Sponsored Content

Giving Back, Getting Back

Michael Baldinger—Chief Sustainability Officer at UBS Group AG—on how impact-based investing could reap better dividends without compromising your values.

UBS Courtesy of Robb Report Studio

Today’s investors think beyond simply increasing portfolios’ value—why?

What we’ve seen in recent years is nothing short of a paradigm shift—of sustainability, into the mainstream, for business, for finance and for society. Factors such as the climate emergency and a growing awareness of wealth inequalities are making people think about the choices they make.

But what is it that actually allows them to make different choices? In my mind, the shift towards sustainability has been driven by one factor—transparency. Today, transparency drives every choice we make: what we eat, what we wear, how we travel. Nowadays, investors know that they can use those same transparent insights into companies and the ways they conduct business to make smarter decisions about where they invest their money.

And, whether it’s one of the world’s largest pension funds, a family office or a private individual, there is less and less tolerance towards investing money in companies which do harm to the environment or society, in the same way that there is zero tolerance when it comes to buying products from companies which pollute the environment or compromise on labour standards.

Courtesy of Robb Report Studio

How can companies attract investors by keeping sustainability in mind?

For us at UBS, sustainability means thinking and acting with the long term in mind. For me those two words, “long” and “term”, are critical. Companies need to be transparent—they have to show potential investors that their business models take into account not only long-terms risks, but also long-term opportunities.

Regulation and policy is helping us here – when it comes to climate, for example, the TCFD (Taskforce on Climate-related Financial Disclosures) has given companies a really clear framework for disclosing their climate risks and opportunities. That in turn helps investors make more informed decisions because they can compare apples with apples – is company A doing better than company B when it comes to managing the climate transition?

And what we see in the market today is that those companies which are successfully attracting capital are the ones that are demonstrating that they’ve got a clear, well-managed, long-term plan which they’re acting on.

Courtesy of Robb Report Studio

How does UBS go about seeking the right sustainability opportunities to engage with?

When it comes to sustainable investing, there’s been a tendency for investors to look backwards and rely on ESG scores and ratings from the many providers out there in the market. These can be useful as a starting point, but we think it’s much more important to take a forward-looking view of where the business is going in order to improve the resilience of portfolios without compromising long-term risk-adjusted returns. So we spend a lot of time talking to company management – not just to unearth where the risks and opportunities lie, but to guide them in their transition.

One example I often point to is the work which our Asset Management division has been doing over the past few years in engaging with some of the world’s biggest energy firms. Because although they’ve clearly been a big part of the climate problem, they’ve got the potential to be a really important part of the solution – by using their engineering know-how and research and development budgets to drive renewable energy solutions, for example.

So, when we talk to them, we make our expectations very clear: that we’ll work with them as they transition their business models, but, if insufficient progress is made, then we’ll no longer continue to invest. We’re not alone – many of the biggest investors in the world are also taking the same approach, as are a growing number of private investors.

And, we’ve started to see more and more companies take action, such as setting ambitious net zero targets and agreeing to align executive pay to those targets.

Courtesy of Robb Report Studio

What advice do you have for any reader wishing to pursue sustainable investment opportunities?

It’s very clear to me that sustainability means different things to different people. You’ve only got to look at the Sustainable Development Goals – there are 17 of them, all tackling different, but critical, sustainability challenges. So readers who want to get started and begin looking for sustainable investment opportunities really need to first decide what their particular priorities are.

At UBS, we’ve taken the decision to focus our activities on three areas – planet, people and partnerships as we see these as the areas where we can help mobilise capital to make the biggest difference: so, prioritising climate change, tackling wealth inequality through a focus on health and education, and then working with our wide network of partners to drive change on a global scale.

Find out more about UBS’s sustainable investment opportunities.

Learn More

The value of investments may fall as well as rise and you may not get back amount originally invested.