The banking and wealth management group sets out how it is meeting the demand for sustainable investment with concrete action.
As readers know, there has been a lot of commentary by wealth management firms about they are doing to meet the needs for environmentally-friendly investments, ie measures such as cutting carbon emissions, and developing alternative energy sources and new materials. It is now an established part of many firms’ sales “pitches” to stress their green credentials. (That said, this publication does not wade into the specific scientific controversies over human-caused global warming and other issues, which is outside its area of expertise. We start from the assumption that a lot of people, including HNW individuals, are sufficiently alarmed about pollution, global warming and species/habitat loss that they are seeking solutions through their investment strategies.)
The world’s largest wealth manager is UBS. It has a total of $1.110 trillion in total sustainable investment assets, giving it plenty of firepower in the space. To set out some ideas on sustainable investing is Christian Leitz, head of corporate responsibility management at UBS.
The editors are pleased to share these views and invite responses. As ever, the editors don’t necessarily endorse all views of guest writers. Email firstname.lastname@example.org
Many thousands of people both young and old are demonstrating regularly on behalf of the climate. In the ongoing debate, the role companies play in climate protection is also being challenged.
At UBS, we firmly believe that sustainability is the order of the day. It is clear to us that future economic growth, and thus that of our bank, will only be possible through a responsible approach to nature, people and society. For us, this clearly includes climate protection.
As we see the future of our business in the area of sustainability, we have been highly committed to promoting sustainable investment for many years. We are not the only ones doing so, because more than $30 trillion are already invested sustainably worldwide - that corresponds to around 60 times Switzerland’s economic capacity - and the trend continues to rise significantly. According to the recently published Swiss market study Sustainable Investments 2019, more and more institutional investors in Switzerland are opting for sustainable strategies.
Sustainable investment is becoming an increasingly important business factor for UBS and something that our clients are increasingly demanding. A key objective for us is to be a leader in sustainable investment and impact investing for private and institutional clients. As of 31 December 2018, our core SI products and mandates, our most important area of sustainable investment, stood at $313 billion, with a significant growth of $182 billion in 2017.
Our range of sustainable investment products and services is constantly growing. Last year, for example, we launched a sustainable strategy fund for our Swiss clients - the SI Strategy Fund - which is meeting with considerable interest. We offer our private clients 100 per cent sustainable cross-investment portfolios worldwide, including in Switzerland. In general, we encourage our clients to invest sustainably, including in special climate protection products.
These products are a central part of our climate strategy. We are convinced that banks play an important role in the transition to a low CO2 economy. Over the past few years, we at UBS have therefore developed a comprehensive strategy to support the transition process mentioned above and thus counter climate change. This underscores our commitment to the United Nations Sustainable Development Goals (SDGs) of affordable and clean energy and climate change mitigation. We report in detail on the implementation of our strategy, following the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and the five-year roadmap set by TCFD. The TCFD itself is directly linked to the 2015 Paris Climate Change Agreement and calls on companies to disclose the impact of climate change on their businesses.
In terms of products and services, UBS has very direct leverage, especially in asset management. It has developed various products that enable our clients to determine the weighted CO2 footprint of their investments or adapt them to the Paris Agreement. Transparency about the companies’ CO2 intensity is designed to enable clients to make sustainable investment decisions.
The issue of the “Climate Aware” equity fund fits into this picture. This enables investment in companies, which are prepared for a low CO2 future. It is important that the fund reduces commitments in enterprises with a higher CO2 risk, however, it does not exclude them entirely. Instead, partnership-based activism is pursued with these companies, in order to encourage them to reduce CO2 emissions.
Our strategy also means that, in addition to the capital of institutional investors, we encourage private investors to invest in vehicles that promote climate protection and adaptation to climate change. Climate-specific sustainable investments have grown from $74 billion in 2017 to $87.5 billion in 2018. Finally, in our capacity as advisors or lenders, we support the transition to a low CO2 economy.
In concrete terms, our strategy also means that we have reduced the financing of companies that have a negative impact on the climate. We have reduced the proportion of CO2-relevant credit exposures on our balance sheet to 1.2 per cent or $2.7 billion (down 60 per cent in 2018 vs. 2017). The focus here is specifically on companies in the energy (oil, gas, coal, etc.) and electricity sectors.
Specifically when it comes to coal, UBS does not provide project-specific financing for new coal-fired power plants. In addition, we only conduct financial transactions with energy service providers that generate more than 30 per cent of their energy from coal if the service provider can demonstrate a transitional strategy that is compatible with the Paris Agreement or if the transaction is linked to renewable energies. Finally, our bank has significantly reduced its lending and capital market activities for the coal mining sector.
External ratings and experts confirm that we are on the right track with our strategy for reaching the Paris climate change goals. This includes, in particular, our renewed inclusion in CDP’s Climate A List in 2018 (its highest award). We are also the industry leader in the Dow Jones Sustainability Index for the fourth consecutive year.
We are still a long way from reaching our goal. However, we hope to set a good example and that our commitment will mobilize more clients, partners and employees towards our goal.