For marketing purposes For professional / qualified / institutional clients and investors

Sustainable investment policy Our approach to sustainability in investments 2 Contents 4

Introduction

6

Chapter 1 Sustainable Investing – our vision and mission

8

Chapter 2 What drives sustainable investing

10

Chapter 3 From exclusion to impact: how we approach sustainable investing

20

Chapter 4 Our climate commitment

23

Chapter 5 Governance and commitments

25

Chapter 6 Appendix

3 INTRODUCTION

Our mission is to enable our clients to achieve their financial objectives and solve their investment challenges by integrating sustainability across our offering and investment solutions.

UBS Asset Management (UBS-AM) is a large scale asset It is our belief that ESG issues and opportunities can affect manager, providing traditional, alternative, real estate, investment performance, and by considering these factors infrastructure and private equity investment solutions to we can deliver better informed investment decisions. Hence, institutional investors, financial intermediaries and private we regard sustainable investing (SI) as an integral element in clients worldwide. fulfilling our fiduciary duties toward our clients.

This document explains UBS-AM’s approach to sustainable At UBS-AM we define sustainability as the ability to leverage investing, highlighting its implementation across the breadth the ESG (Environmental, Social and Governance) factors of of our business, from traditional asset classes to alternatives business practices seeking to generate opportunities and and incorporating both our active and passive investment mitigate risks that contribute to the long-term performance areas. We review this document annually, and may update on of companies. We regard sustainable investing as a set an interim basis if required. of investment strategies that incorporate material ESG considerations into investment decisions.

Barry Gill Michael Baldinger Head of Investments Head of Sustainable & Impact Investing UBS Asset Management UBS Asset Management

4 UBS-AM sustainable and impact investing differentiators

UBS Group – UBS is a member of the CDP A List 20201 commitment – UBS has been the diversified financials industry leader in the Dow Jones to sustainable Sustainability Index since 20152 investment – UBS ranks number one globally for Sustainable and Impact Investing3 – UBS Group has USD 488 billion in core sustainable investments4 – USD 9.1 billion committed to SDG-related impact investments, including world's first Multi-lateral development bank bond fund5

– Founding member of Net Zero Asset Managers initiative, committed to net UBS-AM is zero emissions goal by 2050 or sooner6 a leading 7 provider of – A+ ranking for our approach to Climate Stewardship from InfluenceMap 8 sustainable – UBS-AM: USD 440.5bn ESG integrated and USD 97.1bn in SI focused AUM offerings – 100% of Active Equities and Active Fixed Income integrate sustainability – 40+ SI focused strategies across active and passive, fixed income and equities – Fastest growing European asset manager in SI focused AUM since January 20189 – Leading sustainability ETF provider with over USD 24bn in SI AUM10 – A/A+ ratings from UNPRI (UN backed Principles for Responsible Investment) across all assessment modules11

Innovation – 20+ year history in managing sustainable investment funds through – Developed award winning Climate approach with leading UK pension fund12 client-focused – Active engagement in coordination with Climate Action 100+ collaboration – Developed impact investing methodology with leading Dutch pension fund – Invests in companies that offer products and services which help deal with key sustainability challenges – Over USD 73bn of dedicated Index solutions through collaborations with clients13

1 www.cdp.net/en/companies/companies-scores; 8 Assets under management as of December 2020; 2 Source: S&P Global; 9 Growth in absolute AUM since Jan 2018, 3 2020 Awards from Environmental Finance, PWM The Banker, Euromoney; Source: Morgan Stanley, May 2020 and Morningstar; 4 Sustainable investments across UBS Group, UBS 2019 GRI Annual Report; 10 Market share in Europe for sustainable ETFs: 20.9%, 5 Source UBS 2019 GRI Annual Report; Source Etfbook as of 13 January 2021; 6 www.netzeroassetmanagers.org; 11 2020 UN PRI Assessment; 7 influencemap.org/report/Asset-Managers-and-Climate-Change-cf90d 12 2017 Fund Launch of the Year Award, Funds Europe; 26dc312ebe02e97d2ff6079ed87; 13 Asset under management as of December 2020.

