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UBS Asset Management

PRI reporting framework 2019

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

We believe that Sustainable and Impact Investing ('SI') can protect and enhance the value of our clients' investments by adding value to portfolios within the same risk /return profile. Sustainable investing is grounded in the broader use of material, ESG information in the investment analysis process and the belief that such information will lead to better informed investment decisions. By identifying long-term investment opportunities, anticipating and managing financially material risks, engaging with corporate management and creating products and services that take into account ESG factors, we believe companies will be more successful and our investments will positively impact society and the environment.

UBS Asset Management (UBS-AM) is a large scale asset manager, providing traditional, alternative, real estate, infrastructure and private equity investment solutions to private clients, financial intermediaries and institutional investors worldwide. With a number of investment areas and a range of strategies within each area, the approach to environmental, social and governance (ESG) issues necessarily varies across the firm and, to some extent, across countries/regions according to local market customs and client needs.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

UBS-AM's SI policy sets the firm's common vision on the integration of ESG material factors in investment decisions and stewardship activities across asset classes globally. The policy summarizes the general approach to ESG factors across each of the investment areas, subject always to any client-specific instructions or restrictions and following any local laws or standards applicable in the domiciles of assets or funds. Such policy is not applicable to UBS-AM's hedge funds' business (i.e. O'Connor and Hedge Funds Solutions).

The investment teams, including over  900 investment professionals, drive ESG integration within their investment processes and engagement activities linked to value drivers. The extent of ESG integration may vary given our diverse range of investment capabilities across Equities, Fixed income, Multi-Asset and Currency, Real Estate and Private Markets.

Portfolio managers and analysts have access to a variety of ESG data, proprietary internal data as well as external data. They are supported by the Sustainable and Impact Investing team, a global team of 18 sustainability experts dedicated to research, stewardship activities and product innovation. The SI team collaborates with the investment teams, educating them on best practices in using ESG material data to inform forward-looking analysis and preparing corporate engagement activities. In addition, the SI team is responsible for proxy voting, thematic engagements, reactive engagements and SI reporting.

Note that our SI policy includes reference to our proxy voting and stewardship policies which include specific provisions on ESG issues.

01.6. Additional information [Optional].

          
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

UBS AM believes that combining sustainability considerations with traditional financial analysis leads to better informed investment decisions, and we regard the inclusion of material ESG data as being additive to traditional fundamental financial analysis, as well as helping to manage risks and exploit opportunities. Such issues may have a direct impact on the future revenues and costs of companies, and thereby the long-term risk adjusted rate of return to investors and their beneficiaries or clients. For this reason, we seek to ensure that such factors are assessed and integrated into our overall research process within Equities and Fixed Income.

We use ESG integration to embed our understanding of climate change causes and effects into our investment decision making. This enables us to focus on the investment decisions where we see climate change and related issues as material financial factors.

In our work identifying material ESG issues across sectors we have identified climate change transition issue in a range of sectors with an especially significant relevance to energy, electric utilities, metals & mining, food & beverage, chemicals, construction materials and building products, automotive, aerospace & airlines. We have also identified sectors where there is a particular exposure to climate change physical risks either immediately or increasing over time.

We recognise that how the investments we make could be affected by climate change depends on a combination of business models and activities, regulatory jurisdictions, asset locations, technologies and innovation, among other factors. These lead to a specific set of climate related risks and opportunities which will unfold depending, in part, on the preparedness of companies and the decisions of their management teams.

Areas we assess (at individual investment or issuer level) are:

  • Regulation Risks: For example, the effect on costs of carbon pricing on large GHG emitting companies
  • Market Risks: Such as the move away from products with high carbon- and energy- intensity
  • Technology Risks: Such as the large scale substitution of products and services
  • Physical Risks: Such as the risk to fixed assets and/or supply chains

The extent to which these factors affect the business models, revenues, profitability, capital efficiency, and risk profile of companies is taken into account in individual investment cases and decision-making.

Furthermore, we recently launched our Climate Aware Rules-Based Equity investment strategy, which 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.

We also integrate climate considerations into our real estate investments. Please refer to the following: https://www.ubs.com/global/en/asset-management/insights/sustainable-and-impact-investing/si-insights/2018/great-gresb-results.html 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.8 CC. Indicate the associated timescales linked to these risks and opportunities.

We believe that climate change will have an increasingly negative impact on the global economy. The Stern Review ("The Economics of Climate Change: The Stern Review, 2006) estimated the present value of the future social costs of climate change to be equivalent to 5-20% of global GDP. The Economist Intelligence Unit has estimated an average expected loss to the world's current stock of manageable assets of US$ 4.2 tln (2.9%) ("The Cost of Inaction", EIU, 2015). One investment consultant has concluded that climate change will inevitably have an impact on investment returns ("Investing in a time of climate change", Mercer, 2015).

Climate impacts on aggregate macroeconomic outcomes are however difficult to measure and model (Bank of England "Staff Working Paper No. 706: Climate change and the macro-economy: a critical review" January 2018). At the same time, there are a wide variety of scenarios relating to the scale and pace of climate transition and physical risks.

