UBS AM's ESG Integration efforts across our Fixed Income platform:
At UBS Asset Management our aim is to achieve the systematic integration of ESG into our proprietary credit research process. We believe that material ESG factors are best assessed as part of the company fundamental research process.
UBS AM's 25+ credit analysts provide research coverage for more than 1,600 issuers globally across fixed income sectors. The credit research process includes qualitative assessments of management strength, business strategy, market position, competitive environment, regulatory environment, and financial flexibility and quantitative assessments of historical operating results, calculation of various credit ratios and, most importantly, an expected future outlook. The analysts specialize in their sectors and build up valuable, in-depth knowledge over time to provide comprehensive credit review and analysis with emphasis on cash flow generation and sustainability.
We have integrated ESG considerations throughout our credit research process including investment grade and high yield credit assessments. This requires all credit recommendations by our Credit Research teams to address the most material sustainability strengths and weaknesses and also to assess the material impact of sustainability considerations on their credit recommendations and how sustainability risk factors influence their credit recommendation either positively or negatively. In order to quickly capture the outcomes of the credit analyst's ESG analysis, we have developed an internal ESG Credit Score. In addition, credit analysts will flag where their ESG analysis leads to a change in the credit opinion.
Implementation of ESG across the UBS AM fixed income platform is grounded on the collaboration between our credit analysts and our Sustainable and Impact Investing team. We have established protocols which guide how we address issuers which we cover, how to make use of external ESG ratings information, and how to address gaps in coverage. Our credit analysts are responsible for the ESG analysis of issuers within their coverage, supported by UBS AM's sustainability investment research team.. Through these dialogues, we are able to address questions about the materiality of an issue, the quality of an issuer's management of its risks, and how to balance different levels of materiality or the timing of how ESG issues are expected to develop. We use various data sources to gather information, including external ESG ratings providers, to inform our analysis of individual issuers and to help us with cross-sectoral and peer comparisons.
We view the value of our ESG analysis as deepening our understanding of the connection between issuers and the key sustainability trends that are material to their activities. To help with communication to portfolio managers, we encapsulate this in the UBS ESG Credit Score which comprises from 1 to 5 (best to worst). We supplement the UBS ESG Credit Scores with data from external rating providers for purposes of comparison within and across portfolios. We have also established approaches in which we reference the sustainability profile of issuers (and in some cases individual issues) in our consideration of sovereign, mortgage-backed/securitised, and municipal bonds investments.