5 CHAPTER 1 Sustainable Investing – our vision and mission

UBS Group AG: commitment from the top

UBS's goal is to be the financial provider The Corporate Culture and Progress made in implementing UBS of choice for clients wishing to mobilize Responsibility Committee (CCRC)14 in Society's strategy, commitment, capital towards the achievement supports the UBS Board of Directors and objectives is reported as part of of the United Nation's Sustainable in its duties to safeguard and advance UBS's annual reporting. This reporting Development Goals (SDGs) and the the Group’s reputation for responsible is reviewed and assured externally orderly transition to a low carbon and sustainable conduct. It approves according to the requirements of the economy (the Paris Agreement). We and monitors UBS in Society's overall Global Reporting Initiative's (GRI) work towards this goal by integrating strategy and annual objectives, reviews sustainability reporting guideline. sustainability into our mainstream that the UBS in Society constitutional We also regularly report on the offerings, through new and innovative document is relevant and up to date, implementation of our climate strategy financial products with a positive effect and oversees the program's annual and follow the recommendations on the environment and society, and by management review. provided by the Financial Stability advising clients on their philanthropy. Board’s Task Force on Climate-related And it is through the management The Group CEO15 supervises the Financial Disclosures (TCFD) and of environmental and social risks, the execution of the UBS in Society strategy externally verify our greenhouse gas management of our environmental and annual objectives. The Group reporting according to ISO 14064. footprint and our sustainability CEO also informs the Group Executive disclosure that we continue to set Board (GEB) and Corporate Culture and Further information relating to standards in the industry. Responsibility Committee (CCRC) about these activities can be found in the UBS in Society updates as appropriate. Constitutional Document of UBS in Our cross-divisional organization, UBS Society and the most recent UBS in Society, focuses our firm on this Our commitment is implemented Sustainability Report direction. UBS in Society is committed through a firm-wide management to making UBS a force for driving system steered by defined measurable positive change in society and the objectives. Their achievement is environment for future generations. reviewed on a semi-annual basis by It will do so by focusing our firm on the Head of UBS in Society, and on an creating long term positive impact annual basis by the Corporate Culture for clients, employees, investors and and Responsibility Committee. society.

14 Responsibilities and authority of the CCRC are defined in Annex C of the Organization Regulations of UBS Group AG 15 As set out in the Group Functions Business Regulations

6 UBS Asset Management

We believe that SI can result in better We are a large scale asset manager, This document explains UBS-AM’s overall risk-adjusted outcomes for providing traditional, alternative, real approach to SI in the context of UBS clients by primarily protecting against estate, infrastructure and private Group AG’s overall sustainability downside risks associated with equity investment solutions to private strategy. This document also makes Environmental, Social, and Governance clients, financial intermediaries and reference to specific policies, procedures (ESG) related issues. Sustainable institutional investors worldwide. and practices utilized by the investment investing is grounded in the broader use With a number of investment areas teams within UBS-AM. We formally of ESG information in the investment and a range of strategies within each review our approach to SI annually and analysis process and the belief that such area, the approach to ESG issues will update this document as necessary information can lead to better informed necessarily varies by product type in the interim. investment decisions. By identifying and, to some extent, across countries/ long-term investment opportunities, regions according to local regulations, anticipating and managing financially market customs and client needs. This material risks, engaging with the SI policy sets out our common vision relevant third parties, and creating on the integration of ESG material products and services that take into factors in investment decisions, and account ESG considerations, we believe index constructions in the case of index our investments will be more successful strategies, and stewardship activities16. in the longer term and will positively impact society and the environment.

16 Please note that, at this time, this document does not describe the approach that O'Connor UBS-AM's multi-strategy hedge fund investor, takes to sustainable investing.

7 CHAPTER 2 What drives sustainable investing

In recent years attitudes towards Changing perception of risk Regulation sustainable investing have undergone a transformational shift. Once a ‘nice Institutional investors, in particular Growing regulatory pressure is to have’, today it is a clear ‘must have’ pension funds, are pivoting toward increasingly driving institutional client as more and more clients prioritize sustainable investing, driven by growing demand, particularly in the EU. sustainable investing in their investment regulatory obligations and changing processes. We see four clear factors perceptions of their fiduciary duties. Up Changes to existing regulations, led driving this trend all of which are to 77% of institutional investors plan to by the EU Taxonomy and Sustainable structural, long-lasting, and set to be stop investing in non-ESG products by Finance Disclosure Regulation, look set significant drivers of flow in the 2022, according to a recent study to make reporting on ESG outcomes a 17 years ahead. by PWC. requirement for client disclosures, which, in turn, will fundamentally underpin the continued flow of assets into sustainable A shift in societal values Sustainable investing investing funds. Beyond Europe we are performance Public awareness of ESG-related seeing regulators in other markets, such risks and opportunities has placed Evidence strongly suggests that as Switzerland and Asia, intensify their sustainable investing at the top of investing in sustainable investing- focus on sustainability. the global agenda and led to the focused funds won’t compromise creation of major milestones, including returns, particularly in the active space: the Paris Agreement and the UN a 2020 study by Morningstar of more Sustainable Development Goals (SDGs). than 700 European sustainable funds The COVID-19 pandemic has further showed that over one, three, five and highlighted the materiality of ten years the majority of those funds ESG issues. outperformed non-ESG funds18.

COVID-19 has further highlighted the resilience of sustainable investing- focused funds in distressed markets. According to MSCI, during the first six months of 2020 – a period of high market volatility – all major MSCI ESG ACWI indexes outperformed the MSCI ACWI19.

