Sustainable Investment and Active Ownership Approach

UOBAM’S Sustainable Investing Vision and Goals

At UOB Asset Management (UOBAM), our vision is to be a leading fund manager in sustainability in Asia that creates long-term value and positive impact for our stakeholders whilst enabling sustainable investments accessible for all.

As an active asset manager, UOBAM believes that it has a fiduciary duty to allocate capital into more sustainable investments and be active owners of our investments and as a signatory to the United Nations Principles for Responsible Investment (PRI), we are committed to adopting and implementing the principles and reporting on our progress towards their implementation. To enable this outcome, UOBAM has made sustainability a key strategic pillar of the firm which helps to drive our commitment and purpose towards creating value for our investors and communities as well as helping them achieve their sustainable investment goals and aspirations.

UOBAM's Approach for Sustainability Issues

UOB Group is a participant of the UN Global Compact (UNGC), incorporating responsible business sense in the areas of human rights, labour environment, and anti corruption. In alignment, UOBAM supports the Ten Principles of the UNGC, committing to ensure companies similarly incorporate the UNGC and its principles in their operations and strategies.

We recognise that climate change is one of the most complex and defining issues of our time. Climate change poses a risk to our environment and is a pressing challenge for our society and economy. Increasing frequency of severe extreme weather conditions will not only lead to physical damage in the form of flooding and wildfires, but also has economic and financial impact when property, infrastructure, and assets become impaired.

There is a need for accelerated move toward a low carbon and climate resilient future which significantly increases transition risk for companies. Transition risk can arise from legal and regulatory actions, reputational issues, and technological advancement which then increases the risk of stranded assets.

It is paramount that companies are well positioned to manage climate-related risks and opportunities. We believe that companies should treat climate-related risks as material to their businesses and align their disclosures with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

As a wholly owned subsidiary of UOB, UOBAM is aligned with UOB's commitments and support of TCFD. We recognise the importance of understanding our climate-related risks and opportunities. We are in the midst of gradually adopting the recommendations of the TCFD to assess, measure, and to manage our climate change-related risk and look to disclose our progress in the near future.

At UOBAM, we take into account a company’s greenhouse gas emissions as part of our ESG analysis and scoring process. To do so, we have subscribed to a variety of third party data providers such as MSCI and S&P Trucost for ESG and climate-related monitoring of our portfolio. We also have in place, an ongoing process to detect and monitor controversies of our portfolio holdings to ensure that our investments are not tied to severe climate change controversies. Our proxy voting, through ISS, also references internationally recognised sustainability-related initiatives, and supports resolutions that advance the fight against climate change. The topic surrounding climate change is a potential starting point for our company engagements moving forward.

There is increasing water-related risks as more groundwater gets withdrawn, increasing weather unpredictability, and continuous melting of glaciers. Associated water-related risks include the worsening of water security, deteriorating water quality, physical disasters linked to drought and floods, and overall damage to the natural ecosystem.

Water is inherently, an essential resource to all businesses and should form part of their considerations in mitigating exposures to water-related risks. Companies should demonstrate efforts in reducing their water use through employing water efficient processes, the use of alternative water sources, and water recycling efforts. Water scarcity is particularly crucial to companies that operate in water-stressed regions. Hence, to prevent the risk of operational disruption stemming from water shortages, companies should put in place mitigation efforts to prevent water shortages.

We recognise adverse impacts from water stress and hence considers water risk as material for companies that operates in regions with high exposure to water risk and companies. Water risks is factored into UOBAM’s ESG scoring in the investment process for exposed sectors. Our controversy system considers companies with negative impact on water supply.

The loss of biodiversity is one of the largest global ecological challenges that pose severe risks to companies and portfolio holdings. Land use change from deforestation and climate change are amongst the major contributors to biodiversity loss. This can lead to increased operational costs stemming lack of resource availability, supply chain disruption, and increased cost of raw materials.

