. The team identifies and underweights companies exposed to climate risks through large GHG emissions, high GHG intensity, negative emissions reduction trends, as well as power generators dependent on coal, and extractive industries companies with large fossil fuel reserves. The team also identifies and overweights companies exposed to climate risks especially through their generation of renewable energy or support of renewable energy generation. The strategy's investments are selected using a transparent, rules-based and optimised portfolio construction methodology. This includes proprietary calculation of a Glide Path Probability which assesses how individual companies compare to peers in their convergence on a two degree scenario. Within the constraint of the risk budget we are currently able to re-distribute around 15% of the total investment, effected through a series of factor-tilts. Three of the factor-tilts are risk-reducing and two are opportunity-seeking.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

We have incorporated the UBS Proprietary ESG Model in our equity research library platform and developed new tools to flag and share ESG research and track engagement. These tags are monitored on an on-going basis by the Sustainable and Impact Investing ('SI') team. In addition, the SI team fully supports our equity analysts on ESG risks and opportunities for individual company cases or across an entire sector. This feedback loop allows for a comprehensive assessment of companies. Key issues covered include corporate governance, product quality, business ethics, climate change, human capital, supply chain and cybersecurity. These industry specific issues are assessed for their overall potential scale of impact on value drivers for financial performance.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

The Sustainable and Impact Investing team works closely with the investment teams to systematically integrate ESG factors into fundamental research. The collaboration includes working with equity analysts on identifying the most material sustainability factors per sector and providing research on individual company cases. SI Analysts have regular dialogue with their counterparts in equity research, and they participate in meetings with portfolio managers and in equity committee meetings. They also collaborate on corporate engagement activities.


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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