17 www.pwc.lu/en/sustainable-finance/esg-report-the-growth-opportunity-of-the-century.html 18 www.morningstar.in/posts/58587/esg-stocks-outperform-wider-market.aspx 19 www.msci.com/www/blog-posts/is-esg-investing-a-price-bubble/02231869256

8 Defining the E, the S and the G

E S G

Environmental Factors Social Factors Governance Factors

Environmental issues can be both Assessing social factors requires an Governance encompasses corporate positive and negative from an investor’s evaluation of two key elements. The considerations such as levels of board perspective. The assessment of these first relates to a company’s strategy for diversity, executive pay, accounting factors considers a company’s ability developing its human capital, based policies, and ownership and control to control their direct and indirect on a series of fundamental, universally structures. Corporate behavior is also environmental impact. For example, accepted principles. The second element a constituent element of governance how, and to what extent, is it limiting is linked to the company’s approach to evaluations. For example, how energy consumption, reducing broader human rights. transparent is a company around greenhouse emissions, fighting resource taxation? What are its policies in depletion and protecting biodiversity? relation to anti-competitive practices? Is the company making a positive Does it uphold a clear set of business contribution, perhaps by developing ethics? new technologies, which can accelerate the transition to a lower-carbon future?

Putting this into an investment perspective, taking material ESG risks into account as part of the research process drives our approach to ESG integration, a topic we expand on in Chapter 3. The insights from our ESG research and stewardship activities are used to inform portfolio managers’ decision making processes. They are translated across asset classes, aligned with clients’ preferences and their ESG risk appetite.

9 CHAPTER 3 From exclusion to impact: How we approach sustainable investing

A clear and robust framework defines the way we implement sustainability across our investment strategies. It encompasses two, overarching approaches:

– Investment strategies which integrate ESG considerations – Investment strategies which build on the foundations of ESG within the investment process integration by adding additional layers of ESG criteria in order to invest for sustainable and impact oriented outcomes.

This framework comprises five pillars, each of which are discussed in greater detail on the following pages.

ESG Integration Strategies Sustainable and Impact Strategies

Standard Screening and Stewardship Sustainability Impact exclusions SI Assessment focused (thematic) (ESG profile) strategies strategies

Avoidance of – Integration of A fundamental Our sustainability Our Impact investments ESG factors in element of focused strategies strategies meet the which are deemed the investment sustainable investing can be characterized minimum criteria undesirable process alongside is the role of by: of the sustainability either by UBS or traditional stewardship. Acting – Extended criteria focused strategies our clients. UBS financial metrics as good stewards for exclusions and additionally standard exclusions: – ESG relevant risk includes activities (which go beyond include a – Controversial analysis helps us such as: the standard verifiable impact weapons look to the future, – Monitoring exclusions) measurement. The – Thermal coal to identify long- companies' ESG – Positive UN Sustainable term risks and performance sustainability Development Goals opportunities, – Engaging with characteristics (SDGs) create the and invest management on – Engagement is framework for accordingly identified risks prioritized with impact investing and opportunities ESG improvers – Voting – Compliance with consistently at the EU-Taxonomy shareholder – Risk based meetings screening to identify those higher risk issuers which are to be avoided in the investable universe

10 ESG Integration Strategies

Standard Exclusions

A fundamental element of sustainable investing is the role of UBS Asset Management Exclusion Policy fiduciary duty. In our view, acting as good stewards of our clients’ assets entails the avoidance of investments which are Additional exclusions for sustainability focused / impact funds deemed undesirable, either by us or our clients. As such we and where applicable, for ESG integrated funds, are outlined in have defined a standard set of minimum exclusions. the Investment Policy of the Sub-Fund in the Fund prospectus.

Further information: To read our Standard Exclusion Policy, please click here.

Screening and sustainable investment assessments

Scalable approach to ESG the company and therefore investment instance: carbon footprinting, health and integration across actively returns. ESG integration can also well-being, human rights, supply chain identify opportunities for engagement management, fair customer treatment managed assets to improve the company’s ESG risk and governance. profile and thereby mitigate the ESG integration: an overview potential negative impact of ESG ESG integration: diving deeper Investment teams at UBS-AM are issues on the company’s financial ESG integration is implemented by provided with ESG information and performance. portfolio managers and analysts are supported by the Sustainable and across all UBS-AM's active equity and Impact Investing Research team. The Portfolio Manager employs a fixed income strategies, leveraging a proprietary ESG Risk Dashboard that combination of proprietary methodology ESG integration is driven by taking into combines multiple ESG data sources in and tools. ESG integration enables account material ESG risks as part of the order to identify companies with material portfolio managers to incorporate ESG research process. For corporate issuers, ESG risks. An actionable risk signal considerations when they implement this process utilizes the ESG Material highlights ESG risks to the Portfolio investment decisions, and allows ESG Issues framework which identifies the Manager for incorporation in their risks to be systematically monitored financially relevant factors per sector investment decision-making process. and compared to risk appetite and that can impact investment decisions. For non-corporate issuers, the Portfolio constraints. It also assists in portfolio Manager may apply a qualitative or construction through stock selection, This orientation toward financial quantitative ESG risk assessment that investment conviction and portfolio materiality ensures that analysts focus integrates data on the most material weightings, as well as engagement on sustainability factors that can ESG factors. The analysis of material and voting decisions. Furthermore, it is impact the financial performance of sustainability / ESG considerations can important for meeting the requirements include many different aspects, for and expectations of our clients.

