UBS Asset Management distributed a PDF entitled, "Liquidity Perspectives: Sustainability in Liquidity & Cash Management," which tells us, "Sustainability has become an increasingly important requirement for companies, investors, and society. UBS Asset Management’s liquidity and cash management strategies are no exception. Many UBS AM money market funds, low duration and ultra-low duration solutions are ESG (environmental, social, governance) integrated -- meaning incorporating ESG considerations are part of a holistic approach to issuer research, analysis and portfolio construction. UBS AM also offers liquidity and cash management strategies that are ‘Sustainability Focused,’ that have specific sustainable goals incorporated into the investment strategy."
The piece explains, "Nonetheless, there is often confusion regarding what Sustainable Investing entails. The terminology can be confusing to many, as terms such as Green, ESG and SRI (socially responsible investing) are often used interchangeably. For example, some investors view Sustainable Investing as a process of excluding certain industries viewed as harmful to individuals’ health, the environment or to society as a whole from one’s portfolio (e.g., coal producers, tobacco, etc.). On the other end of the spectrum, some investors expect only 'green' companies in sustainable portfolios, such as companies involved in wind and solar energy adoption, energy efficiency, pollution controls or sustainable farming."
It continues, "While these approaches of exclusion or impact investing are indeed common, we incorporate ESG analysis as part of our credit research and assessment process which provides portfolio managers with hard data and greater insights on ESG factors to make informed portfolio management decisions and therefore provides us the opportunity to invest in a way that is expected to have a positive and measurable impact on society and/or the environment. Evidence suggests that a significant driver of outperformance in sustainable portfolios is avoiding negative event risk, or so-called 'blow-ups.' Over the past several years, the oil spill in the Gulf of Mexico and the automotive emissions scandals are two well-publicized events where companies with poor sustainability profiles experienced significant ‘tail risk’ events that resulted in rating downgrades."
UBS writes, "Liquidity and cash management solutions with ESG integration or those seeking sustainable objectives are becoming more widely available. With a variety of implementation styles, it is important to consider the type of solution best suited to your goals. ESG analysis across most of UBS-AM’s Fixed Income and Liquidity capabilities has been integrated in the investment process for a number of years, with issuer-level ESG analysis as guided by UBS-AM’s approach to ESG research and evaluation methodology. This has involved developing a proprietary ESG risk dashboard that combines scores and data points from several external research providers together with our internal ESG score. Our credit research teams monitor individual issuers to assure high credit quality, and partner closely with our dedicated Sustainable and Impact Investing Research team to maintain focused ESG integration in the research process. The ‘integration’ process also screens for specific ESG factors either promoting or removing issuers albeit within the available investment universe. UBS Asset Management is dedicated to delivering Sustainable Investment solutions for client portfolios, and currently manages over USD 136bn in Sustainability Focused and USD 454bn in ESG integrated strategies globally (as of Sept. 30, 2021)."
They also comment, "Treasury and government money market funds generally aren’t offered as Sustainability Focused products as a market standard given their restricted issuer universe (e.g., US Treasuries and US agency securities). For prime style money market funds, issuers are assessed on environmental, social and governance factors, however since the majority of eligible short-term investments are financial issuers, governance factors may have a greater relevance. Ultra-short or low duration bond funds can have greater flexibility to incorporate environmental factors over and above an ESG score, including targeting a Sustainable Focus (or goal or objective) due to a broader available investment universe, while potentially generating returns in excess of pure money market funds."
Finally, UBS adds, "The EU has taken the lead in setting clear regulatory guidelines with the Sustainable Finance Disclosure Regulation (SFDR), which has been put in place to provide investors with transparency in comparing ESG characteristics across funds. Many money market and short/low duration funds are registered as Article 8 which is defined as: a fund which promotes environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices. In the US, ESG money market funds are gaining traction with industry assets of USD 77 Billion at 30 November 2021 (according to Crane Data). Unlike the EU, there are currently no ESG-specific regulations or rules in the United States, however the US securities regulators continue to focus on this issue. Asset managers are also offering share classes sharing a proportion of revenue to non-profit or other charitable organizations focusing on ESG and diversity goals."
In related news, Federated Hermes posted a market piece entitled, "Introducing SDG Shares," which tells us, "The new SDG Shares offer investors a unique opportunity to invest in our Federated Hermes Government Obligations Fund while also promoting environmental, social and governance (ESG) progress through support for organizations that we believe are aligned with the UN Sustainable Development Goals (UNSDGs). Your investment in the SDG Shares can lead to Federated Hermes providing contributions to an organization(s) working to improve society."
