UBS Group, which manages $2.6 trillion in assets for some of the world’s wealthiest people, will now advise private clients to opt for sustainable investments over more traditional options when appropriate, the first major financial institution to do so.
While traditional investments will remain most suitable in some circumstances, UBS (UBS) believes a 100% sustainable portfolio can deliver similar or potentially higher returns compared to traditional investment portfolios and offer strong diversification for clients investing globally, the company said Thursday. Year to date, major sustainable indices have performed better than traditional equivalents, in some cases because of falling oil prices (CL00) as the global economy softens under the impact of COVID-19.
In fact, the timing of the UBS announcement is linked to wider adoption of the “build back better” mindset favoring sustainable practices as the global economy recovers from the pandemic.
“COVID-19 has put the exclamation point on one of the most important shifts in financial services in a generation,” said Tom Naratil, co-president of UBS Global Wealth Management and president of UBS Americas. “The pandemic has brought the vulnerability and interconnected nature of our societies and industries to the forefront of investors’ minds and shown that sustainability considerations cannot be ignored.”
Still, clients will remain in the driver’s seat, UBS said.
“Clients will have an ample set of choices and, in conversation with their advisor, will be able choose the approach that best fits their need. They may opt to include sustainable solutions alongside traditional ones in their existing portfolios, or switch to a completely sustainable asset allocation, or stick to traditional investments if that is their decision,” said Andrew Lee, head of sustainable and impact investing at UBS Global Wealth Management.
UBS clients currently have nearly $500 billion invested in its “core” sustainable assets, such as green bonds and low-carbon index funds, according to company data.
The U.S. Commodities Futures Trading Commission, banks, investment managers and investors themselves this week released a groundbreaking call for unified regulation in the U.S. around sustainability investing and called for a carbon tax; the U.S. has largely lagged Europe in getting financial agencies on side when it comes to climate-minded investing.
“As consumer preferences and policy goals shift towards sustainability, new revenue opportunities are created for more sustainability-focused companies,” said Lee. “Robust sustainable investments incorporate these sustainability considerations into the analysis alongside traditional metrics such as valuations or earnings growth, thus granting investors a broader, more holistic view of factors that can impact performance of investment portfolios. Therefore, rather than seeing them as tradeoffs, from a pure financial return perspective, we view these two goals as being in lockstep.”
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