The preservation and protection of our natural environment and biodiversity is crucial to companies and is something they should acknowledge as material. To do so, they can commit to conducting biodiversity and community impact assessments, engage in the sustainable management of natural resources, and strive to meet sustainability standards set out by organisations such as the Roundtable on Sustainable Palm Oil (RSPO) and Forest Stewardship Council (FSC), where applicable.

Risks associated with biodiversity loss and land use change are considered as part of our ESG analysis and scoring process of companies. We also have an ongoing process to detect and monitor controversies of companies in our portfolios in place to ensure that our investments are not tied to deforestation biodiversity loss. The preservation of natural capital – pertaining to deforestation and biodiversity – is a potential starting point for our company engagements in future.

UOBAM recognises the importance of ocean preservation. Overfishing, overexploitation, and unsustainable practices that deplete marine resources exert severe pressure on ocean health and biodiversity. Ocean acidification as a result of global warming presents environmental challenges, putting marine life and organisms at risk.

Companies should recognise the importance of ocean sustainability by demonstrating active efforts to reduce disruption to the marine ecosystem. Wherever applicable, companies should conduct impact assessments and support ocean protection initiatives. Companies should also strive to adopt industry best practices and sustainability standards set out by organisations such as the Marine Stewardship Council (MSC) and Aquaculture Stewardship Council (ASC).

Risks associated with ocean sustainability are considered as part of our ESG analysis and scoring process of companies. We also have an ongoing process to detect and monitor controversies of companies in our portfolios in place to ensure that our investments are not tied to the deterioration of ocean health. Ocean sustainability and protection is a potential starting point for future company engagements.

In accordance with the standards set out by the International Labour Organization (ILO), companies involved in labour exploitation such as through forced labour and child labour, violate labour and human rights. Such exploitation inadvertently deprives the opportunity for societies to develop and educate children and grow its human capital of tomorrow.

Poor and inadequate management of labour rights will exacerbate social inequality and undermine economic progress. Production delays, business and supply chain disruptions from labour unrest, and reputational damage are some of the potential issues faced as a result of poor management and lack of mitigation of risks related to labour rights.

UOBAM believes that it is crucial that companies comply with labour standards and commit to increasing diversity at all levels of management. We incorporate factors such as labour management, standards, and worker protection in our ESG analysis and scoring process as part of our investment decision making process. We also have in place, an ongoing process to detect and monitor controversies such as those pertaining to employee discrimination. Our proxy voting, through ISS, also references internationally recognised sustainability-related initiatives, and supports resolutions that resolve and improve labour-related issues.

We recognise the importance of human right protection and the need for companies to support and respect human rights. Companies whose business practices result in adverse impact on human rights, potentially face reputational risk. Such risks pose potential legal liability and run the risk of them losing their license to operate.

Companies should ensure their adherence to the UNGC principles on Human Rights and consider taking voluntary action toward the protection of human rights through social investment or advocacy efforts.

We continue to actively monitor the business activities of our portfolio holdings through our ESG controversy system to detect controversies pertaining to human rights issues.

UOBAM does not apply ESG exclusion policies and exclusion list on most of its investment strategies. While we do not systematically exclude industries across our portfolios, we avoid many controversial sectors and companies by integrating material ESG issues into our analysis of companies and investment processes; this is done by taking into account the inherent material ESG issues these high risk sectors pose.

On a bespoke mandate basis, UOBAM excludes sectors as directed by our clients. This include, but is not limited to, the exclusion of traditional 'sin sectors' such as alcohol, tobacco, adult entertainment, gambling, and non compliance to international conventions such as the UNGC.

UOBAM’s Sustainable Investment Framework

In our commitment towards advancing and supporting the principles of PRI, we have put in place our sustainable investing policy as part of our sustainable investment framework, as set out in the table below.

 

SUSTAINABLE INVESTMENT FRAMEWORK
ESG issues will be incorporated into existing investment practices using a combination of two approaches: integration and screening (when applicable in investment mandate).
Sustainable Investing Strategies Integration Screening
UOBAM's Sustainable Investing Policy
Description Explicitly and systematically including ESG issues in investment analysis and decisions, to better manage risks and improve returns of investments. Application of filters to lists of potential investments to rule companies in or out of contention for investment, based on best-in-class and negative screening approaches.

