Sustainable, Responsible &/or ESG Policy:

Our impact investment philosophy is to translate the SDGs global mission into investment decisions, constructing a portfolio targeting real-world positive impact. Our approach is built around the 3 criteria for impact investing defined by the Operating Principles for Impact Management (OPIM):

1. Intentionality: The impact universe is designed to identify companies that we believe generate positive social and environmental impact via products and technologies that are deemed to be aligned with supporting the SDGs and the Strategy’s specific impact categories: Climate, Health, Food, Water and People Empowerment. Our stock selection process seeks to identify securities within the universe that have a positive impact, are attractive based on their fundamental and valuation profile, in addition to evaluating specific sustainability (ESG) factors, as well as the ability for engagement with the company management on impact and environmental/social risks and opportunities. Each holding has an impact thesis and the impact is assessed and monitored at portfolio level over time.
2. Additionality: We engage with companies to support and encourage the company to improve the management of environmental and social risks and opportunities in their supply chain and operations and to enhance their impact. We track progress to inform investment decision making and engagement objectives mainly across the supply chain, direct operations and in some occasions products and services.
3. Measurement: Measurement is a critical component of impact investing because it provides the basis for demonstrating the difference impact investing can have on the world. The impact of portfolio holdings is reviewed periodically and measured in changes in human well-being and changes in environmental quality (e.g. reduction in air pollution, hospitalizations and biodiversity loss). To do so, we leverage our science-based impact measurement methodology but also collect outputs and impact as per reported by companies, in particular in the People Empowerment theme.

Per our firm’s Sustainable Investment Policy, impact strategies invest with the intention to contribute to measurable positive social and environmental impact alongside financial returns. They meet the minimum criteria of sustainability focused strategies and additionally include a verifiable impact measurement. The UN Sustainable Development Goals (SDGs) create the framework for impact investing.

ESG Integration:

ESG Integration is driven by taking into account material ESG risks as part of the research process. ESG integration enables the Portfolio Manager to identify financially relevant sustainability factors that impact investment decisions and to incorporate ESG considerations when implementing investment decisions, and allows ESG risks to be systematically monitored and compared to risk appetite and constraints. It also assists in portfolio construction through securities selection, investment conviction and portfolio weightings.

• For corporate issuers, this process utilizes an internal UBS ESG material issues framework which identifies the financially relevant factors per sector that can impact investment decisions. This orientation toward financial materiality ensures that analysts focus on sustainability factors that can impact the financial performance of the company and therefore investment returns. ESG integration can also identify opportunities for engagement to improve the company’s ESG risk profile and thereby mitigate the potential negative impact of ESG issues on the company’s financial performance. The Portfolio Manager employs an internal UBS ESG risk dashboard that com-bines multiple internal and external ESG data sources in order to identify companies with material ESG risks. An actionable risk signal highlights ESG risks to the Portfolio Manager for incorporation in their investment decision making process.

• For non-corporate issuers, the Portfolio Manager applies a qualitative or quantitative ESG risk assessment that integrates data on material ESG factors.

The analysis of material sustainability/ESG considerations can include many different aspects, such as the following among others: the carbon footprint, health and well-being, human rights, supply chain management, fair customer treatment and governance.

Fund specific exclusions:

The sub-fund excludes companies with a sustainability profile that indicates a severe ESG risk.

Sustainability Exclusion Policy:

The Sustainability Exclusion Policy of the Portfolio Manager outlines the exclusions applied to the investment universe of the financial product. The link to the Sustainability Exclusion Policy can be found in the section headed “Sustainability Exclusion Policy” in the main body of the Sales Prospectus.

Process:

This actively managed sub-fund invests at least 90% of its net assets in equities and other equity interests of companies in developed and emerging markets worldwide that are aligned to specific United Nations Sustainable Development Goals (UN SDGs), as defined by the Portfolio Manager’s proprietary impact universe. The Portfolio Manager uses a traditional intrinsic valuation framework to identify companies with an attractive valuation. The Portfolio Manager uses quantitative and qualitative factors to define a universe of companies that offer or manufacture products or services that meet the UN SDGs, such as clean water and sanitation products, clean energy, energy saving, treatment of disease, sustainable food system and food security, access to finance or education services. The Portfolio Manager uses the UN SDGs to guide and frame engagement activities with invested companies. The sub-fund uses the benchmark MSCI AC World (net div. reinvested) for performance measurement and risk management purposes. The benchmark is a broad market index which does not assess or include constituents according to environmental and/or social characteristics and therefore is not intended to be consistent with the characteristics promoted by the sub-fund. The investment strategy and monitor-ing process ensures that the environmental or social characteristics of the product are taken into account. The Portfolio Manager may use discretion when constructing the portfolio and is not tied to the benchmark in terms of investment selection or weight. This means that the investment performance of the sub-fund may differ from the benchmark. As the sub-fund invests in multiple currencies due to its global orientation, the investment portfolio or parts of it may be subject to currency fluctuation risks.

