UBS is poised to hit the magic number. This year the Swiss banking giant will sustainably invest one trillion Swiss francs of its managed assets. Significant for a discipline that still has its detractors.

At the end of 2016, UBS had invested 970 billion Swiss francs sustainably, as detailed in company documents. These are clients’ funds invested in accordance with certain social, environmental and corporate governance criteria.

Switzerland and the Netherlands are leaders in this domain, although the merits of sustainable investment are disputed in the financial sector. Many bankers are still convinced that sustainable investments make a lower return, a trade-off that clients have to accept.

Scientifically Proven

Yet numerous studies exist that prove that sustainable investments deliver returns just as good as traditional investments with the same level of risk.

One of the most oft-cited surveys is the one by Harvard professor Robert Eccles. It found that high sustainability firms perform better in terms of both stock market and accounting measures.

Cautionary Words

With its commitment in this area, UBS is making the point that the world cannot continue to grow in the same way as before. These were the opening words of a text entitled Mobilizing Private Wealth, published by UBS to coincide with this year’s World Economic Forum in Davos.

The document states that the unequal distribution of wealth and the exploitation of the environment have increased living standards overall. But continuing economic growth that ignores sustainability is a risk for future generations.

Magic Number

Despite its expertise in sustainability and philanthropy, UBS has suffered setbacks in the past and has had to adjust, as reported by finews.com (for example here and here).

But now the banking giant is ready to hit the magic number, which proves how serious it is: In the course of this year, UBS will have one billion francs of its assets sustainably invested. At the end of 2016, this figure stood at 970 billion.

Greenest on Wall Street

This performance has garnered attention in the US, partly because last year UBS hired one of the world’s leading sustainability specialists, Michael Baldinger. He was previously CEO of RobecoSAM, one of the original sustainable investment companies.

After Baldinger’s appointment as Head of Sustainable and Impact Investing Asset Management in New York, came the naming of Stephen Freedman as Head of Sustainable Solutions in the Wealth Management America division. 

Freedman, an American who grew up in Geneva and received his doctorate from the University of St. Gallen, began his career at UBS as an economist and investment strategist and moved to New York in 2007.

In the light of these developments, it is not surprising that «Business Insider» came to the conclusion that UBS is positioning itself as «the greenest bank on Wall Street.»

Friedman to Freedman

Among Freedman's tasks is to raise awareness of sustainability among UBS' investment advisors and private bankers. The idea has been slow to bed down in the work force, despite being a favorite of the bank's top management and philanthropy representatives for years now.

One reason was the departure of investment guru Alex Friedman, who is now tangling with an activist shareholder as Chief Executive of GAM. Friedman was a vocal proponent of sustainability in investment, but Mark Haefele, his successor, has not pursued the theme with as much vigor.

Various changes and revamps in investment solutions and new strategic goals appear to have changed that: UBS' sustainably invested assets rose last year by 40 billion francs.

Profitable Investments

Another of Freedman's tasks is to convince clients that sustainable investing can deliver returns, or «Adding Value(s) to Investing,» as UBS puts it. 

Clients often feel they have to choose between the most profitable solutions and sustainable ones, Freedman told «Business Insider». «The fact is sustainable investments are profitable investments,» he says.

In short, while sustainable and impact investing has until now been the domain of niche firms like RobecoSAM or Zurich-based Globalance Bank, UBS appears to be one of the only global banks to put it high on its agenda.

Millennial Demand

This translates to a competitive advantage for UBS, especially in the U.S., over competitors like Morgan Stanley or Bank of America.

If UBS gets sustainable investing right, the potential is in the largest private banking market in the world is considerable, as a younger generation of clients demand these types of investments. Institutional holders like pension fund CalPERS have also devoted a substantial share of their assets to sustainable investments.

«It is something that is happening anyway,» says Freedman. «If we talk in 10 years this will not be niche anymore. It will be mainstream thinking.»