11 At UBS-AM, in-house fundamental Prioritization The conclusion of the analysts' ESG research is driven by a team of over 60 The UBS ESG Risk Dashboard, a reviews are encapsulated in an ESG Risk equity analysts and more than 25 credit proprietary ESG monitoring tool, Recommendation expressed in terms of analysts. They also provide a forward- serves as the starting point for ESG scale from 1 (negligible) to 5 (severe). looking ESG assessment based on a integration. The Dashboard allows holistic review of financially material equity and credit analysts to quickly For companies where an ESG risk has ESG issues with support from our team identify companies with significant ESG been identified, but where the analyst of dedicated SI Analysts. These ESG risks via the "UBS ESG Risk Signal". This does not believe that the risk signal flag risk assessments serve as the basis for clear, actionable signal serves as starting is current, appropriate or material, an integrating ESG into the investment point for more in-depth analysis of the additional analysis may be conducted process by including a view of the most underlying sources of these risks and by the SI Research Analysts which then significant ESG issues and their potential the links to their investment cases. The serves as the final reference point for impact on the investment case. These ESG Risk Signal combines data points the portfolio manager’s investment views support decision-making as from a number of reputable external decision making. portfolio managers weigh ESG risks research sources based on a proprietary against other financial considerations. methodology. It provides investment PM decision making ESG risks may be mitigated through teams with a structured, holistic view In this way, ESG integration creates a stewardship activities (engagement & of ESG risks across four different situation in which equity and credit proxy voting) and are monitored on an dimensions, allowing for industry analysts, SI analysts and portfolio ongoing basis. relative comparisons (expressed via managers discuss the implications the UBS ESG Consensus Score) as well for investment research, potential Equity and credit analysts are able as the identification of outliers. If one engagements and outcomes at the to bring their experience in the asset or more pillars fail thresholds set, the portfolio level. This combination class and sector expertise to the ESG issuer is flagged for severe ESG risks by ensures that portfolio managers are assessment. The ESG perspective is also the signal. fully aware of any material sustainability carried out in line with the investment risks that could have a negative case and allows for considering intended Analyst research impact on portfolio performance. risk, given that some ESG characteristics The ESG Risk Signal is incorporated This understanding allows portfolio may already be reflected in the valuation. into fundamental equity and credit managers to make informed decisions analysts' standardized ESG templates. where their investment convictions are Fundamental analysts are supported They conduct an ESG risk assessment expressed through instrument selection in this work by a dedicated team of as part of their investment case for and weightings and embedded in the SI research analysts. These analysts their companies under coverage. construction of the portfolio. Within provide in-depth ESG research and As part of this process, the analysts this framework, a portfolio manager stewardship expertise which amplifies critically assess the ESG Risk Signal and may choose to invest in a company the ESG knowledge and understanding underlying dimensions. They indicate with high ESG risks where this is across the different investment teams. whether they agree with the results, seen to be adequately compensated This includes providing company specific provide a rationale for their conclusions by the expected investment return. and thematic research on material ESG and assess the overall direction of Alternatively, the portfolio manager issues, as well as engagement insights. the company's ESG performance. may choose to reduce their exposure to

