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UBS Asset Management

PRI reporting framework 2019

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation undertakes scenario analysis and/or modelling and provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe UBS Group estimates the vulnerability to climate change risks using scenario-based stress testing approaches and other forward-looking portfolio analysis. This scenario analysis is based on a 2°C or lower scenario.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

UBS Group manages its environmental program through an Environmental Management System (EMS), in accordance with the ISO 14001 standard. The Group manages climate change risks and opportunities via this certified EMS and monitors implementation on an ongoing basis. The EMS helps to systematically reduce environmental risks, seize climate change / environment-related market opportunities and to continuously improve UBS's climate change/environmental performance and resource efficiency. UBS Group developed its first climate change strategy in 2006. So far, the strategy has been updated in 2012, 2015 and 2018.


SG 13 CC.

13.4 CC. Describe how the organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, the results and any future plans.

Describe

We have developed a methodology for alignment with a 2-degree scenario which we use in the management of our rules-based Climate Aware equity strategy. This takes into account the probability that a company that the strategy invests in is aligned to the IEA Energy Technology Perspectives (ETP) 2 Degrees scenario and the transitional pathway for the appropriate sector. This is complemented by other data on transition risks and opportunities.

We use the outcomes of the Climate Aware methodology to inform our identification of companies that we engage with on climate change as part of our stewardship activities.

We are at an early stage of exploring how we could use this more widely for the purposes of risk management across our products and services.

specify

          Potential use as a risk management tool.
        

Describe

Early stages, remains in development.

13.5 CC. Indicate who uses this analysis.

specify

          The information is used by our Sustainable and Impact Investing team as well as by the portfolio management team executing our Climate Aware Equity strategy.
        

13.6 CC. Indicate whether the organisation has evaluated the impacts of climate-related risk, beyond the investment time-horizon, on the organisations investment strategy.

Please explain the rationale

n.a.

13.7 CC. Indicate whether a range of climate scenarios is used.

Indicate the climate scenarios the organisation uses.
Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other
Other
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          Growing populations, Ageing populations, and urbanization.
        

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

The Climate Aware rules-based equity strategy aims to deliver an innovative, rules-based equity solution for investors looking to mitigate the risk of climate change, including the transition to a low-carbon economy. We identify and underweight 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. We also identify and overweight 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. 

 

other description

          Our Global Sustainable Equity strategies have reduced portfolio exposure to emissions intensive or fossil fuel holdings.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.5. Additional information [Optional]


SG 14 CC.

14.6 CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          Achieve range of climate related goals for our Climate Aware Rules-Based Equity strategy.
        
          Various
        
          Proprietary glide path probability methodology which employs a variety of inputs. Outputs are compared to a specified benchmark for funds implementing this strategy.
        
Carbon footprint (scope 1 and 2)
          Increased transparency available within custom client reporting for our equity strategies.
        
          tons of CO2e
        
          (i) Carbon Emissions Scope 1 
All direct GHG emissions from sources owned or controlled by the portfolio companies for which an investor is responsible. The GHG emissions are allocated to the investor based on an ownership share perspective. 
(ii) Carbon Emissions Scope 2 
Indirect GHG emissions from consumption of purchased utilities (including T&D losses) by portfolio companies for which an investor is responsible. The GHG emissions are allocated to the investor based on an ownership share perspective.
        
Portfolio carbon footprint
          Increased transparency available within custom client reporting for our equity strategies.
        
          tons of CO2e per invested million
        
          Carbon Emissions Scope 1 and 2 normalized by the Portfolio Market Value expressed in millions. As a normalized metric, the Carbon Footprint can be used to accurately compare portfolios of any size.
        
Total carbon emissions
          n.a.
        
          n.a.
        
          n.a.
        