They write, "Federated Hermes is committed to putting the interest of our clients first and acting with consideration for our community as we execute our mission of providing investors with the means to pursue their long-term goals. As a firm and as global citizens, we believe we can make a positive difference in society through our individual and collective efforts. With this in mind, Federated Hermes expects to make charitable donations to organizations we believe are aligned to one or more of the UNSDGs. These donations will be 5% of the quarterly management fee and administrative fee revenue attributable to the SDG Shares net of any waivers. We are taking a multi-dimensional approach to focus on reducing inequality (UNSDG #10), while also considering the goals for quality education (UNSDG #4) and decent work and economic growth (UNSDG #8 ). Currently, donations will go to the Hispanic Heritage Foundation (HF)."
The piece adds, "The Hispanic Heritage Foundation is a national nonprofit focused on education, workforce, innovative leadership, and culture to meet the Latino community’s and America’s priorities, through a unique cycle of leadership built on a high-profile, year-round continuum of sustainable programs.... Over time, Federated Hermes may change or expand donations to other organizations which promote progress on the UNSDGs"
Crane Data currently tracks 39 Social, ESG, Minority or Veteran-affiliated MMFs with $82.9 billion (as of 4/30/22), representing 1.7% of the total $4.979 trillion in taxable MMFs. (The Social & ESG MMF total is down from $87.8 billion as of 12/31/21.) Social or "Impact" MMFs (all Govt MMFs) total $33.3 billion and include: BlackRock Liq FedTust Inst (TFFXX, $6.0B), Dreyfus Govt Sec Cash Instit (DIPXX, $3.6B), Federated Hermes Govt Ob Tax-M IS (GOTXX, $6.2B), Goldman Sachs FS Fed Instr Inst (FIRXX, $3.4B) and Morgan Stanley Inst Liq Govt Sec Inst (MUIXX, $14.1B). ESG MMFs (All Prime) total $10.5B and include: BlackRock LEAF Direct (LEDXX, $1.2B), BlackRock Wealth LEAF Inv (PINXX, $1.4B), DWS ESG Liquidity Inst (ESGXX, $630M), Morgan Stanley Inst Liq ESG MMP I (MPUXX, $4.2B), State Street ESG Liq Res Prem (ELRXX, $1.7B) and UBS Select ESG Prime Inst Fund (SGIXX, $1.5B).
Social and Veteran-Affiliated MMF Share Classes (Prime and Govt) total $39.1B and include: BlackRock Lq FedFund Mischler (HUAXX, $1.8B), Dreyfus Govt Cash Mgmt BOLD (DBLXX, $972M), Federated Hermes Govt Obligs SDG (GPHXX, n/a), Goldman Sachs FS Govt Drexel Hamilton (VETXX, $5.6B), Goldman Sachs FS Prm Ob Drexel Hamilton (VTNXX, $51M), Invesco Govt & Agency Cavu (CVGXX, $5.0B), Invesco Liquid Assets Cavu (CVPXX, $1M), Invesco Treasury Cavu (CVTXX, $611M), JPMorgan 100% US Trs MM Academy (JACXX, $100M), JPMorgan 100% US Trs MM Empower (EJTXX, $30M), JPMorgan Prime MM Academy (JPAXX, $1.3B), JPMorgan Prime MM Empower (EJPXX, $465M), JPMorgan US Govt MM Academy (JGAXX, $10.9B), JPMorgan US Govt MM Empower (EJGXX, $3.6B), JPMorgan US Trs Plus MM Academy (JPCXX, $1M), JPMorgan US Trs Plus MM Empower (EJUXX, $113M), Morgan Stanley Inst Liq ESG MMP CastleOak (OAKXX, $250M), Morgan Stanley Inst Liq Govt CastleOak (COSXX, $285M), Morgan Stanley Inst Liq Govt Impact (IMPXX, $1M), Northern Instit Govt Select SWS (WCGXX, $5.3B) and State Street Inst US Govt Bancroft (VTGXX, $400M). (State Street Inst US Govt also has Opportunity, Blaylock and Cabrera shares with $1M each.)
For more on ESG and "Social" MMFs, see these Crane Data News pieces: "Dreyfus Announces New BOLD D&I Share Class with Howard University" (3/1/22), "SSGA Debuts Opportunity Class; BlackRock Bancroft, Cabrera Shares Live" (11/17/21); "More D&I: State Street Files for Blaylock Van Shares; WSJ Hits Tether" (10/27/21); "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares" (8/19/21); "Northern Renames Diversity Shares Siebert Williams; Safened Platform" (4/20/21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (3/25/21); "JP Morgan Launches 'Empower' Share Class to Support Minority Banks" (2/24/21); "Mischler Financial Joins 'Impact' or Social Money Market Investing Wave" (12/5/19); and "Dreyfus Launches 'Impact' or Diversity Government Money Market Fund" (11/21/19). Click here to see the Federal Home Loan Bank Office of Finance's list of D&I or diversity and inclusion, dealers.