 

We believe that Environmental, Social, and Governance (ESG) issues are financially material to a company’s performance and will translate to material financial impact on the investments that we make. As part of our fiduciary duty to our investors, we have put in place our sustainable investing framework and process which focuses on deep fundamental research, augmented by the use of technology and leveraging on our local expertise.

Our proprietary sustainable investment framework is a common framework that is utilised across the firm, and is implemented through the integration of ESG evaluation within our investment process. The process of ESG evaluation involves the assessment of material ESG factors of companies which is determined by UOBAM’s proprietary materiality map.

UOBAM’s proprietary materiality map is developed by referencing the Sustainability Accounting and Standards Board (SASB) materiality map. UOBAM’s proprietary materiality map also assigns specific E, S and G pillar weights to companies across 11 sectors that are classified using Global Industry Classification Standard (GICS). UOBAM has defined a list of ESG metrics for monitoring the ESG performance of portfolio companies and this is incorporated into our ESG evaluation process. Below is an overview of how ESG is incorporated into our investment process.

 

 

The execution of ESG evaluation and integration into our investment process is supported by dedicated resources in our regional investment teams and covering all major asset classes that we invest in.

UOBAM has in place our ESG news alert system which is an AI-ML model that combs through news reports daily and should there be any ESG controversy detected, the Portfolio Managers owning the securities of the impacted company will be notified and necessary investment action will be taken.

In our efforts to advance our sustainable investing capabilities, UOBAM has invested in specific environmental datasets and is working with external parties to develop in-house capabilities in order to generate portfolio carbon intensities as well as assess the physical and transitional risk of companies.

Overall, we believe that ESG integration into our investment process contributes to performance and risk mitigation by enabling us to identify high-quality companies which are resilient, well-managed, able to grow sustainably and are likely to maintain their competitiveness in the long term.

 

 

To complement ESG incorporation into our investment process, we also have in place an Active Ownership Policy which has a coverage that aligns to the Sustainable Investment Policy. The Active Ownership Policy serves to facilitate dialogue, engagement, and proxy voting. We will leverage our regional footprint and the local expertise of our regional investment teams to execute meaningful dialogues and engagement which will drive strategic investment decisions for the sustainable investments we make.

To quantify and enable our investors to better understand how their investments are helping to address critical global issues such as climate change and human capital management, we have developed internal capabilities to carry out portfolio impact analysis to highlight how we reduce our environmental footprint, and to make a more tangible contribution to the UN Sustainable Development Goals (SDGs), UOBAM will also integrate impact measurement aligned with these global trends as part of portfolio analysis.

We also continuously monitor on a global and regional basis, the changing regulatory landscape that impacts sustainable investing. Whenever possible, we will participate in responding to regulatory consultations to provide our inputs and help guide and develop ESG policies and guidelines that support the advancement of the six Principles of the PRI. Our responses to such regulatory consultations will be aligned to our sustainable investing policy and will look to support the six Principles of the PRI. To ensure that this alignment is achieved, we have in place our sustainability governance structure that will provide oversight and accountability for our responses.

UOBAM’s Active Ownership Approach

 

Sustainability is a key pillar in UOB Asset Management’s (UOBAM) corporate strategy, and we view active ownership is a crucial aspect of our sustainability culture, as it can positively influence companies to engage in sustainable business practices, creating not only long-term value for these companies but also social and environmental benefits for the world.

We have a strong regard for fostering good stewardship and as an asset manager based in Singapore, we are a signatory to our local stewardship code (Singapore Stewardship Principles (SSP) for Responsible Investors). UOBAM is also a signatory of the UN supported Principles for Responsible Investment (PRI), and we are committed to follow their 6 Principles.