Carbon intensity
          Increased transparency available within custom client reporting
        
          tons of CO2e per invested million
        
          (i) Carbon Intensity 
Carbon emissions per million sales generated by portfolio companies, allocated to the investor based on an ownership share perspective. This metric adjusts for company size and is an accurate measurement of portfolio’s carbon efficiency. 
(ii) Weighted Average Intensity 
Weighted average of the Carbon Intensity of each portfolio company. This metric measures a portfolio’s exposure to carbon intensive companies and can serve as a proxy for a portfolio’s exposure to climate change-related risks.
        

14.7 CC. Describe in further detail the key targets.

Target type
Time Frame
Description
Attachments
          
        
          
        

          
        
          
        

          
        
          
        

          
        
          
        

          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risks management processes for identifying, assessing, and managing climate-related risks.

Please describe

UBS Group manages its environmental program through an Environmental Management System (EMS), in accordance with the ISO 14001 standard. The Group manages climate change risks and opportunities via this certified EMS and monitors implementation on an ongoing basis. The EMS helps to systematically reduce environmental risks, seize climate change / environment-related market opportunities and to continuously improve UBS's climate change/environmental performance and resource efficiency. UBS Group developed its first climate change strategy in 2006. 

The EMS, structured in an annual cycle consisting of planning, implementation, controlling and review including corrective actions, applies world-wide to all transactions, services and activities involving climate change issues entered into by or on behalf of UBS, with quarterly reporting. Banking activities and in-house operations must be conducted in compliance with this policy. All types of material risks and opportunities are in-scope (including regulatory, customer behavior changes, reputational and weather-related).Climate change risks and opportunities are identified on company and on asset level across the principles of "how we do business" and "how we support clients" of the UBS in society policy. At company level, such as for UBS Asset Management, climate change risks and opportunities are brought to the UBS in society Operating Committee that oversees the implementation of UBS in society Policy and climate change strategy and defines company level objectives to be submitted to the CCRC, a Board of Directors Committee, for approval.

With a two year live track record for the Climate Aware methodology we are exploring how this could be used to integrate consideration of climate change transition risks into our overall risk management framework. We are at an early stage of exploring the feasibility and practicality of this approach

14.9 CC. Indicate whether the organisation undertakes active ownership activities to encourage TCFD adoption.

Please describe

UBS-AM has been actively engaging with approximately 50 companies in the oil &gas and utility sectors to encourage uptake of TCFD recommendations. We have aligned a number of these engagements with the Climate Action 100+ collaborative engagement and we are (co-)leading several coalitions under this initiative.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

2 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

5 % of AUM

Brief description and measures of investment

With respect to our Global Sustainable Impact Equity strategy, we aim to invest in companies that provide solutions to significant global challenges, honing in on climate change, air pollution, clean water and water scarcity, treatment of disease, alleviation of poverty and food security through the impact of their products and services. We have developed over 100 impact measurement models for individual technologies, e.g. insulation, rail transport, diabetes drugs, water meters, energy meters, car components and fertilizers that fall within the impact categories we are focused on: climate change/air pollution, water, health and food security. These are applied to companies that have identifiable revenue to any one or more of these 100 technologies. Our impact framework was developed by UBS AM's Global Sustainable Equities team in collaboration with leading scientists from Harvard, City University of New York (CUNY), and the University of Wageningen.

Impact is measured in absolutes. For example: CO2 avoided (M metric tons), air pollution avoided (PM2.5 tons), lives extended (#), sick days avoided (#), water treated (m3).

In addition, our Long Term Themes Equity strategy seizes thematic opportunities by investing in companies whose products and services are solutions to megatrend challenges, defined as population growth, ageing and urbanization.  

Asset class invested

15 % of AUM

Brief description and measures of investment

With regards to portfolio companies, specific ESG considerations include the following:

Environmental management systems and compliance – A company which demonstrates superior commitment, capacity and track record to its peers in the management of environmental risks presents a lower risk for investors. Robust systems, practices and controls reduce the regularity and consequences of operational incidents that impact the environment and reduce the costs of managing and resolving incidences.