Investment Universe

We anchor our universe construction approach to the Sustainable Development Investments Asset Owner Platform (SDI AOP) Taxonomy which is an asset-owner interpretation of the SDGs. As a starting point for the universe creation, we set the minimum revenue threshold at 20%. It may also include companies whose impact potential, indicated by metrics such as research and development (R&D) spend are aligned with the impact categories described above. The investment team can add companies to this universe at its own discretion to allow for investments in IPOs and spin-offs, emerging technologies or impact categories, as well as data gaps. This screening process enables the creation of the Impact universe with approximately 1000 companies.

The impact universe also excludes companies that are in breach or believed to be in breach of the UN Global Compact Principles. In addition, we apply exclusion criteria for companies involved in coal (extraction or energy generation), plus companies deriving 5% or more turnover from the sale of alcohol, tobacco, defence and weapons, nuclear, gambling and adult entertainment.

Investment Process

The investment decision-making process integrates traditional fundamental analysis with an evaluation of a company’s impact and ESG factors material to value creation. Stocks are selected from an investment universe of companies whose products or services create meaningful impact within specific impact categories (such as climate change, air pollution, clean water and water scarcity, treatment of disease, food security and people empowerment). In this universe, we seek to invest in companies that we believe are attractively valued and that can generate additional impact via engagement targeting improvements in its operations or supply chain, and in some occasions in terms of product impact. Our goal is to be able to generate excess returns to support our clients’ financial objectives and to ensure that the companies we hold unlock the full potential of their impact on the environment and society.  

We construct an impact profile for each company in the portfolio, covering the impact investment thesis (also called “theory of change”), links to the investment thesis, an analysis of the ESG risks, opportunities and subsequent engagement goals. To do so, we rely upon impact measurement methodologies that UBS Asset Management developed in partnership with leading academics from the fields of earth sciences and public health science. We aim to measure the impact of invested companies in terms of changes in human well-being and changes in environmental quality (e.g., air pollution, biodiversity loss). In areas where we do not have the ability to measure the impact of a company, we aim to assess it with output metrics, such as the number of people receiving higher education or loans for small enterprises’ green investment.  Our assessment of the ability of public companies to generate impact is also based on a careful analysis of SDG-enhancement opportunities in the supply chain and operations, as well as an assessment of our ability to influence the company on its practices. Our success is dependent on the achievement of our engagement goals, which are tracked and reported to investors.

Resources, Affiliations & Corporate Strategies:

The UBS Asset Management (“UBS AM”) Sustainable Investing and Impact team (“SI team”) is an integrated function within our Investments area. The Head of Sustainable Investing and Impact role sits on the Investment Management team. The SI team is led by Lucy Thomas, who reports directly to the Head of Investments, Barry Gill, who is a member of UBS AM’s Management Team, reporting to Aleksandar Ivanovic, President of UBS AM. The goal of this governance structure is to provide clear oversight from the President of UBS AM through to our specialist SI team and alignment across investment areas.

The SI team comprises 45 professionals as of end March 2024. The team’s background is very diverse and includes professionals who have worked in the asset management, finance, services industries and for asset owners. Team members are located in Zurich, London, Amsterdam, Krakow, Hong Kong, Singapore, New York and Chicago.

The SI team is currently structured in the following pillars: Active Ownership, SI Governance, SI Specialists, SI Quant Analytics and SI Portfolio Integration.

In addition, we have a dedicated governance structure in place through the SI Methodology Forum, SI Prioritization Forum and Stewardship Committee to oversee our activities in sustainable investing:

• The SI Prioritization Forum provides oversight of the SI strategic program, setting key priorities and strategic direction; makes key decisions of commercial relevance and ensures regulatory compliance and a successful delivery of the SI Program.
• The SI Methodology Forum provides oversight of SI policies and guidelines, data and methodologies as well as investment process criteria applied in the Sustainable Investing framework (including exclusions, ESG integration, sustainable focused and impact offering) across investment areas.
• The Stewardship Committee oversees the proxy voting standards, process, and corporate governance practices as well as engagement program activities (including exclusion decisions). It also oversees the research process on UNGC Global Compact credible corrective action and Sustainability and Climate Risk (SCR) Watchlist cases. The Stewardship Committee is the representative body for approving membership of industry organizations related to stewardship.

For a list of our memberships and involvement, please refer to the UBS Sustainability Report 2023 – Supplementary Information available via https://www.ubs.com/global/en/sustainability-impact/sustainability-reporting.html.

Dialshifter

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

UBS AM is committed to helping our clients achieve their decarbonization goals and to supporting the work of governments around the world in their transition to a low-carbon economy in alignment with the objectives of the Paris Agreement.

We are a founding signatory of the Net Zero Asset Managers initiative and have a group-wide ambition to achieve net zero greenhouse gas emissions across scope 1 and 2, and specified scope 3 activities by 2050. In 2023, we made progress toward delivering our 2030 target of aligning 20% of our total AuM with net zero, using science-based portfolio alignment approaches.

SDR Labelling:

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