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UBS presents a Climate Aware framework supporting investors to reach their climate goals

UBS unveiled its Climate Aware framework to help harness private capital to close the 'climate finance gap,' one of the most urgent environmental challenges being discussed at the World Economic Forum Annual Meeting 2020.

The framework is outlined in a white paper called “Becoming climate aware: Mobilising capital to help meet climate change goals" released today.

There is strong investor appetite to direct private capital towards a lower-carbon future, but there remains a significant shortfall to meet the goals of the Paris Climate Agreement. In addition, with only ten years left to achieve the UN Sustainable Development Goals, it is imperative that all sectors of society mobilise to achieve a better and more sustainable future.

Barriers to sustainable investing include short-term investment horizons that only capture the short-term climate risks and a lack of standardized sustainability data. Re-aligning capital towards climate-friendly activities will depend heavily on data and UBS is calling for more companies to adopt the TCFD guidelines.

While uptake is increasing, investors need actionable tools and techniques that will enable them to act now in allocating their capital to help drive the low-carbon transition. The UBS Climate Aware framework allows investors to position their portfolios for a climate-smart future with currently available data.

It contains three key elements: Portfolio mitigation: Lowering investment exposure to carbon risks; Portfolio adaptation: Increasing investment exposure to climate-related innovation and solutions; and Portfolio transition: Aligning portfolios to the chosen climate glidepath.

The Climate Aware framework is based on a UBS investment strategy developed in conjunction with a large UK pension fund and launched in 2017. Opened to wider investments in 2018, this solution has already attracted USD2.5 billion in investments.

Additionally, private wealth clients can now use our Advice SI program to construct personalized portfolios focused on climate change and other specific sustainable investing (SI) issues. The program is now launching on a permanent basis following a successful pilot last year.

Failure to act could give rise to a USD2.3 trillion depreciation in equity market asset values, according to recent estimates from MSCI and the UNPRI. By contrast, the economic opportunities generated by the transition to a low-carbon economy could be as much as USD26 trillion.

Axel Weber, Chairman, UBS, said “As we approach the fifth anniversary of the Paris Climate Agreement, UBS is calling for collaboration across the public sector, business and academia to enhance and deepen the understanding of the financial risks of climate change. We need to work together to agree on common standards, and to develop solutions and approaches that help investors make climate-smart investments and close the climate finance gap. The time to act on climate is now.”

Sergio Ermotti, Group CEO, UBS, said “There is strong investor appetite to direct private capital toward a lower-carbon future. As the largest global wealth manager, UBS is in the perfect position to help its clients make a bigger contribution to climate action. Climate and the environment have long been a priority for UBS, and we will continue our commitment to climate action by addressing the most urgent environmental challenges through investment, philanthropic and consumption solutions.”

UBS has identified a range of solutions outlined in its newly published white paper -

The First: Establish ESG and climate risk metrics to further enhance levels of oversight and reporting. In order to broaden the suite of climate solutions available to our institutional clients, the firm will further expand its climate aware approach across asset classes within active and passive strategies.

The Second: Customised objectives around climate change and other sustainable investing (SI) issues will be offered to private clients as part of our personalised Advice SI initiative, which we are transforming from a pilot into a permanent program. UBS plans to map climate data to approximately 10,000 issuers. In addition, UBS plans partnerships with multilateral development banks to drive scalable climate change strategies, and offer the use of green bonds in private wealth portfolios as an investment-grade credit substitute.

The Third: Fully support the TCFD's recommendations and apply them in UBS disclosure. The firm will strengthen its support through the Asset Management division’s involvement in Climate Action 100+ and its collaborative engagement activities with portfolio companies.

The Fourth: Continue industry-wide collaboration to develop methodologies that allow an assessment of climate risk and the alignment of lending portfolios with the Paris Climate Agreement.

The Fifth: Focus our philanthropic efforts on climate-related initiatives, such as the work by UBS Optimus Foundation and the Climate Leadership Initiative (CLI) on principles for effective climate philanthropy.

And finally, the Sixth: Raise awareness through the #TOGETHERBAND initiative, a collaboration between Bottletop, the UN, and others to publicize each Sustainable Development Goal through digital marketing and a coloured wristband for each goal.

Suni Harford, President, UBS Asset Management, said “Investors have the power to change the world and mitigate climate change through their investments. We are optimistic that a growing number of investors are aligning their values and missions with their financial objectives and we continue to work closely with our clients to help them address this through ongoing innovation.”

Michael Baldinger, Head of Sustainable and Impact Investing, UBS Asset Management, said “Many asset owners now recognise climate change as one of the largest systemic risks in their investment portfolios. To help them become climate aware we have developed ways to systematically identify, measure and report on climate change risks in portfolios and expand our climate aware approach across asset classes.”

Mark Haefele, Chief Investment Officer, UBS Global Wealth Management, said “Our private wealth clients are eager to build focused portfolios around climate change and other specific sustainable investing issues that they care about. Our new Advice SI service is designed to help them invest in climate-related opportunities as well as mitigate associated risks.”

Please CLICK HERE to view the full white paper.