Against this background, UBS-AM recognizes that the prevailing "green growth" view holds that there are trade-offs between income growth and the environment, where appropriate policies can soften this trade-off. Within this, optimal climate change policies prescribe a slightly lower rate of growth of consumption and GDP to deliver higher expected growth over the longer term ("Green Growth: An Assessment" Oxford Review of Economic Policy, 30(3): 407-422.Bowen and Hepburn, 2014). This helps to explain the resistance in some quarters to more accelerated climate transition policies.

We do not see significant costs to the global economy over the next five year but this is because we do not view government policies as sufficiently strong to limit climate change to the ambitions of the Paris Agreement. Both the International Energy Agency's New Policies Scenario and the work of Carbon Action Tracker point to a probable outcome of 3-4 degrees by the end of the century. With the date for assessing (and accelerating) national commitments under the Paris Agreement set for 2023 there are currently limited channels for more ambitious policies to be introduced in the next five years. This may change with a co-ordinated response to recent work by the Intergovernmental Panel on Climate Change ("Global Warming of 1.5 Degrees Celsius", IPCC, Oct18).

We believe the costs of climate change are limited in the short-term but can be expected to rise over the next ten years, and over the next 20 years there is likely to be a bigger effect on economic growth. Stronger climate policies are likely to lead to higher economic costs of transition. This may be limited to the extent that polices are able to induce innovation in low-carbon technologies, support new industries and further technological deployment. At the same time, the physical risks of climate change are likely to be more prevalent. Based on the Intergovernmental Panel on Climate Change ("Impacts, Adaptation and Vulnerability" Assessment Report Five, IPCC 2014), we believe there is a reasonable probability that physical risk impacts will increase over the coming decade.

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Our parent, UBS Group AG is supporting the transition to a low-carbon economy through its comprehensive climate change strategy. The strategy is based on four themes: (i) protecting our assets; (ii) protecting our clients' assets; (iii) mobilizing private and institutional capital; and (iv)reducing our direct climate change impact.  UBS Group has detailed this climate strategy in the "GRI Document 2018 – Sustainability Reporting Information" published in March 2019. The climate strategy is overseen across the group by the Board of Directors' Corporate Culture and Responsibility Committee and reporting is aligned with UBS's public support of the recommendations of the Taskforce on Climate-related Financial Disclosure ("TCFD").

UBS AM reflects this approach in its role as a large scale asset manager with well diversified businesses across regions, capabilities and distribution channels, and offering investment capabilities and investment styles across all major traditional and alternative asset classes. This includes a strong connection to protecting our clients' assets, and mobilizing private and institutional capital. Examples include:

  • Developing the capability for equity portfolio managers to examine the carbon footprint of their portfolios and comparing the relative carbon footprints of their company holdings to that of the relevant benchmark. Carbon emissions data is also made available to all equity portfolio managers through the Portfolio Optimization Platform, which allows portfolio managers and analysts to download carbon and carbon intensity data on over 6,000 companies.
  • Launching the innovative Climate Aware rules-based passive strategy now available across countries oriented towards companies that are better prepared for a low carbon future while reducing exposure to, rather than excluding, companies with higher carbon risk, in order to pursue strategic engagement with these companies. 
  • Engaging with companies in which it invests on behalf of clients to discuss approaches to mitigating climate change risk, as well as actively voting on shareholder resolutions to improve transparency and disclosure around climate-related reporting. This includes participation in the global Climate Action 100+ collaboration.
  • Integrating climate considerations into our real estate investments. The 2017 Global Real Estate Sustainability Benchmark (GRESB) awarded ten of UBS Asset Management's real estate and infrastructure funds 5-star ratings, and seven funds ranked first in their respective peer groups.
  • Supporting the CDP as an investor member in their aim to improve company disclosure of risks and opportunities related to natural resources.
  • Closely following relevant industry discussions, as well as ongoing policy and technology developments. In 2018 UBS AM participated in the Institutional Investors Group on Climate Change ("IIGCC") working group on climate change scenario analysis.
  • Providing members of the TCFD, and the IIGCC Climate Action 100+ Advisory Group.

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          Annual GRI Document available at https://www.ubs.com/global/en/ubs-society/our-documents.html
        

SG 02. Publicly available RI policy or guidance documents

New selection options have been added to this indicator. Please review your prefilled responses carefully.

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

In keeping with our firm’s high standard of business conduct, we maintain a Code of Business Conduct and Ethics that represents our effort to adhere to the requirements of law and industry practice. Importantly, the Code is designed to foster a working environment in which all employees are cognisant of their obligation to avoid any actions that constitute a potential conflict of interest, the appearance of such a conflict, the improper use of confidential information or the appearance of any impropriety. Every employee is required to review and sign the firm’s Code of Business Conduct and Ethics once a year, and complying with the Code is a condition of continued employment.

We have also established procedures designed to detect and prevent insider trading. We have implemented a personal investment policy for each of our employees. All personal trades are reported to and monitored by our Compliance Department.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios (Private)


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