Assets under management within UBS‘s Socially Responsible Investing (SRI) exchange-traded fund suite have surpassed the $1 billion mark. The suite, comprising both equity and fixed income exposures, is the most comprehensive SRI ETF product range in Europe.
UBS’s SRI ETF suite surpasses $1bn in assets
Commenting, Andrew Walsh, Head of UBS ETF Sales UK & Ireland, said: “Reaching this milestone shows that investors are recognizing the importance of sustainability and are keen to use the opportunities offered by UBS SRI ETFs in their investment portfolio.”
SRI, also known as Environmental, Social and Governance (ESG) investing, is an investment approach that aims to generate investment returns and positive impact by considering social and environmental factors in addition to pure financial considerations.
SRI investments has been one of the fastest growing segments in the financial sector in recent years. According to data from BlackRock, global assets under management in ethical ETFs rose nearly 45% to $3.4bn in the 18-month period ended August 2016. This trend was particularly pronounced in Europe where BlackRock’s data showed that of the $1bn worth of flows into global ethical ETFs during 2015, Europe contributed $578m.
SRI overlays are also appearing across a wider range of institutional investors’ decision making processes – consultancy firm Mercer’s 2015 European Asset Allocation survey found that only 36% of institutional investors did not consider SRI risk factors when making investment decisions — the figure had dropped 12 percentage points from 48% the year before.
Greater integration of SRI principles has also been boosted within corporations’ business operations in the wake of the Paris Agreement, which saw broad global alignment on capping worldwide carbon emissions. The agreement highlights growing pressure placed on firms to improve their environmental footprints and strive for sustainable business practices.
Earlier this year, UBS published a research paper which found that investors can expect higher risk-adjusted returns from SRI-screened versus conventional portfolios by reducing portfolio exposure to specific stocks with operational risks associated with poor SRI scores.
The equity ETFs are referenced to MSCI indices based on global, UK, Eurozone, Japan, US, Asia Pacific, and emerging markets exposures. Several of the ETFs are offered with currency-hedged versions. The total expense ratios (TERs) of the funds range from 0.28% (Eurozone) to 0.53% (emerging markets). The sole fixed income ETF, providing exposure to US corporate debt, is linked to a Barclays index. It has a TER of 0.20%.
The methodology underpinning the indices includes a screen to exclude firms linked to alcohol, gambling, tobacco, weapons, pornography and genetically modified organisms. Once these initial exclusions are made, the remaining companies undergo an ESG assessment, which involves analysing each company’s ability to respond to ESG-related risks and opportunities through a granular break-down of its business segments.
The final weightings of the constituents within each index are derived through an optimization process that aims to maximise exposure to firms with poor scores while also providing adequate total market representation and sector diversification.
UBS continues to expand its SRI ETF offering, as part of its broader focus on providing sustainable investing solutions for clients.