An independent industry ESG ranking downgrades UBS’s business and puts most other significant domestic institutions at or behind industry peers.
As a country, Switzerland’s commitment to sustainability, particularly when it comes to the environmental aspects, is sacrosanct. To take a recent example, a very significant majority of voters decided in June to yank the country towards full net zero compliance after approving a referendum that is expected to make noticeable inroads in fossil fuel consumption.
But when it comes to the key Swiss investment managers, the situation doesn’t seem quite as clear-cut. Many institutions have significant gaps in their approach, with the largest asset manager in the land itself being taken down a rank due to the uncertainty prompted by the integration of Credit Suisse.
That, at least, are some of the findings from a new Morningstar research report issued to the media on Monday that took an in-depth look at 108 asset managers, half of which it had extensively reviewed this year alone.
None at Top
In it, no Swiss companies made the top or «leader» ESG commitment level while only one, Unigestion, was rated «advanced». Looking farther down towards the anodyne category of «basic», we find the duly downgraded UBS Asset Management together with Pictet Asset Management. No other Swiss-based institutions made the list as being able to cough up even the last ranked commitment level of «low».
However, when it came to UBS, Morningstar felt compelled to issue what sounded like a mea culpa. It indicated it had upgraded the investment business in 2021 following «deepening» ESG integration, headier product offerings, and more resources. However, having to integrate Switzerland’s second-largest bank has clearly thrown a spanner in the works.
«This does not mean that UBS isn’t making progress in these areas, just that it has slipped relative to other firms with Advanced ESG Commitment Levels» they now indicate.
Swiss Market Leader
In comparison, Geneva-based fund manager Unigestion looks like an example of the level and commitment the average Swiss asset manager should have, with Morningstar mentioning that it has rolled out a proprietary ESG rating for its funds related to stock selection and portfolio construction.
«All equity funds must maintain a better ESG profile than their benchmarks and reduce their carbon intensity by at least 20%. In practice, the funds go way beyond that objective, with reduction targets ranging from 40% to 60%. Unigestion puts a particular emphasis on environmental issues and climate change, areas where the firm can best leverage its historical quantitative expertise and where it sees the biggest long-term risks and opportunities,» the agency says.
Moreover, it launched its first climate transition fund early last year, with climate change being a central focus of its active proxy voting program, where it has detailed guidelines for environmental issues and an engagement program with the companies it invests in. The only area for improvement Morningstar indicated was the need for further resources on top of the 7 investment specialists and stewards that the manager currently counts among its ranks.
Lower Down
The agency was decidedly less kind with Pictet Asset Management, indicating that although it had significant numbers of thematic investment strategies with sustainability credentials, the way it went about things had led to «some blind spots».
«The firm follows a decentralized approach to ESG integration, whereby it expects its investment teams to fully own ESG research, whereas central ESG resources are deliberately kept small, and their main focus is on active ownership activities,» it indicates.
Morningstar did say that Pictet intends to hire further specialists to support engagement, but that it will still take time until all the investment teams are fully conversant in ESG.
Pictet reached out to finews.com after the article was published and it begged to differ. It indicated that Morninstar's ESG rating compared Pictet Asset Management data from 2020 against peers, half of whom, as the agency itself indicated, had been reviewed just this year for the current report, as mentioned above.
Getting Complicated
«We therefore believe this is not a fair comparison. Particularly, given the Morningstar evaluation of Pictet Asset Management pre-dates the introduction of the EU SFDR regime in May 2021,» a Pictet spokesperson maintained by email.
As it is, that seems to be a rather uncharacteristic situation for Morningstar to be in, even though they themselves were at pains to maintain the current report was a qualitative one.
The spokesperson then went on to say that Pictet Asset Management had invested significantly in its ESG capabilities «both in terms of resources centrally and within investment teams and today is considered a leader in ESG».
Leading Down Under
Despite the ostensible trip-up with Pictet, the report appears to be a comprehensive one, with Morningstar looking closely at the three pillars of philosophy and process, resources (people and data), and active ownership (proxy voting, engagement, and general stewardship).
But one of the biggest findings from the report may also be among its most surprising. Australia seems to have usurped Switzerland’s role at the head of the class, at least in this specific regard.
The country has one manager in the top category (Australian Ethical), followed by another 26 that made the rankings – three of them passing muster as advanced.