12 the risks. In all such cases, the portfolio portfolio manager tracks the reference Index, which we developed in manager may also choose to engage ESG benchmark using full replication collaboration with the index provider. the company to address and mitigate or stratified sampling depending on The index comprises the top 100 the ESG risks that have been identified the investment universe, with a focus stocks globally with the highest gender with the aim of improving the overall on minimizing transaction cost while equality score, as defined by Equileap: investment outcome. managing the tracking error within a companies are ranked on 35 points defined range. according to 19 gender criteria. The For SI focused strategies, with lower 19 criteria are grouped in 4 categories acceptable thresholds for ESG risks, the Indexed Equities (Gender balance in leadership & outcome of the integrated ESG research Within Index Equities, we have workforce, Equal compensation & work process influences the investable extensive experience in incorporating life balance, Policies promoting gender universe construction, based on clearly sustainability factors in index funds equality, Commitment to transparency defined portfolio characteristics. and rules-based strategies, alongside and accountability). three pillars: replicating third party ESG integration in Multi-Asset indices, constructing custom indices in We have carried out in-depth research collaboration with clients, consultants, and analysis on efficient implementation strategies and index providers, and constructing of ESG factors in rules-based strategies, proprietary rules-based strategies. The Portfolio Manager takes ESG with specific focus on climate change- integration into account when related factors. In early 2017, following We have been managing index allocating to underlying strategies, extensive quantitative and sustainability portfolios with ESG/SRI stock exclusion including target funds. For underlying research, we launched a Climate lists for over ten years. We apply strategies managed by UBS-AM, the Aware rules-based fund that utilizes customization not only on segregated Portfolio Manager identifies ESG our proprietary investment model mandates, but also construct new integrated assets resulting from the ESG incorporating a range of qualitative and indices capturing specific themes/ integration research process described quantitative climate-related metrics. The factors to be used as benchmarks above. For externally managed Climate Aware strategy aims to mitigate for our pooled funds and ETFs. As a strategies, ESG integrated assets are the risk of climate change by applying result of our in-depth research in the identified via the third party manager positive and negative 'tilts' related to sustainable indexing space, we have research process. climate change aspects, while aiming to been instrumental in the development deliver returns broadly in line with the of MSCI SRI indices and have strong underlying market cap weighted ESG integration in Index relationships and maintain dialogue global index. strategies with index providers and ESG database providers on ESG-related topics. Indexed Fixed Income ESG risk integration takes place if the In the index fixed income space, we index methodology considers ESG In 2017, we broadened our offering offer a broad range of strategies on criteria in the construction of the of sustainable ETFs with the launch an exclusionary, focused or impact index. UBS-AM considers sustainability of funds tracking MSCI ESG Universal basis. We have extensive experience characteristics and risks as part of the indices as well as Solactive Equileap in incorporating risk-premia and relevant index selection process. The Global Gender Equality 100 Leaders sustainability factors in index and

13 Responsible ownership and operation of real assets can have a significant positive impact on the environment and returns for our clients. rules-based strategies, alongside with the same investment objectives considers long-term resilience and ESG three pillars: replicating third party as standard index portfolios: we would factors, including climate change. indices, constructing custom indices in aim to construct an optimal portfolio REPM’s responsible investment strategy collaboration with clients, consultants, that focuses on minimizing transaction has been developed by the REPM and index providers, and constructing costs and manage tracking error within Sustainability Workgroup, which proprietary rules-based strategies. defined ranges. comprises professionals from several countries and disciplines including The fixed income ESG indexing Approach 3: (currently only offered in engineering and construction, approaches we offer can be the index global corporate space): operations, research, asset summarized as follows: A climate aware solution managed management, fund management as against a standard corporate bond well as business management. It sets Approach 1: index with index-like characteristics. strategies and objectives at a global We can use a standard benchmark but Rule-based approach which employs level and ensures our sustainability exclude securities in the portfolio. This tilts towards companies geared to objectives are integrated into all would be the preferred method for support a low carbon economy using REPM funds’ investment strategies a limited list of sectors or securities. a forward looking probability-based and property operations, with Exclusion lists up to a certain market assessment. appropriate variation by country due weight percentage of an index should to different certification and legislative be manageable within reasonable Be it an exclusion list, a customized requirements. tracking error and the PM team index or an ESG index, our systems are manages around these exclusions. flexible and allow us to successfully The responsible investment strategy implement all the different approaches. is implemented by all operational Approach 2: functions during the entire ownership When exclusions exceed a certain market Integration of ESG in Real Estate cycle of an underlying project, from weight percentage and/ or an important its development or acquisition to the sector of an index is excluded, then we & Private Markets (REPM) ongoing asset management, renovation, recommend selecting an adjusted index. Responsible ownership and operation maintenance and marketing, through These can be standard, off the shelf ESG of real assets can have a significant successful sale. Objectives are set in and/or non-ESG indices that incorporate positive impact on the environment order to make achievements transparent exclusions in the index constructions and returns for our clients. While the and measurable. Performance is or customized solutions which can be financial objectives of our clients remain measured against objectives and results fully tailored to the client's objectives. the primary focus of our investments, are reported to investors, clients We would manage these strategies our responsible investment strategy also and consultants.

