ETFs to Meet Increased Sustainability Demand

    Stockholm (NordSIP) – Research shows that investor demand for sustainable investment (SI) and ESG strategies is growing fast. According to the Global Sustainable Investment Alliance, global assets managed under SI strategies amounted to US$31 trillion in 2018. Signatories to the PRI managed US$82 trillion in the same period, and 120 investors with over $US10 trillion under management have signed the Montréal Carbon Pledge. While negative/exclusionary screening remains the most popular strategy, at 36% according to the Global Sustainable Investment Review conducted by UBS Asset Management in May 2018, ESG integration is now close behind at 32%. With such intense pressure to convert allocations to sustainable strategies, ETFs seem to be a simple and cost-effective investment vehicle for a large number of investors.

    In a recent Nordic roadshow, UBS presented its ETF offering which extensively benefits from a firm-wide ESG integration. UBS’s journey with passive sustainable investing started in 2011 with the launch of four MSCI SRI equity ETFs. The product range has since been enhanced with several innovative products, such as a gender-equality ETF in 2017 and, in 2018, the Multilateral Development Bank (MDB) ETF which provides direct impact opportunities within fixed income. With an offering of 291 ETFs as of May 2019, UBS comes fourth in the European league table, behind BlackRock, db x-trackers and Lyxor, but the Swiss asset manager is the largest Sustainable Investment ETF provider with 57 products, capturing 34% market share according to data provided by Morningstar (as of the end of April 2019).

    Particularly in the Nordics, ETFs are considered as an option for institutional portfolios if they have an ESG tilt, notes Florian Cisana (pictured), Executive Director, and Head UBS Passive & ETF Specialist Sales Strategic Markets EMEA.

    In developing its ETF strategies, UBS works in close collaboration with index providers such as MSCI. Guido Giese, Executive Director Equity Applied Research at MSCI, presented a new study which shows how passive ESG investing can procure superior risk-adjusted returns, by analysing correlation and causality. The full version of the paper is due for publication in the Journal of Portfolio Management, and meanwhile, we had the privilege of publishing a summary of the findings in our latest Handbook on Sustainable Index Funds & ETFs.

    Thanks to a comprehensive approach to sustainable investing which spreads throughout the organisation, UBS can help fill the investment gap in key SDG sectors in developing countries, not the least through its wealth management arm. The UNCTAD World Investment Report (2014) measures an SDG investment gap of US$2.5 trillion per year, while the Credit Suisse Global Wealth Report (2013) finds that the top 1% of private wealth represent US$130 trillion. While the first figure is recurring and the second static, the opportunity to drive investments from wealthy investors to fulfilling the SDGs is obvious. UBS aims at constructing portfolios that achieve financial, personal and global values, and has mobilised US$5 billion in impact investing in five years already. Even if impact investments are not necessarily accessible to every investor, UBS proposes tools to moving sustainability into the mainstream. Increasing awareness, simplifying definitions and measurements, and counting every investment contribution are crucial aspects of this endeavour. As such, ETFs can definitely take a significant role in this transition.

    Picture © NordSIP

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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