Invest smarterContributing to a better future.

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Sustainable investing—soaring in the right direction

Investors own much more than a company’s financial statements. They invest in the company as a whole.

Choices matter

Growth of Sustainable & Responsible Investment(Invested assets, USD billions)

Source: US SIF, The Forum for Sustainable and Responsible Investment. From the 2016 Report on Sustainable and Responsible Trends in the United States.

What is sustainable investing? Traditional investing relies solely on financial information. Sustainable investing broadens the scope to include non-financial factors. And this approach has taken off.

More data offers a more comprehensive picture of a potential investment. Knowing how a company interacts with its employees, its customers and the environment can give portfolio managers greater insight into that company’s future profitability.

Sustainable investors are looking for the same thing every investor wants: truly competitive companies that can generate attractive financial results.

Sustainable investors are also looking for more. They want investments that will contribute to the growth of their portfolios while ensuring this growth is sustainable. Or, in the words of the United Nations, they want “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

0

2,000

4,000

6,000

$8,000

20162014201220102007200520032001199919971995

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Sustainable investing incorporates environmental, social and governance (ESG) research to identify sustainable companies that are expected to outperform over the long term.

Exclusion Integration

Look closer—Sustainability isn’t just about saying no

Yesterday’s responsible investors took an exclusionary approach, staying away from “sin stocks” like alcohol, tobacco, weapons and gambling companies. Today, sustainable investors are more constructive, adopting an integrated approach by examining a company’s tangible assets (i.e. buildings, machinery) and intangible assets (i.e. brand, research & development).

By integrating environmental, social, governance (ESG) analysis with traditional financial analysis, sustainable investing can reveal key insights that a traditional approach may overlook. Understanding the ESG risks a company is exposed to, and how they manage them, helps to determine a company’s true economic or intrinsic value.

Financial and nonfinancial factors (i.e. executive compensation; energy footprint)

Gambling, alcohol, tobacco, weapons

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The line between sustainable investing and successful investing is being erased. Investors do not have to choose between making a positive impact and meeting their financial goals.

In fact, this approach may provide superior performance. That’s because companies that focus on sustainability tend to:

• have a stronger competitive position• create more shareholder value• demonstrate superior business models

Shared valueAn innovative way to look at companiesProfessor Michael E. Porter pioneered the idea of shared value, calling it: “A new way to achieve economic success.”* To build shared value, companies must grow and succeed while also addressing society’s needs and challenges.

Effective companies seek to create shared value by focusing on the well-being of their employees. Their goal is to minimize risk and maximize returns while making a positive impact on society.

Contributors

Detractors

Environmental sustainability

Water mismanagement

Worker safety

Labor unrest

Energy use

Food safety concerns

Investing with values can create value

Don’t compromise

“Businesses must reconnect company success with social progress. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking. ”

— Michael E. Porter

Shared value: what helps, what hurts

* Michael E. Porter and Mark R. Kramer, “The Big Idea: Creating Shared Value,” Harvard Business Review, Volume 89, January 2011, pp. 1-2.

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Be responsibleSustainable investing impacts everyone

In 1975, 83% of the market value of companies in the S&P 500 Index was made up of tangible assets, and 17% came from intangible assets. Forty years later, that’s completely flipped to 84% intangible/16% tangible.

The world is changing, and the attitudes of consumers, employees, investors and society at large are changing as well. These stakeholders are demanding more of companies. Further, the internet has made it harder for companies to hide their impacts on society and the environment, only increasing stakeholder expectations for responsible behavior.

Sustainable investing analyzes a company’s intangible assets, including:• Brand value (price premium, brand awareness)• Reputation (social media profile, opinion research)• Research & development pipelines (# patents)• Customer satisfaction (retention, loyalty programs, boycotts)• Health and safety record (incidents, accidents, near misses)• Environmental performance (pollution, penalties, fines)• Social license to operate (production delays, cost overruns, labor protests)• Governance (board composition, bribery, ethics charges)

They know that when companies abuse the environment, market unsafe products or underpay their workers, it affects us all. By investing sustainably, we can encourage companies that behave responsibly, and avoid those who misbehave. (And can make a profit, too.)

