The UBS Nineteen77 Environmental Focus Fund is earth-friendly in name only - and even that is a bit of a stretch. The fact that it is a relatively new sub-fund, created on July 1, 2021, means that relatively little information about the fund is available online. I could not find any ESG ratings for this fund, nor a Key Investor Information Document. As I am unable to identify the major assets which make up this fund, I must judge its contents based on the stringency of its criteria. Ultimately, the fund’s very loose inclusion requirements, greenhouse gas-friendly language, and the lack of transparency about its holdings gives me no reason to believe this fund is constructed to be sustainable in any way. I thus deem it deserving of 0 planets overall.
This fund primarily includes securities in the Energy Transition Economy, which UBS defines very broadly as “companies and industries that will be affected by or contribute to the global transition to a more sustainable lower carbon economy”. The fact that entities simply “affected by” the energy transition can be included in this fund immediately indicates to me that it is likely to include fossil fuel companies and other environmentally unfriendly industries. Indeed, the fund can include holdings in automobiles and transportation, machinery, metals and mining, oil and gas, pipelines and infrastructure, power and utilities, renewables, and the semiconductor industry. The name of the fund suggests that it’s meant to protect the environment in some way, but taking a look at its inclusion criteria illuminates the fact that it embraces industries which do exactly the opposite.
The Investment Manager’s stated goal with this fund is to assess the extent to which a company can adapt to the transition to a lower carbon economy. Depending on how adaptation is defined, the fund could theoretically be dominated by shares of airlines and oil and gas companies, or it could be invested entirely in renewable energy. But with no apparent exclusions and such vague assessment metrics, nothing about this fund indicates that its holdings are environmentally friendly, and I am forced to assume that the holdings are balanced more in favor of profit than creating a more livable world.
The criteria behind this fund are clearly outlined, but far from robust. The website states that the fund “will strive to have 50% of its portfolio demonstrate a carbon footprint that is lower than that of the S&P 500, or 70% of its portfolio demonstrate a carbon footprint that is lower than the S&P 500 excluding financials, healthcare, and technology companies”. While these thresholds are not totally insignificant on their own, inclusion in the S&P 500 does not consider emissions accounting or environmental impact. Thus, having a lower carbon footprint than half of the 500 largest companies listed on the US stock exchange is not an ambitious goal. What is more, the verb “strive” is in no way binding or concrete, and does not inspire confidence about whether this fund will achieve its stated objective.
Carbon footprints for this fund are calculated mostly using data from Trucost and MSCI (where Trucost data is unavailable). They are measured at the aggregate portfolio level, and include scope 1 and 2 emissions weighted by enterprise value and position size. Excluding scope 3 emissions from such calculations misrepresents the true nature of a company’s environmental impact, as scope 3 often make up the majority of a company’s total greenhouse gas emissions. Choosing between vendors or suppliers of raw materials is often a company’s key point of leverage over the carbon footprint of its value chain. Omitting scope 3 from emissions calculations means the resulting figures will grossly under-estimate the true impact of the portfolio.
While these criteria are better than nothing, they are not particularly ambitious, nor do they appear strictly adhered to.
As a whole, UBS has a poor track record on climate. In the four years after the signing of the Paris Climate Accords in 2015, UBS contributed over $36 billion in financing to fossil fuels. This financing of fossil fuel projects led to protests around its Zurich branches in 2021. While UBS still contributes massively to companies and industries that are preventing us from making progress on climate change, it hasn’t done quite as poorly as other big banks. Banking on Climate Chaos reported that UBS’ investments in fossil fuels dropped relatively dramatically (the second largest drop among the world’s 60 largest banks) from 2016 to 2020, even given the overall fall in fossil fuel investing due to the pandemic.
In terms of diversity and equity, UBS has a long way to go. Its Group Executive Board is overwhelmingly white and male. What is more, the 2020 Gender Pay Gap report for UBS UK details dramatic gaps in representation and pay based on gender. In 2020, women were paid an average of 25% less than men on an hourly basis, with this gap increasing to 33% if variable pay (i.e. discretionary bonuses) were included. Additionally, while there are more men than women in every fixed pay quartile, men make up 78% of those in the highest paying quartile of employees. UBS’ race and ethnicity initiatives speak in terms of aspiration and exploration instead of providing data about the diversity of its workforce and enumerating the steps it plans to follow to improve this diversity. Its approach to workplace inclusion appears similarly indistinct. UBS Group AG CEO Ralph Hamers has recently announced plans to reduce the use of titles of rank as a method of countering the infamously hierarchical nature of the finance industry. Yet, this is not associated with any shift in roles and responsibilities, nor with attempts to equalize salaries. UBS’ current policies do not reflect the high value it claims to place on diversity and inclusion within its workplaces.
What is more, UBS leadership appears to have little training or experience in environmental science or management. For example, Asset Management President Suni Harford is also the Board’s lead for Sustainability and Impact. After completing a bachelor’s degree in physics and mathematics, all of Harford’s professional experience appears to be in finance, with a 24 year stint at Citibank. Additionally, Colm Kelleher, former President of major natural gas financier, Morgan Stanley, was recently nominated to become UBS Chairman. The paucity of company leaders with robust experience or credentials in sustainability likely reflects that meaningful action on climate change is low on UBS’ priority list.