Active ownership at UOBAM consists of company engagement and proxy voting activities. These activities form a key component of our responsible investment approach and fulfils UOBAM’s fiduciary duty as an investment manager to act in the best long-term interests of our clients.

UOBAM believes in the value of engagement and aim to enhance risk-adjusted returns of our investments and shareholders’ value in the long run. We identify a range of thematic and material ESG issues that can affect our investee companies in the long run and engage them to ensure that they are well prepared to mitigate these issues.

Throughout the engagement process, we gain valuable insights into our investee companies’ propensity deal with ESG issues and whether they will take the appropriate measures to manage these issues. Engagement acts as an important information source to aid our investment decision.

By engaging with companies, we can also encourage improvement in their ESG disclosure, identify the need to advocate positive change, communicate our concerns and improve its practices on ESG issues, where necessary.

We prioritise our engagement based on geography of companies and size of holdings, severity of identified material ESG issue, potential to generate long-term value following a successful engagement, and specific client request(s).

UOBAM engages with companies through a variety of channels and also considers collaborative engagement with other stakeholders in the event we believe that the efficacy and chance of success of the engagement can be enhanced.

Escalation Strategy

Over the course of the engagement process, UOBAM would pursue a number of courses of action should the company constantly fails to meet the standards expected.

UOBAM will vote against management at the annual company meetings if we are not satisfied with managements’ response to the ESG issues raised and ability to mitigate the identified risks. UOBAM may also consider voting for shareholder resolutions initiated in response to the ESG issues.

Ultimately, if the company still continuously fails to meet the standards expected after the engagement timeline, UOBAM will decide to reduce our exposure to investment holdings size or divest our investment in the company.

UOBAM aims to vote on the vast majority of proposals raised at every company meeting in a timely manner. UOBAM has engaged the services of proxy voting agent, Institutional Shareholder Services Inc. (“ISS”) to provide us with proxy voting services and proxy voting research and recommendations. Proxy voting by ISS also references, internationally recognised sustainability-related initiatives, and supports ESG resolutions.

While UOBAM has authorised ISS to vote on its behalf, UOBAM retains full discretion over all voting decisions and reserves the right to vote contrary to the recommendations of ISS. This can occur when UOBAM have a differing view that these vote recommendations are not in the best interest of its clients, after taking into account relevant information in its decision e.g. engagement outcome, internal research, etc.

There may be situations where UOBAM may choose not to vote or abstain from voting:

(a) where administrative or other procedures result in the costs of voting outweighing the benefits;

(b) the voting securities are part of a securities lending program and UOBAM is unable to vote securities that are out on loan;

(c) a meeting notice is delivered close to the meeting date and UOBAM has insufficient time to adequately assess the issues being tabled at the shareholders’ meeting and / or process the vote;

(d) UOBAM sells shares prior to a company's meeting date and decides not to vote those shares, on the basis that UOBAM shall not be restricted from trading in a security due to an upcoming shareholder meeting; and

(e) voting securities have been blocked from trading in order to be tendered for voting purposes and UOBAM believes that preserving the ability to trade the security is in the best interest of the beneficiaries;

(f) in event of a situation where regulatory obligations and rulings of the SIC imposed on UOB Group that also apply to UOBAM, may prohibit UOBAM from voting on securities due to its deemed affiliation for a corporate action.

Investing for profit and purpose

We believe that responsible investment practices can have significant contribution to the development of a more sustainable financial system that benefits the wider community.

PRI Reporting

In 2018, UOBAM became a supporter of the Singapore Stewardship Principles (SSP) for Responsible Investors, a set of principles intended to encourage investors to voluntarily pursue the spirit of stewardship and good governance. Since then, UOBAM has stepped up its responsible investing efforts by incorporating ESG considerations into the investment process for Asia ex-Japan Equities and Asia Fixed Income.

UOBAM also became an official signatory of the UN supported Principles for Responsible Investment (PRI) in early 2020, a testament to UOB’s commitment to responsible investing and to developing sustainable investment solutions for customers.

The UN-supported PRI is an international network of investors working together to put the six Principles for Responsible Investment into practice.