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25

50

75

100%

20152005199519851975

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83

32

68

68

32

80

20

84

16

Intangible factors matter more than ever beforeIntangible asset value growth of the S&P 500

Source: Ocean Tomo, “Ocean Tomo’s Intangible Asset Market Value Study,” January 2015.

* For illustrative purposes only. Not a recommendation to buy or sell any particular security.

Case study*: Leading soft drinks manufacturer pays the price

Did you know that it takes three liters of water to produce one liter of soda? In Kerala, India, neighbors of a bottling plant owned by one of the world’s largest soft drink manufacturers found that out the hard way.

In 2004, this manufacturer had to close the plant after local farmers accused the company of using too much groundwater and polluting the surrounding area. The soda giant said the reduced water supply was caused by drought, but the courts found the company responsible. And the people were allowed to sue.

Indian law held the company liable for $48 million in damages, and Americans began to protest about the manufacturer’s corporate behavior. More than 10 colleges boycotted the company’s products.

The issue is still not resolved, as access to water continues to be a problem for this beverage company. In fact, another one of their plants in India was ordered to close in 2014. The reason? It was draining local groundwater.

Intangible assets Tangible assets

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Environment Energy efficiency Health Social improvement

1 The sustainability score examples represent only a sampling of all possible factors.

Leading the wayWe know how to invest sustainably and successfully

Environmental

Measures company-level impact on the environment relative to competitors in the same industry• Carbon emissions• Water use & recycling• Energy efficiency initiatives• Renewable energy use plan• Hazardous waste reduction

Portfolio construction

Measures the company’s commitment to social issues in its dealings with employees, suppliers and local communities• Employee turnover• Employee safety• Supply-chain monitoring• Customer data security • Community reputation policy

UBS Sustainability DatabaseSustainability rankings from non-financial data

GovernanceSocial

Measures the company’s corporate governance structures and policies• Sustainability reporting• Political donations & risk• Anti-bribery ethics policy• % of women on board• % of independent directors

UBS Global Equity Research PlatformValuation rankings from financial data

Sustainability score

Our positive screening approach combines fundamental valuation with sustainability analysis

Step 1: Build sustainability scores from the ground up for every stock in the MSCI ACWI universe1

Step 2: Combine non-financial results from our proprietary sustainable database with financial data from our research platform

Step 3: Portfolios are constructed with a mix of investments that align with leading sustainability themes

Intangible assets (e.g. brand, reputation, culture) and ESG factors (e.g. employee turnover, good governance) are not always captured in company financial statements. Our proprietary analysis of sustainability data, which includes these intangible assets and non-financial data, addresses this shortcoming. By evaluating sustainability data alongside traditional financial metrics, we seek to derive the most complete assessment of a company’s intrinsic value.

We seek companies that view ESG factors as opportunities to generate excess return and outperform competitors, rather than viewing sustainability as a “nice” but unnecessary option. We invest in companies with a high sustainability profile as it gives us confidence in the sustainability of the business model.

As a measure of our commitment, we’ve built a proprietary sustainability ratings database of material non-financial data. Our dedicated Global Sustainable Equity research team has been using this database, coupled with our equity research platform, to construct sustainable portfolios for over 10 years.

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Contact usFor more information about sustainable investing, please contact us at 888-793 8637.

Your sustainable investment challenge answered. Sustainability issues affect the prices of stocks and bonds, and investors who overlook non-financial contributions are missing the complete picture.

At UBS Asset Management, we’re committed to successful investing. That means we’re committed to sustainable investing.

©UBS 2017. All rights reserved.17-0191 C-0317 S1515 3/17www.ubs.com/am-us

UBS Asset Management (Americas) Inc. is an indirect subsidiary of UBS Group AG.

The views expressed are as of February 2017 and are a general guide to the views of UBS Asset Management. This document does not replace portfolio and fund-specific mate-rials. Commentary is at a macro or strategy level and is not with reference to any registered or other mutual fund.

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The information contained in this document does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. All such information and opinions are subject to change without notice.

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Contact usFor more information about sustainable investing, please contact us at 888-793 8637.