14 For our individual assets, the ESG approach in Hedge Fund the investment and operational level, sustainability performance is Solutions (HFS) meriting dedicated attention in the due measured against recognized external diligence process. Beyond integration, benchmarks, such as the GRESB key The hedge fund industry has we believe the task of identifying and performance indicators and third- experienced considerable momentum measuring sustainability outcomes party certifications (LEED, ENERGY in sustainable investing in recent years. requires partnerships with the wider STAR, BREEAM, MINERGIE®, Fitwell). A 2019 survey conducted by Preqin UBS group, including the UBS-AM SI For infrastructure, we also use the showed that 65% of participating and Wealth Management teams, to GRESB Infrastructure key performance hedge fund investors think that ESG lend specialized knowledge and skills indicators and benchmark reports for will become more important in the next when assessing the ability of hedge our individual investee companies. five years20. This was reinforced by HFS’s fund investments to achieve dual Based on these results, we are able to own client survey, which indicated that financial and sustainability objectives. define specific measures to enhance 65% of survey respondents are actively the performance of each property or pursuing ESG investments, and over While there is considerable overlap infrastructure asset. 50% have an ESG policy21. between our existing due diligence process and one that incorporates Within the Multi-Manager (indirect) Hedge fund managers have begun to ESG-led analysis, we believe that an REPM businesses, ESG considerations respond to this demand in earnest, intentional and enhanced framework are integrated within the entire dedicating an unprecedented level of will lead to nuanced insights around investment process, including due resources to strategies that are centered risk and return as well as the business diligence of new investments and on sustainable investments. As the stability of our managers. We are also ongoing ownership of existing second largest hedge fund allocator in in the process of developing capabilities investments through various processes the world22, we remain dedicated to that deliver on clients’ sustainability and templates. Portfolio managers and/ selecting best-in-class managers with objectives in the context of their hedge or decision-making bodies (for example a demonstrated edge in their market fund portfolios. Investment Committees) may exclude and recognize the need to expand our investments based on ESG and other due diligence lens in order to reliably Our analysts across investments, risk factors. The responsible investment assess the role of ESG considerations risk, operational due diligence and strategy is embedded throughout in financial and business performance. investment structuring are responsible the ownership cycle of a REPM multi- The core of our sustainable investing for assessing the degree to which manager investment because we believe policy reflects the belief that the relevant ESG factors are present at the that a significant positive impact is also consideration of environmental, social strategy and business level. Over time, possible indirectly on the environment and governance issues reinforces our these outputs are expected to influence and in returns generated for our clients. fiduciary duty to clients. As such, our portfolio management decisions across ESG investing framework aims to assess our platform as well as inform dedicated ESG-related risks and opportunities at SI portfolios.

20 Preqin, February 2020. 21 UBS Hedge Fund Solutions, November 2020 22 HFM InvestHedge Billion Dollar Club, published October 2020

15 Stewardship

Stewardship in practice

Proxy voting Engagement engagement activities are overseen It is our belief that voting rights have We believe that engaging with investee by the Stewardship Committee. The economic value and should be treated companies and prospective investee Stewardship Committee is chaired by accordingly. As a result we consider companies can steer those companies the Head of Investments and comprises voting to be an important part of our toward longer-term issues that drive the Head of Sustainable and Impact fiduciary duty to clients and integral to company value and that we believe Investing, Head of Active Equities, the both the investment process and our will likely contribute to the success of Head of Systematic and Index Investing, overall stewardship approach. We have the investment thesis over time. These the Head of Research and Stewardship been voting on a discretionary basis discussions relate to the governance and the Head of Global Institutional on behalf of our clients since 1995 and structure and increasingly to longer-term Client Coverage. implemented our first internal voting sustainability trends that have a material policy in 1998. The policy continues impact on company performance, Further information: As part of its to be reviewed annually to take into such as climate change, environmental investment processes, UBS considers account changes in global standards management and human capital adverse impacts. To read our Adverse and best practice related to Corporate performance. These efforts involve Impact Statement, please click here. Governance and Sustainability. reaching out to both executive and, ideally, non-executive, board members in Further information: UBS Asset While there is no absolute set of order to influence the company strategy. Management 2020 Stewardship Report, standards that determine appropriate Finally, engagements entail working please click here. governance under all circumstances, closely with corporate management to and no set of values that will guarantee take appropriate and concrete measures Further information: UBS Asset ethical board behavior, there are to unlock long-term value. Management Stewardship Statement, certain principles which we consider are please click here. appropriate to protect the economic Most fundamentally, engagements value of our clients’ investments. Our linked to the investment case provide Further information: UBS Asset policy is therefore applied globally a differentiated means of creating Management Proxy Voting Policy, but also allows us the discretion to better longer-term returns for clients. please click here. reflect local laws or standards where Such engagements lead investment appropriate. teams to approach each company’s investment decision as an owner, Our approach is to vote in all markets, transforming the investment process unless we feel that by doing so we from simply developing a view on the will impede our ability to manage a current short-term price in the market portfolio, or that the logistics involved to instead making a commitment to in voting are prohibitive and would not work collaboratively with companies on deliver sufficient benefit to clients. realizing positive change. UBS-AM’s proxy voting and

16 Leveraging our strength as a large, diversified asset manager to drive positive, material change through our stewardship activities

Assess Engage

Unlock alpha and reduce risk

Review Vote

Core part of the Combined strengths across Strong external investment process active and index strategies collaboration

– Grounded in driving performance - Seeking to maximize outcomes – Helping to further ESG best practices and avoiding downside risks by combining insights from active across the investment industry investments with voting power of – High quality engagements on index linked strategies – Leading within the Climate Action sustainability issues with senior 100+ coalition executives and board members – Stewardship approach pursued consistently across fixed income and – Concrete outcomes including equities on behalf of UBS-AM looking – Repsol's NetZero commitment (first to maximize impact of engagement in the industry) outcomes – Equinor's alignment of strategy with Paris Agreement