  1. Incorporate ESG issues into its investment analysis and decision-making processes;
  2. Be active owners and incorporate ESG considerations into its ownership policies and practices;
  3. Seek appropriate disclosure on ESG issues by the entities in which it invests;
  4. Promote the acceptance and implementation of the Principles within the investment industry;
  5. Work to enhance its effectiveness in implementing the Principles; and
  6. Report on the activities and progress of its investment firms towards implementing the Principles.

Responsible investment practices are part of our fiduciary duty to our clients and we believe that the integration of ESG considerations into our investment processes is important not only from a risk management perspective but also key to ensuring long-term returns.

UOBAM’s Sustainable Investing Governance Structure

 

Our sustainability governance structure provides oversight and accountability on the implementation of our responsible investment policy. Our UOBAM Board of Directors reviews long-term business and organisational goals and provides the strategic direction for UOBAM’s sustainable investments and sustainability practices. The Regional Management manages the implementation of strategic direction that is handed down by UOBAM’s Board of Directors and will be supported by our Regional Sustainability Group (RSG), Local Sustainability Group (LSG), and dedicated Sustainability Offices (SO).

The RSG reports to the Group CEO and UOBAM's Board of Directors on sustainable investing matters and is made up of the Sustainability Chairs and Champions from each regional office. The RSG coordinates to guide the regional implementation of our sustainable investment mandates as well as sustainability initiatives.

The LSG at each office is supported by dedicated Country SO to monitor and report on the progress of our sustainability activities and mandates. The Country Sustainability Champions take the lead in our corporate sustainability activities, which include ESG product and solution launches, thought leadership and events, sustainability staff training, and corporate sustainability stewardship programmes, and Dedicated ESG Investment Specialists leading their respective offices in implementing our sustainable investing framework.

UOBAM’s dedicated regional SO incorporated into the overall investment organization structure supports our sustainability governance structure with the integration of our ESG investment methodology and implementation of strategic sustainability initiatives. The SOs, each comprising the country’s ESG Champion, a dedicated ESG Investment Specialist and Investment Team. These teams possess local expertise and on-ground engagement through the utilization of dedicated ESG resources to execute engagement for companies in the portfolio in the event of a controversy or to determine specific ESG information. Dedicated ESG resources also provide manual ESG scoring coverage on companies that are not covered by major third-party ESG data providers.

The Singapore Sustainability Office and Centre of Excellence (SOCE) works in close collaboration with all UOBAM regional SOs in order to ensure that companies managed in the portfolio are well positioned for secular growth and alpha generation. The SOCE utilises UOBAM’s integrated ESG management system to facilitate two-way data transfer and to obtain ESG coverage from regional offices, whilst simultaneously delivering real-time updates on the ESG performance of companies, as well as news alerts, to ensure that controversies detected can be followed up with engagement action. The SOCE also develops the governance controls and systems in place to ensure the implementation of UOBAM’s Sustainable Investment policy and corporate and communications plans.

UOBAM regularly reviews our RI policies and processes to ensure their robustness and relevance. The policies and processes are audited by internal and external auditors annually.

UOBAM has in place a sustainability balanced scorecard to monitor and assess the progression of sustainability-related developments across four key pillars on investment, business, corporate sustainability stewardship and staff education. The scorecard sets short-term targets and milestones for each of the four key pillars.

UOBAM’s Approach to Strategic Partnerships

We take an inside-out approach to sustainable investing and move beyond just focusing on internal processes such as ESG integration into investment processes and sustainable investment governance. We look to take a proactive approach towards driving sustainable investing externally which ties in closely with the principle of “working together in implementing the principles” where our external efforts include establishing strategic investment partnerships with global sustainability leaders such as Robeco and Fukoku Capital Management.

Through such external partnerships that we aim to further enhance our capabilities and develop the accessibility of sustainability investment opportunities in the Asia region for investors. This will be done through sustainability mandates, working in policy consultation, and responsible investment education and thought leadership.