Investors keen on putting more money into ESG causes

MARK HAEFELE Chief Investment Officer, UBS Global Wealth Management

Investors are keen to put more money to work in support of environmental, social and governance (ESG) causes but only if financial firms promote highly personalised choices that allow clients to leave their mark, Swiss multinational investment bank UBS says. In a major step toward personalising sustainable investing, UBS has announced the launch of a pilot program in the first quarter of this year that matches what clients care most about with investments that perform best against their values.

Specifically, the pilot will allow investors to rate how much they care about individual ESG factors, such as climate change or water, express their preference in a personalised sustainability score, and compare their score against more than 20 000 ESG-rated stocks and bonds to find the best match.

“This marks a further departure from a one-size-fits-all approach to sustainable investing by scoring each security against seven ESG criteria, which allows for a more granular view of how investment instruments are performing against the sustainability criteria their potential buyers hold dear.”

The United Nations has called for an increase in private sector funding in support of its Sustainable Development Goals (SDGs), designed to address humanity’s and the environment’s biggest problems by 2030.

However, the world is likely to fall short of the estimated additional $2-7tn needed annually to solve these issues, UBS says in a white paper entitled Awareness, simplification, and contribution, that simultaneously calls for more concerted efforts among financial institutions toward mobilising private wealth for the public good.

The paper was presented at last month’s World Economic Forum Annual Meeting in Davos by Axel Weber, Chairman of UBS.

“At UBS, we believe that only by offering solutions that raise awareness and channel personal preferences for investing sustainably can the global community achieve the UN SDGs,” Weber states.

Sergio P Ermotti, Group CEO of UBS, adds that the bank is taking steps to widen its lead in sustainable investing. “

Clients clearly care about the social and environmental impact of their investments, and they shouldn’t have to compromise in their pursuit of financial returns to achieve their objectives. Now we’re making it easier for them to choose the investments that best support their priorities.”

PEOPLE CARE LESS ABOUT GENERIC TOPICS THAN SPECIFIC CAUSES THEY HOLD DEAR

The UBS paper is the third in-depth analysis to be unveiled at Davos, offering policymakers, investors and the financial sector detailed solutions for meeting the SDGs. These include simplifying and standardising definitions and measurements, and customising investments to appeal to people’s personal passions. They also include ramping up public awareness that individual investors can make a difference by putting their savings to work profitably in support of good causes.

“While there has been progress, it’s become clear that the traditional approach to environmental and social investment isn’t sufficient,” says Mark Haefele, Chief Investment Officer at UBS Global Wealth Management. “People care less about generic topics than specific causes they hold dear. They want the chance to leave their mark on issues they are passionate about, whether that’s eradicating poverty, achieving gender equality, or any of the other SDGs that are close to their hearts. This is why we’re proposing new solutions to specific problems.”

The UBS white paper has won broad support from leading figures in finance, philanthropy and business, including Robert Kapito, President and co-founder of BlackRock, Paul Polman, former CEO of Unilever, and Sunny Varkey, founder of GEMS Education and the $1m per annum Global Teacher Prize.

“We need to provide our clients with the clearest possible picture of the impact of sustainable investing. That is why we believe we need increased disclosures to help investors make more informed decisions and why we are focused on enhancing data for investors to better understand how and why sustainability factors effect returns,” Kapito says.

Following its commitment made in 2017 to raise $5bn in impact investments over five years, UBS points out that it has pioneered examples of new sustainable and impact investment solutions, such as working with Solactive to develop fixed-income benchmarks that define financial return, risk and sustainability parameters; the launch of Align172, an innovative digital platform that efficiently connects private wealth investors to impact investment opportunities; multiple mainstream private-market impact fundraisers that have already contributed several millions of US dollars to good causes, including academic research; and the world’s first 100% sustainable investment cross-asset solution. Launched for the bank’s private clients in 2018, this solution has already attracted CHF3.9bn in investments, despite a difficult environment for financial assets over the past year.

“When someone tries to find an investment that helps solve some of the issues they care most about, they are often presented with a confusing and conflicting array of data, definitions and terms,” says Simon Smiles, Chief Investment Officer UHNW at UBS Global Wealth Management. “We need to make it easier by simplifying and standardising sustainability criteria on a global level.”

The key solutions outlined in the paper presented at Davos last month are:

• To align investments with personal sustainability interests, helping investors who seek to achieve their financial goals and to tackle the particular social and environmental causes they care most about.

• To simplify and standardise corporate sustainability data reporting. The paper endorses the World Economic Forum’s initiative to Build an Effective Ecosystem for ESG as a first step toward common, minimal disclosure levels to increase the transparency of sustainability reporting.

• To define impact investment and measurement coherently and consistently. UBS believes the International Finance Corporation’s work on common impact management standards is best-placed to fulfil this role. UBS calls on the World Bank Group to officially endorse these criteria as their own and name them accordingly.

• To name sustainable investing strategies in a clear, consistent manner so they can be universally understood and adopted.

•To use publicly traded strategies in traditional portfolios, focusing on market-rate performance and having an actual positive social and environmental impact.

•To adopt a truly 100% sustainable investing asset allocation that seeks to deliver attractive returns and have verifiable positive impact. A 100% sustainable cross-asset portfolio lays the groundwork that may enable foundations not currently invested sustainably to align their activities to their values.

•To make philanthropy more collective and collaborative rather than competitive, an objective strongly supported and promoted by the UBS Optimus Foundation.

•To use awareness campaigns to increase public knowledge of the UN SDGs.