17 Sustainable and Impact Framework

Sustainability Focused Approach

We have a range of sustainability The four criteria we take into account: focused funds which help clients pursue particular opportunities for more targeted sustainable investment. 1 2 Thematic funds invest in companies Activity based exclusions Risk based screening that provide products and services Exclusions are applied in various Risk based screening is applied to providing concrete solutions to specific areas based on products and identify those higher risk issuers environmental and/or social challenges, involvement (e.g., tobacco, coal, which are to be avoided within the seeking to benefit from the future controversial weapons). investable universe. growth anticipated in these areas while contributing capital to an inclusive and lower carbon economy. These funds are focused on areas such as the energy 3 4 transition, water, human development, Superior ESG profile Active dialogue food, the global environment and The portfolio composition Maintaining an active dialogue climate change. They enable investors places a higher weight on those with and the exercising of voting to tap into specific trends or increase issuers with positive sustainable rights in selected companies portfolio exposure to particular characteristics and / or a superior in order to improve their sustainable themes. carbon profile. sustainability profile.

18 Impact Approach

Our impact strategies invest with the Impact comes from intention use experience and judgment to help intention to contribute to measurable shape the universe. Our expectation positive social and environmental Intentionality requires that the universe is that it will take quite some time for impact alongside financial returns. for impact portfolios consists of standards to develop and that they They meet the minimum criteria of companies with products or services will likely follow parallel efforts by sustainability focused strategies and that generate positive impact (tied to other groups, such as the Sustainability additionally include a verifiable impact the UN SDGs). Accounting Standards Board (SASB), measurement. The UN Sustainable which is focusing on standards for Development Goals (SDGs) create the Listed companies that possess these material ESG disclosure. framework for impact investing. attributes comprise a narrow slice of a broad benchmark. They exclude Additionality through Impact investing: Essential industries that do not contribute to the UN SDGs and have other country, engagement requirements industry and factor biases. This has While measurement metrics for In order for impact investing in listed significant implications for investment impact investing can be developed equities to succeed long-term, it returns, portfolio construction and risk through better data, additionality should generate a competitive financial management. has represented a unique challenge return, equal to or better than a to mainstreaming impact investing in broad benchmark. In addition, a true Measurement and verifiability are publicly traded equities. Additionality impact strategy should meet three essential requires that an investment realizes other requirements: intentionality, positive change that would have measurement and verifiability and Measurement and verifiability are otherwise not occurred, which is additionality. critical components of impact investing extremely challenging in public markets because they provide the basis for where investors provide no direct demonstrating the difference which funding to companies impact investing makes on the world. and where liquidity entails a limited This is particularly important because price impact from any particularly the investor needs assurance that capital investment made. We believe that has been deployed effectively and that additionality can only be realized there is an incremental result of the through long-term engagements with investment. Because impact data is companies in the portfolio oriented neither standardized nor even disclosed around positive change. by many companies, there is a need to

19 CHAPTER 4 Our climate commitment

A finance gap currently exists between Our Chairman is a signatory to the With regards to climate risk, UBS is the financial commitment needed to European Financial Services Round collaborating on two fronts. Firstly, we are meet the goals of the Paris Agreement Table’s statement in support of a strong, part of the United Nations Environment - to keep the average rise in global ambitious response to climate change. Programme Finance Initiative (UNEP FI) temperatures to well below 2°C above Also, our Group CEO is a member of TCFD working group for banks to refine pre-industrial levels. But as scientific the Alliance of CEO Climate Leaders, methodologies, scenarios and data models improve, and as the predicted an informal network of CEOs convened sources to assess climate-related financial climate outcomes become starker, by the World Economic Forum and risk in loan portfolios. Secondly, we are demands are growing for global committed to climate action. Within pilot-testing the Paris Agreement Capital warming to be held, not just at 2°C, but UBS-AM, our Head Sustainable Equity Transition Assessment (PACTA) to shape at 1.5°C by 2100. Achieving the Paris Team is a member of the TCFD. UBS’s the development of methodologies and goals demands unprecedented levels of activities are underpinned by a clear study the alignment of corporate lending investment. In short, the climate finance climate strategy, designed to support portfolios with the Paris Agreement gap needs to be closed. our clients and our firm in preparing benchmarks. for an increasingly carbon constrained As one of the world’s largest managers world. Specifically, our climate strategy We aspire to drive positive change in of private and institutional wealth, UBS is underlines our commitment to the SDGs society and the environment for future committed to closing the climate finance on climate action and on affordable generations. Our climate strategy gap. We believe we can do this in two and clean energy. It supports an orderly underlines our commitment to the SDGs ways: through our own actions, and by transition to a low-carbon economy, as on climate action and on affordable developing products and services that defined by the Paris Agreement. and clean energy as well as the Paris allow our clients to channel their capital Agreement. toward a climate-smart future. Many clients share our climate commitment and want to use their As part of our commitment to helping In 1989, UBS was the first Swiss bank capital in ways that can address a further ESG best practices across the to appoint an environmental officer to warming world. This was a key finding investment industry we are an active help focus on sustainability goals. Four from a global survey of institutional participant in Climate Action 100+, years later, we were one of the earliest asset owners that we conducted in a coalition of some of the world’s signatories to the United Nations 2019. Most European investors said that largest institutional investors, who Environment Programme (UNEP FI), and within five years environmental factors are committed to engaging with 167 in 2016 we became a member bank could be playing a more important companies that are critical to the net- of the Task Force on Climate-related role in their investment processes than zero emissions transition. Currently UBS- Financial Disclosures (TCFD). financial factors. AM is involved in 29 and leads on eight coalitions within Climate Action 100+.

