October 12, 2020 BARRON’S M7
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The value of investments may fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator offuture results. For indicative purposes only.
ESG/Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and
portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s
ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.The returns on a portfolio consisting primarily of ESG or
sustainable investments may be lower or higher than a portfolio where such factors are not considered by the portfolio manager. Because sustainability criteria can exclude some investments, investors may not be able to take
advantage of the same opportunities or market trends as investors that do not use such criteria. Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is
also no guarantee that any company will meet expectations in connection with corporate responsibility, sustainability, and/or impact performance.
This material is for informational and educational purposes only and should not be relied upon as investment advice or the basis for making any investment decisions.
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Inequities,forexample,investorscanuse
data-driven approaches to identify best-in-
class environmental, social and governance
(ESG) leaders across sectors and geographies,
ortheycanchoosecompaniesthatactively
address ESG-related improvements within their
business models and operations. Green bonds
have emerged as a frontier strategy in fixed income,
where investors fund environmental projects within
mainstream companies. Debt from multilateral
financial institutions like the World Bank provides
government bond-like risk/return while financing
impactful projects in emerging markets. Investing in
SI-aligned structured products takes advantage of
short-term market opportunities, while investing in
privatecompanieswithimpactfocus(forexample,
via private equity funds) aims at creating long-term
impact and financial returns.
Sustainability matters
Prudent investors consider all the factors that
couldaffectthefutureprospectsoftheiroverall
portfolio as well as each of the underlying
investments. For too long, ESG issues were
considered non-financial in nature. Many
investorsnowacknowledgethatthesefactors
canbematerialandhighlyrelevanttoinvestment
analysis.
“Forward-looking investors recognize that
riskslikeclimatechangecanimpactportfolios,
whileissueslikeemployeehealthandsafetyor
workforcemanagementcanaffectcorporate
financialperformance,”saysAndrewLee,Global
Head of Sustainable and Impact Investing, UBS
Global Wealth Management.
The broader trends
Part of the momentum is propelled by broader trends.
Consumers increasingly demand sustainable products
and services. New regulations create potential
opportunities for companies in certain sectors,
such as the European Green Deal. Finally, corporate
performance on issues such as pollution or employee
treatment can impact profitability and financial
performance; incorporating assessment of these ESG
factors is key to thorough risk/return analysis.
Sustainable investing has expanded beyond
equities to fixed income, including green bonds
and bonds from multilateral development banks,
and alternatives such as private equity, private
credit and real estate. Investors also can choose
thematic investing, which focuses on topics like
health care access or waste management.
Awareness is growing
Meanwhile, the Covid-19 pandemic has accelerated
awareness of ESG factors’ relevance for investors.
From potential root causes to economic and
financial implications of the health crisis, the
linkages are increasingly clear.
“Our clients continue to increase their sustainable
investment exposures, in many cases doing so across
their entire portfolios” in reaction to Covid-19,
Mr. Lee says. “This is a continuation of the strong
momentum we have seen in recent years.”
Go all-in today: http://www.wsj.com/ubs
Two things are key to investing
successfully for the long term: relevant
information and diversification.
Sustainable investing makes the most
of both. In fact, investors can construct
fully diversified portfolios entirely from
sustainable investing exposures.