UBS Group AG increased its backing of shareholder climate resolutions this year, according to Christopher Greenwald, head of sustainable investing research at UBS Asset Management.
UBS, which has more than $1 trillion of its $3.7 trillion in assets under management in sustainable and responsible strategies, made the firm-wide change after a collaboration with a client. The Swiss firm joins other asset managers, including State Street, Blackrock and Vanguard, that are stepping up their focus on climate change in discussions with companies.
Greenwald spoke to Emily Chasan on Sept. 8. Comments have been edited and condensed.
What are you doing differently on climate resolutions?
A collaboration with a pension fund client led to a strengthening of our voting practices across all of our holdings for climate resolutions. We are now voting for a large majority of resolutions requesting companies to report CO2 emissions, or to explain climate change risk to investors, or to explain what initiatives they are taking for a 2-degree global warming scenario in the future.
This is the first year that we’ve made an explicit policy change in terms of our voting on climate proposals. We always review the proposals to make sure they are reasonable and consistent with the interests of shareholders, but if we think they add shareholder value, we will support those proposals.
How did this change stem from your work with the pension fund?
We partnered with U.K. client, NEST (National Employee Savings Trust), to develop a passive equity strategy which explicitly tackled the long term investment risk of climate change. One of the challenges they and other asset owners face is how to incorporate sustainability into a passive strategy. Pension funds are increasing their assets allocated to passive strategies, but at the same time, want to integrate sustainability. This is a challenge because the passive strategies have to track a benchmark.
We incorporated a re-weighting of their portfolio to overweight those companies that are better prepared for climate change in a 2-degree carbon reduction scenario in the future. We then underweight companies that would have higher climate change risks. Essentially, we’re asking: are these companies preparing their business models for a regulatory environment where we’re going to have more industries that need to reduce their CO2 emissions?
What’s the engagement strategy with companies?
It was important for the client was that we not simply underweight the companies in this portfolio, but ensure that we’re reaching out to companies that are at higher risk for climate change and explaining what steps they can take to make improvements. We then work with those companies over a one- to two-year timeframe to realize those improvements.
This started as a fund open only to U.K. institutional clients, but we’ve seen quite a lot of interest from other clients, so we’re launching a fund later this year along these lines for non-U.K. investors. That should widen the scope of the amount of assets that participate in this.
How is this different from low-carbon strategies?
Strategies that are low-carbon or carbon light tend to divest from entire sectors or remove large numbers of companies. Here, with a passive fund, we re-weighted toward the more sustainable companies, while remaining invested in the sectors in a way that mirrors the benchmark. We’re projecting the progress companies are making to see to what degree they are in line for estimates with a 2-degree scenario.