UBS ESG and Sustainability Symposium 2019

Summary

It was the first-ever ESG and Sustainability Symposium, organized by UBS in London. The goal was to bring together global business leaders, academic experts, and policy makers to discuss the advancement of sustainable investing.

The conference covered the following topics:

  • Next breakthrough technologies to invest in for supporting a low-carbon economy
  • Environmental Challenges
  • How to integrate ESG factors into investment & risk management processes
  • How to mainstream ESG
  • Different ESG approaches

Key Takeways

Below is a list of key points emerging from various talks, discussions, and associated documentation:

  • There is a fast-growing interest into “ESG” strategies. Global assets invested into ESG-related strategies grew from $13.2tr in 2012 to approx.- $30tr in 2018. (Global AUM is $90 tr)

Meaning that the interest is already very high (1/3 of all AUM are being managed under “responsible investment strategies”), but it also means that the definition of ESG is so wide that a third of the assets can claim themselves being ESG managed.

ESG integration might therefore be going “fast” but apparently not “deep” enough. There is therefore a need to go deeper in the analysis and set up a clear framework.

  • Today there is a large variety of different investment approaches which are labelled under names ESG/Sustainable investing/ Impact investing.

Usually, ESG tend to be more “backward looking” in a sense that it takes historical data (environmental, social, and governance) based on company’s disclosure and computes different sort of ratings. Sustainable Investing & Impact Investing intends to be more “forward looking” by looking at company’s objectives (such as Sustainable Development Goals) and R&D efforts put in place to meet those objectives. The data used in this case will not necessarily be based on company’s disclosure (like using companies reviews from employees, such as Glassdoor).

In the future, we should strive to use data which do not only reflect the past but also show the company’s capacity to improve in the future.

The below table summarize the main approaches used for ESG and Sustainable investing.

source: UBS

  • The main challenges that ESG is facing at the moment are:
    1. Availability of data: data are not disclosed by all Companies and asset managers have to rely on a few information providers
    2. Robustness of data: need to make sure that all data disclosed by companies are accurate
    3. Consistency of data: there is not always a consistency between companies on the metrics they report, many different ways to measure the same thing (CO2 emissions, % of women, etc.).
    4. Method to integrate it into a business: how ESG is integrated into investment strategies? No official framework on how to do this and discrepancies across rating methodologies.

 

  • ESG/Sustainable Investing/ Impact Investing generates new market opportunities:
    1. There is a $1.8bn market for Information Providers (source:UBS) which can be segmented into the below 6 categories.

      Source:UBS

       

      The largest ESG Information Provider today is MSCI who currently has a team of 185 ESG analysts and for which 46 of the top 50 global asset managers already purchase their ESG research. According to UBS, MSCI could capture 35% of the total addressable market.

      Other major information providers include S&P Global /(SPGI), Moody’s (MCO), Nasdaq (NDAQ), FactSet (FDS), FTSE Russel, Institutional Shareholder Services (ISS), Sustainalytics, Refinitiv, Bloomberg, Sustainable Accounting Standards Board (SASB).

    2. Asset Managers, who are the main clients of information providers, do also try to catipilize on ESG in order to grow their AUM. Asset manager can both launch new ESG-labelled strategies and/or relabel existing funds to meet ESG criteria (that they define). Morningstar has identified 24 ESG-repurposed fund from major providers (JPM, MS, PIMCO, RBC, UBS).

      During the period 2014 to 2017, net inflows to ESG funds at Top 10 providers accounted for 6.6% annualized organic growth (source: UBS)

  • New coming regulation for ESG:
    1. ESG ratings can largely differ depending on the rating provider. A correlation study made by Schroders shows low correlation among the 3 largest rating providers (MSCI, Sustainallytics, Reuters)