Universal Investment
Following on from its ‘Best ESG Initiative’ win at AST’s Industry Excellence Awards, Universal Investments’ Robert Bluhm talks to Lucy Carter about what makes the company’s ESG offerings stand out
What makes your ESG initiative stand out?
As a fund service platform, the main focus for Universal Investment (UI) is to have a different viewpoint on the topic. It is looking for an up-to-date approach to make the huge amount of daily news-based information available for ESG analysis.
Initiated by its innovation management head Daniel Andemeskel and UI’s ESG office, together with its partner YUKKA Lab, it has set up a system that uses natural language processing to be able to capture current news as data at a fast speed. The news article does not have to mention certain keywords for the software to recognise that it is talking about a given topic.
The amount of news available is like an avalanche, and its essence still needs to be available in real-time to be used beneficially. UI only screens reliable, trustworthy media sites and does not look at social media. There are a lot of ways this data can be used. For example, fund initiators who want to promote their fund need to provide examples.
The main thing for UI is knowing what is happening and providing another view on ESG topics. The aforementioned news-based scores and data points should not substitute any existing ESG ratings or scores, but rather should be used as an additional tool to give portfolio management, risk management and reporting additional real-time information to enhance data quality.
The ‘S’ and ‘G’ of ESG are often left unconsidered by institutions and investors alike. What is Universal Investment doing to promote these areas?
Sustainability is not just about trees and nature. To make sustainable development possible, the Governance (‘G’) aspects are crucial. If the financial services industry does not look at the G part of its company, then all its efforts might not be long lasting (since they are not rooted within the company).
UI established its ESG office directly under its CEO Michael Reinhard. As a company it strives to implement the ESG mindset in all relevant corporate processes and is growing its team, in an effort to double it by next year. However, a current obstacle is finding people with ESG expertise in both theory and practice.
Improving governance processes and procedures is vital. UI is developing more guidelines within the company, looking at how it can improve. It has started to do more training to educate its employees. There are always people who confuse sustainability in the financial industry with their private behaviour. In fact, our job is to identify how to influence the financial industry to invest more sustainably.
The Social (‘S’) and G are closely related. For UI, as a company, the S element of ESG is about what it can do in terms of corporate social responsibility (CSR). Internally, this is strongly connected to human resources. Creating an equal opportunity company requires diversity in all areas. For example, enabling our employees to have different work models: working part time or working in a hybrid format. COVID-19 accelerated that flexibility, creating those opportunities for companies. Valuing ‘human capital’ is key in our industry.
On the CSR side, UI is focused mostly on local neighborhood projects. In Frankfurt, for example, employees can fulfill a Christmas present wish for children from disadvantaged backgrounds. In other offices, UI donates to animal shelters.
How can investors be more ESG-responsible when making investments? What do they need to do on an individual level?
There are a lot of ways to invest sustainably. There is no universal view on sustainability which will be defendable to everybody, and you will never have an ESG strategy that will satisfy everyone. You just have to be able to explain your view on it, and you must be prepared to change your strategy over time – ESG is evolving quickly. It is a journey, and we all have to continuously adapt.
There are investors who still do not believe in sustainability, but it is economically reasonable to be sustainable. Otherwise, you will not be able to resell investments, or you will see a dramatic loss in value. You should at least make your sustainability risks transparent, to know the likely impacts of such risks on the returns of your investments. Most people do not understand that if you do not do anything, you could have a loss in value in the future (stranded assets).
There is more than one answer on what is sustainable. Therefore, the first point is understanding and defining what sustainability is for you, and then to look for those investments. You can invest in companies that are already very sustainable or invest in companies transitioning towards being sustainable. A lot of people in the market are excluding non-complying companies, which helps to a certain degree, but neglects the fact that transformation is very important. Things like CO2 neutrality will not happen if we do not help companies to transform. Investing in such companies might lead to economic reward, because if a company is able to transform, the valuations will go up again.
What are your thoughts on the upcoming SFDR II regulation? Do you think it will help or hinder sustainability goals?
In theory, the SFDR II regulation is very good, but the challenge is that some of it is just not practical.
It is important to consider that the implementation of SFDR will not lead to a classification model — the regulation defines transparency obligations for financial products. It emphasises the need to look closely at potential sustainability risks when investing in the future, but there are no investment restrictions that would prevent investors from investing in anything ‘conventional’.
UI is seeing a lot more communication from relevant industry associations. UI speaks to its auditors on a weekly basis and talks with the regulator quite often.
The challenge the industry faces is on the operational side. When there is an EU regulation, each country approaches it slightly differently. Overall, the implementation of SFDR II is not perfect, but the general idea is going in the right direction.
What does Universal Investment have planned for its ESG initiative in 2023?
Everyone in the financial industry is facing a lot of the same challenges. UI’s clients are therefore looking for best practice examples and ways to exchange information. UI is setting up an exchange platform for its clients, enabling them to connect. Through this platform, UI can share information and collaborate.
Being an open platform is great, but it also means that there is more than one right answer, more than one ideal path for sustainability. For some partners it is quite easy; they have one single strategy for a single Article 8 or Article 9 fund (in relation to SFDR). UI has approximately 100 ESG approaches on its platform, with many different ideas behind each of these. There is a lot of analysis of UI’s partners’ methodologies required, but this helps the company to get a better view on what’s happening in the market.
UI is also trying to further develop its capabilities to help its clients — to advise them on how strategies can be built and to make them aware that what they do now might have to be updated within three or six months if the regulation changes.
UI’s main objective is to create more transparency and make information more accessible. The company has started diving deeper into the alternative investment space to assess more data. It is working with new partners who have different approaches to data points, while also working with associations to create new standards in the industry.
UI is trying to train all employees in order to improve their ESG proficiency. This fiscal year, this will be its main internal focus. As part of this, UI is also looking to start a ‘Green Week’ next year. Sometimes it is the small things that help to raise awareness on different sustainability topics. UI always advises its employees, as well as its partners, to ask questions and foster the discussion surrounding how sustainability can be addressed.
