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Executive Perspectives

EXECUTIVE PERSPECTIVE: New tools emerging to assess the “ESG” in funds

Tim Nixon

11 Dec 2018

“Clients are increasingly expressing interest in sustainable investing as well as the sustainability implications of their existing investments.”

At a time when the importance of “ESG” is expanding, UBS has launched new tools to help investors better assess funds using ESG metrics.  We sat down with Andrew Lee, Head of Americas sustainable and impact investing, and Greg Trinks, Head of Americas fund investment solutions, both at UBS Global Wealth Management, to learn more.  Tim Nixon, Managing Editor, Thomson Reuters Sustainability.


Tim: How do these assessments differ from what is already available in ESG ratings?

Andrew Lee: Wealth managers typically assess funds using ESG metrics or ratings from third party providers. These third-party assessments primarily provide a data-driven snapshot assessment of the underlying portfolio holdings of funds at a point in time, without much complementary due diligence or qualitative evaluation. By contrast, our ESG assessments of funds and separately managed accounts (SMAs) on our platforms will form an integral part of our broader comprehensive product due diligence process. These assessments will include a detailed evaluation by our fund research team of a fund manager’s sustainable investing related investment process and strategy, organizational setup, philosophy, team and focus, in addition to quantitative data analysis. We will also score funds across seven different sustainability topics, which will allow clients to drill down into specific areas of interest such as climate change.

Tim: How big of a team does UBS have on the initiative?

Greg Trinks: Our entire team of manager research analysts are tasked with assessing hundreds of funds against these criteria. These will include all long-only equity and bond mutual funds and exchange-traded funds on our non-US platform, as well as similar mutual funds and SMAs that make it onto the list of highly recommended products on our much larger US platform. Overall we will be scoring a similar number of products across both our US and non-US businesses.

Tim: Is there proprietary data and analytics involved? Please describe the data sourcing strategy.

Greg Trinks:  We will question the managers of the funds and SMAs on ESG considerations involved in their investment process and compare their holdings with their stated management philosophy and investment approach. We will then score the funds 1-10 across the seven aspects of sustainability. These scores, and the assessment process, will be proprietary to UBS and are rooted in a qualitative approach. Assessing a manager’s attention to ESG is now embedded as part of our due diligence.

Tim: What is the business goal of this initiative?

Greg Trinks: Clients are increasingly expressing interest in sustainable investing as well as the sustainability implications of their existing investments. The business goal is to cater to this interest and provide clear guidance that is tailored to our own ESG views, as driven by UBS’s Chief Investment Office. Our scoring approach is unique to the UBS views, and is designed to complement what clients may already see from third-party data providers.

Tim: What is the sustainability-related goal?

Andrew Lee: Sustainable investing initiatives such as these support sustainability more broadly by directing capital away from less sustainable investment areas and strategies and towards more sustainably focused equivalents. By catering to clients’ interest in sustainable investing, UBS also furthers its broad commitment to sustainability across the firm, including related areas like philanthropy and community affairs as well as striving for a sustainable business culture. We believe that a strong sustainability focus throughout our various businesses helps us to deliver for shareholders and provide a more compelling environment for our employees and other stakeholders while enhancing our client offering.

Tim: Will this initiative expand to other asset classes?

Andrew Lee: One important type of sustainable investment that we offer clients is private market impact investing funds, which aim to generate intentional, measurable social or environmental impact in addition to compelling returns. Over time, we also aim to assess future potential impact investing solutions using a similar approach, particularly given their explicit sustainability focus.

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