UBS Launches Impact Mutual Funds for U.S. Private Clients

Aug 2018
Global, August, 20 2018 - As part of its new 100% U.S. sustainable cross-asset portfolios, UBS Global Wealth Management is rolling out two mutual funds that aim to create a more direct social and environmental impact than existing funds that simply target companies with superior environmental, social, and governance—or ESG—practices.

The UBS Engage for Impact Fund will invest in companies that integrate sustainability factors into their business model—by building sustainable housing, for example, or creating a technology to remove toxins from the environment—and are also open to working with UBS to make their impact even stronger.

The UBS Sustainable Development Bank Bond Fund will invest in bonds issued by development banks across the world, including the World Bank, African Development Bank, and the Inter-American Development Bank.

“While each development bank has a distinct focus, development banks generally use their capital for projects that seek to improve the state of the developing world, promote sustainable growth and raise living standards,” UBS wrote in a filing with the Securities and Exchange Commission earlier this month.

The 100% sustainable portfolios, which have four equity options and four ESG bond options, are intended for UBS clients “who want the same returns as conventional investments...but who have expressed an interest in how to incorporate sustainable or impact objectives into their portfolios as well,” says Andrew Lee, head of Americas sustainable and impact investing in UBS Global Wealth Management’s chief investment office.

Globally, assets in UBS’s 100% sustainable portfolios doubled to CHF2.45 billion (US$2.47 billion) through the end of July. For now, the funds are available only to UBS investors via their financial advisors, although UBS Asset Management eventually may seek wider distribution.

For the Engage for Impact fund, UBS will work with companies that “have a technology or service that already in our view contributes to dealing with some of the most important sustainability challenges that we face,” says Martijn Oosterwoud, senior sustainable and impact investment specialist at UBS Asset Management.

UBS is also integrating the ability to engage with the 40 to 50 companies it plans to invest in, “to improve their current practice and focus on the solutions,” Oosterwoud says, by drawing on UBS’s global sustainable equities team and sustainable research staff.

As part of this effort, the bank is working with universities on metrics that “link the revenue basis of the companies with the impact they have on society,” Oosterwoud says. “That allows us to create transparency for what the current level of impact is through these products and services, and allows us to focus us on how this impact could further improve.”

One company that UBS is interested in, for example, seeks to create more efficient water irrigation techniques to address water scarcity. UBS hopes to work with the company to, among other things, address the risks of problematic substances in the electronic equipment that they use to avoid risking harm to water supplies.

“It’s an example of a company that’s on the right track but definitely has a number of steps to make to improve the quality of the offering it has,” he says.

“The innovation here is that UBS proposes to help companies assess and improve their impact via shareholder engagement, and I think companies will welcome that kind of engagement,” says Jon Hale, head of sustainability research at Morningstar.

Hale also argues that UBS is likely to have more success working with companies that intend to have a positive impact versus companies that don’t care about how their products or services help or hurt the environment or society.

“By focusing on companies that already have good ESG profiles and positive impact, the impact-oriented engagement that UBS proposes can be more collaborative and focused on improving impact,” Hale says. “Companies that are ESG laggards have more-basic ESG issues to address and may not be as amenable to engagement.”

In fixed income, there are a few short-term note vehicles available that finance projects with a direct environmental and social impact, but “not many bond funds are structured that way,” Hale adds. “Development bank bonds are providing capital to places in dire need of it, so this fund looks like a good way for investors to achieve impact in an investment-grade bond fund.”

Source : Barron's

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