Climate Action recently spoke with Michael Baldinger, Head of Sustainable and Impact Investing at UBS Asset Management – Global Head Sustainable Investing, UBS – which are a partner of the upcoming Sustainable Investment Forum on 19th September in New York.
1. Can you tell us something about UBS?
UBS is a global financial services provider with 60,000 employees in more than 50 countries that is also firmly rooted in its home market of Switzerland where our history goes back over 150 years. Today, we are the world's largest wealth manager, providing financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as to private clients in Switzerland through our network of 300 branches. At UBS we see environmental, social and governance (ESG) as an important business driver. Today, the ambition is to mainstream ESG into very area of our business, products and operations.
UBS has already been recognized for its activities in the sustainability space with a number of prestigious awards and accolades. We have just been confirmed as leader of the Diversified Financial Industry Group of the Dow Jones Sustainability Index (DJSI) the most widely recognized sustainability index for the third year running. UBS Asset Management's global real estate funds were once again ranked top for sustainable performance in the 2017 GRESB Real Estate Assessment.
2. And where do you work and what is your role?
I am responsible for sustainable and impact investing (SI) at UBS Asset Management. At UBS Asset Management, we are committed to generating long-term financial returns for our clients. That’s why we take SI to the core and combine a company’s traditional financial indicators with material ESG criteria from our dedicated research teams. This ensures better informed investment decisions and creates positive impact – for investors and society.
3. Why do you think the transition to a low carbon economy is so important to investors?
Climate change is first and foremost an existential threat, not simply a financial or a business risk. Ever since the Paris agreement, investors started to realize that climate change presents a key investment risk. Investors are now setting explicit targets for reducing their carbon footprint of their entire portfolios, and looking at ways to measure the impact of their investments. But they want to be smart about this, and capture the upside of investing in companies that are leading their industries in adjusting to these changes. In a recent study, almost 80 percent of asset owners said they considered ESG criteria to be the one of their top five issues when choosing an asset manager.
After all, sustainable investing is one of the fastest growing segments in the investment world. Between 2012 and 2016, sustainable assets under management almost doubled, from USD 14 trillion to USD 22 trillion, according to a 2016 report by the Global Sustainable Investment Alliance. That’s an annual growth of some 25 percent of assets under management. We are already seeing a significant shift in investor sentiment toward products that incorporate sustainable metrics or that offer measurable ESG impact. For example, we recently partnered with a major pension fund that was looking at ways to reduce its carbon footprint while not exposing investors to excessive risks or costs.
4. Why do you think institutional investors are taking so long to warm to ESG criteria?
For asset owners, putting ESG into practice can be quite challenging, as SI may be seen simply as screening out companies and limiting choice. In fact, it is about finding new investment opportunities by identifying long-term sustainability trends and incorporating longer terms risks. But really, sustainability and impact investing is all about transparency. Let me tell you a little story. Back in the 90s, I used to pick up a latte and two muffins from Starbucks every day. Until, that is, they started including the calorie counts on their products.
Suddenly, I could see I was consuming 1000 calories before my day had even started. This got me thinking about my diet and my health and I began to change my habits. That's the power of transparency! Investment analysis was always about transparency and understanding what we're investing in. Sustainable investing takes this to a new level, presenting a new set of metrics to create an entirely new approach to financial analysis to enhance the investment process. Using these metrics and know-how, we can offer a new level of transparency that can be a very powerful tool for investors. This is why I am convinced that sustainable investing in its modern form is a game changer for our industry.
5. Does ESG investing still suffer from an image problem as an underperforming asset class?
Academic research demonstrates clearly that integrating sustainability does not hurt financial returns – on the contrary. Outperformance in any portfolio strategy depends ultimately on having skilled analysts and portfolio managers with successful track records and insights into macroeconomic and industry developments. We believe that combining high-quality financial resources with sustainability, insight and expertise will allow institutional clients to pursue both their sustainable and their financial goals. In a couple of years I believe there will not be one RFP that doesn't integrate ESG elements. And longer term, I predict that sustainable investing will become the norm, not the exception.
6. UBS is sponsoring the 2nd annual Sustainable Investment Forum which will take place in September. What were your motivations behind your involvement with this event?
The 2nd annual Sustainable Investment Forum is one of in several events related to the UN SDGs during the UN Climate Week that reflect our own strategic goals and priorities. Such events are essential for dialogue and building relationships with other industry players. They are a great opportunity to share research and insights with like-minded partners that we can use to develop new solutions for our clients and help them meet both their sustainability and financial objectives. From my experience this is key for new innovation, as often the sustainability challenges lead to solutions that can themselves become strategies that are useful for other clients.