20 In 2020 our climate commitment was Delivering Net Zero further underscored as UBS-AM became a founding member of the Net Zero – Global investors will work in – As part of the initiative, asset Asset Managers Initiative, a group of 30 collaboration with clients to achieve manager signatories have made a international asset management firms the target-based net zero goal by number of commitments including to: committed to support investing aligned 2050 or sooner with net zero greenhouse gas emissions – Work in partnership with by 2050 or sooner. – Delivery of the commitment also asset owner clients on their includes prioritising the achievement decarbonisation goals Additionally, in 2020 UBS-AM became of real economy emissions reductions a signatory to One Planet Sovereign within the sectors and companies in – Set an interim target for the Wealth Funds initiative and UBS Group which the asset managers invest. proportion of assets to be managed AG was recognized as a climate leader in line with net zero emissions by CDP. by 2030

Further information: to read – Implement a supporting stewardship UBS Group AG’s Climate Strategy, and engagement strategy, with a please click here. clear escalation and voting policy

– Create investment products to facilitate increased investment in climate solutions.

21 22 CHAPTER 5 Governance and commitments

The Sustainable and Impact Investing SI Business Strategy SI Investment Specialists team is responsible for the strategy and implementation of sustainable investing Responsible for the overall management Responsible for the development at UBS-AM. of the SI strategy and providing of SI products and solutions. The reporting on those activities as part of SI specialists also support reporting UBS’s overall sustainability objectives deliverables, working closely with the SI The Head of the SI team: and strategy. In addition this team is research and stewardship team. Finally, – Has overall responsibility for the SI responsible for the internal and external this unit works closely with client-facing strategy of UBS-AM. activation of SI, ensuring alignment professionals to better understand client – Is a member of the UBS in Society in the approaches, content and needs and market trends and to provide Steering Committee. The committee messaging. education on sustainability. ensures firm-wide execution of the UBS in Society strategy. SI Research and Stewardship Further documentation: reporting – Is responsible for overseeing the and policies implementation of UBS-AM’s SI Responsible for sourcing and strategy, and reports into the UBS- distributing ESG data to investment Information regarding our current AM Executive Committee, chaired by teams across UBS-AM, educating and sustainable investing approach, activities Suni Harford, President, UBS-AM. collaborating with investment teams and policies are available on a dedicated – Member of the UBS Group AG on best practices around using material section of UBS-AM website. To read Sustainable Finance Committee extra-financial data in forward-looking please click here investment analysis, and overseeing The SI team’s responsibilities can be UBS-AM’s engagement and proxy Further information: integration of divided into three key activities: voting programs. sustainability risk in the remuneration process – please click here.

Further information and contact details:

For further information regarding Sustainable and Impact Investing at UBS Asset Management, please contact the SI operating office, sustainableandimpact@ubs.com.

23 24 CHAPTER 6 Appendix

Our commitment to Our commitment to stewardship codes industry initiatives and best practice

UBS-AM is a signatory to, or has given commitment to, the UBS-AM is currently a member of, or supporting, the following codes of best practice in relation to investment following global groups and initiatives: stewardship: – Asian Corporate Governance Association (ACGA) – International Corporate Governance Network (ICGN) Global – Global Real Estate Sustainability Benchmarks (GRESB) Stewardship Principles – EFAMA Stewardship, Market Integrity AND ESG Investment – UK Stewardship Code Standing Committee – Japanese Stewardship Code – International Corporate Governance Network (ICGN) – Hong Kong SFC Principles of Responsible Ownership – Institutional Investor Group on Climate Change (IIGCC) – ISG Stewardship Framework (USA) – National Association of Real Estate Investment Managers – Australian FSC Standard 23 on Principles of Internal (NAREIM)– Sustainability and Investment Management Governance and Asset Stewardship Working Group – Taiwan Stewardship Principles for Institutional Investors – Principles for Responsible Investment (PRI) – Sustainable Accounting Standard Board (SASB) – UK Investor Forum – US Green Building Council – US Sustainable Investment Forum (USSIF) – Workforce Disclosure Initiative (WDI) – Financial Stability Board’s Taskforce on Climate-related Financial Disclosure (TCFD) – Transition Pathway Initiative (TPI) – Farm Animal Investment Risk & Return (FAIRR)

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