Environmental efficiency (waste, water, energy) – Reducing waste and minimizing the use of finite natural resources, particularly clean water and energy, will support continued growth, support the prosperity of future generations and reduce current and future costs of resources used by the company.

For example, one of our wind farm investments displaces approximately 480,000 to 660,000 tons of greenhouse gas emissions each year, which is equivalent to taking circa 120,000 to 160,000 cars off the road.

Asset class invested

83 % of AUM

Brief description and measures of investment

Our quantitative and qualitative goals benefit our investors, our tenants and UBS and its shareholders. Our goals are a 20% reduction of greenhouse gas emissions by 2020 and a 10% reduction of the energy consumption of our properties by 2020. In conjunction with this strategy we are increasing our share of renewable energy in the energy mix of our suppliers and implementing various property-specific improvements. Our quantitative goals include reducing residual waste, increasing the recycling rate by 50% and reducing the water consumption of our properties by monitoring consumption and developing specific water saving measures in different properties.

We measure the sustainability performance of our properties and funds with external (GRESB Performance Indicator) benchmarks and certifications (BREEAM, LEED, Energy Star, DGMB, Minergie). Based on these results we are able to define specific measures for each property. A holistic approach on sustainability also includes strategic and qualitative objectives. We improve the sustainability performance of our business by implementing action plans and best practice measures.

In 2018, 96% of our direct pooled assets particiapted in the GRESB Assessments, equal to 83% of our total direct real estate assets.

Asset class invested

5 % of AUM

Brief description and measures of investment

With respect to our Global Sustainable Impact Equity strategy, we aim to invest in companies that provide solutions to significant global challenges, honing in on climate change, air pollution, clean water and water scarcity, treatment of disease, alleviation of poverty and food security through the impact of their products and services. We have developed over 100 impact measurement models for individual technologies, e.g. insulation, rail transport, diabetes drugs, water meters, energy meters, car components and fertilizers that fall within the impact categories we are focused on: climate change/air pollution, water, health and food security. These are applied to companies that have identifiable revenue to any one or more of these 100 technologies. Our impact framework was developed by UBS AM's Global Sustainable Equities team in collaboration with leading scientists from Harvard, City University of New York (CUNY), and the University of Wageningen.

Impact is measured in absolutes. For example: CO2 avoided (M metric tons), air pollution avoided (PM2.5 tons), lives extended (#), sick days avoided (#), water treated (m3).

In addition, our Long Term Themes Equity strategy seizes thematic opportunities by investing in companies whose products and services are solutions to megatrend challenges, defined as population growth, ageing and urbanization.  

Asset class invested

3 % of AUM
4 % of AUM

Brief description and measures of investment

With respect to our Global Sustainable Impact Equity Strategy, we aim to invest in companies that provide solutions to significant global challenges, honing in on climate change, air pollution, clean water and water scarcity, treatment of disease, alleviation of poverty and food security through the impact of their products and services. We have developed over 100 impact measurement models for individual technologies, e.g. insulation, rail transport, diabetes drugs, water meters, energy meters, car components and fertilizers that fall within the impact categories we are focused on: climate change/air pollution, water, health and food security. These are applied to companies that have identifiable revenue to any one or more of these 100 technologies. Our impact framework was developed by UBS AM's Global Sustainable Equities team in collaboration with leading scientists from Harvard, City University of New York (CUNY), and the University of Wageningen.

Impact is measured in absolutes. For example: CO2 avoided (M metric tons), air pollution avoided (PM2.5 tons), lives extended (#), sick days avoided (#), water treated (m3).

Our Infrastructure Funds hold investments in a water utility firm. Since acquisition, we have implemented several long term incentive plans focusing on areas of operation and asset improvement and customer service.

          Climate Change
        

Asset class invested

1 % of AUM

Brief description and measures of investment

Our Climate Aware Rules-Based Equity investment strategy specifically focuses on climate-related risks and opportunities. We identify and underweight 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. We also identify and overweight 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.  

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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