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