We’re currently seeing pressure for financial institutions to integrate ESG strategies into investment decisions, why the sudden push/trend?
ESG, or Sustainable investing ("SI"), has developed into a financial megatrend in recent years. Originally followed primarily by professional, institutional investors, it sees now wide adoption from private investors, especially in Europe and the USA, with a significantly growing number of Asian investors adopting SI approaches.
At UBS, we have made the decision early on, to help shape the sustainable investing landscape and be at the forefront of bringing exciting investment solutions to client which look beyond the pure return maximization but take into account how these returns are being generated.
We’re using our expertise, knowledge and connections to drive change that matters. Innovative finance can be good for society, good for the environment, and give good returns. In fact,we think they all go hand in hand. Across our private and institutional businesses, we manage USD 313bn in dedicated sustainable investing strategies.
What does this say about the new generation of investors? Are they driven by performance or principals?
Our clients have various motivations to follow a sustainable investing approach. But some of the key triggers we see in liquid strategies are that they understand that integrating ESG as a factor for better informed investment decisions which can lead to superior investment outcomes over time as well as a trend to "Investing for the next generation" by building an investment portfolio which helps to leave the planet intact for their next generation.
In private markets impact investing strategies, we clearly also see clients investing who are keen to build a long-term portfolio which allows them to generate positive impact on society through their investments, looking beyond just the targeted market-rate returns.
Furthermore, many of the younger generation show a particular affinity for incorporating sustainability criteria in their consumption and investment behavior. They increasingly seek innovative means by which they can tackle problems of social inequality, as technology and extreme connectivity throw light on issues across the globe to more people. We see this reflected in strong demand for our longer term impact investing solutions which aim to create positive social and environmental impact as well as significantly increasing allocations to invest into leading innovators and companies contributing to a low carbon economy and a more sustainable future.
What do you think of the SI adoption rates in Asia?
Awareness and adoption of sustainable investing has grown significantly among our clients in recent years.
Based on our recent investor survey "Investor Watch – Return on Values", for which we interviewed 5,500 investors across ten countries/regions, including Hong Kong & China, we see strong buy-in for sustainable investing.
In Hong Kong, 41% of investors expect sustainable investments to become the new standard in 10 years. In China, 74% of investors make that statement. At the same time, 50% of Hong Kong investors believe sustainable investments would deliver better returns than traditional investments.
We see policy taking the lead in supporting ESG initiatives, in your opinion, how important is it that financial institutions follow suit?
We are on a journey to educating our clients and moving the industry towards a sustainable one. We are confident that with better understanding of sustainable investing and more available offerings, Sustainable Investing will become the mainstream approach for investors in the years to come.
What ESG strategies has UBS adopted?
Options for SI investments have expanded rapidly in recent years.
UBS has been at the forefront of bringing sustainable investment solutions to our clients here in the region. We currently offer our clients access to more than two dozen active and passive funds with sustainable investing focus, a universe which is growing constantly.
Most notable are our mandate and fund solutions based on our unique 100% sustainable Strategic Asset Allocation which we introduced in April last year. It is the first time that private clients can access a 100% sustainable cross-asset portfolio, implementing ESG across all liquid equities and bonds strategies, allowing them to invest in a portfolio based on their personal risk and return expectations. The solutions contain innovative content such as ESG engagement strategies or World Bank bonds and Green Bonds with multiple risk profiles to choose from, yet aim to deliver full market-rate returns for investors.
Another area in which we have seen strong client pick-up is Impact Investing. In 2017, UBS has committed to allocate USD 5bn into impact investments in support of addressing the UN Sustainable Development Goals.
What is UBS is excited about when it comes to SI?
I am really excited about our very comprehensive services we can offer our clients on sustainability. Let me specifically pick two which I am really excited about:
With the launch of our innovative 100% sustainable investing portfolios last year, we were able to change the way many of our investors in the region think about their investments and truly work on raising awareness of how personal values and competitive financial returns are not mutually exclusive. In fact, we think they go hand in hand. We have raised over USD 600 million in APAC, and globally over USD 6 billion in this short period of time, showing the success of this offering in delivering performance and meeting clients’ values.
Looking at longer term investments – impact investing – we are continuously bringing exciting opportunities to our clients. For example, we have raised USD 470m for our UBS Oncology Impact Fund, an early stage private equity fund focusing on investments in the development of cancer therapeutics in order to achieve attractive financial returns, while making a positive global impact helping to extend and improve the lives cancer patients, focusing on curing certain forms of cancer. USD 275m was committed by our investors here in APAC.
Will not having an ESG approach cost a financial institution going into the future?
I absolutely believe that ESG will become a core component of the investment process. There is strong evidence today, that SI strategies deliver equal to better investment performance over time compared to traditional investment approaches.
Let me refer to a recent large-scale institutional investor survey by Responsible Investor and UBS. 48% of respondents who are already 'doing ESG' are doing so because they expect a positive impact on financial performance, and a further 48% of 'adopters' are considering the integration of ESG into the investment process for the same reason.
Additionally, and interesting to note, a majority of European institutional asset owner respondents predict that key environmental factors (climate crisis, biodiversity loss) will be more material to their investments in the next five years than financial factors.
Mario Knoepfel, Head Sustainable & Impact Investing Advisory, Investment Platforms and Solutions, Asia Pacific, UBS Wealth Management.