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28 May 2024

USS is a Universal Owner – but what does that mean?

Universal Ownership1  is the concept that institutional investors (like major pension funds) hold such large, diversified portfolios that they represent a slice of the entire market or economy. This means their investments span multiple sectors and industries not just in the UK but across the globe. Essentially, they own a little bit of everything.

Owning a little bit of everything means you can run a diverse portfolio that reduces risk by spreading investments over numerous sectors and providing exposure to different opportunities. But it also means you’re exposed to an array of macro systemic risks – risks that could impact an entire industry or economy, like climate change and biodiversity loss. These aren’t risks that can simply be divested or excluded from portfolios as they’re inherent to the entire market, weaving their way into all asset classes. And with these risks comes responsibility. Responsibility to act individually as well as collectively to minimise the financial impact they could bring.

This isn’t a new concept to us; but it’s a concept that’s increasingly come to the fore as tackling the financial risks of environmental, social and governance (ESG) issues, like climate change for example, become ever more pressing for us to address.

As a Universal Owner ourselves, we have a large, highly diversified investment portfolio that is broadly representative of global capital markets and is managed for the long term, to align with the long-term financial needs of our members.

So how does this impact us?

Well, we’re a long-term, responsible investor with a legal duty to invest in the best financial interests of our members and beneficiaries, so we can pay pensions long into the future. Given our scale, being a Universal Owner is part of who we are.

As a Universal Owner, the economic performance of the entire market that we own a slice of can influence the future value of our portfolio more than the performance of individual securities or industries. This could therefore impact the long-term investment returns we seek for our members’ futures.

That’s why we act as an active and engaged long-term investor, working with other Universal Owners to address the systemic risks we face, as we seek to minimise the financial impact they might have on our investments. We believe that by working with other long-term investors and embedding responsible investment into all our investment activities, we can drive better outcomes for our members.

This is where active stewardship comes in. As a Universal Owner and responsible investor, we engage with the companies we invest in, are active owners of our assets, focus on long-term outcomes, encourage good corporate governance, and consider all financially material considerations for our investments.

We believe that when our investments are run effectively and appropriately manage their environmental and social risks, like climate change or health and safety, risk-adjusted returns can be improved over the long term.

What we can’t do is divest our way out of large systemic risks, nor can we stock pick our way around them. The very nature of systemic risk applies to entire systems rather than individual parts. Divesting or systematically excluding whole sectors, industries, or markets, would significantly limit our investible universe, which could affect the long-term investment returns we seek for our members.

So what next?

Given its importance in how we act, we’ve recently defined Universal Ownership in our latest investment documents, including our new Responsible Investment Policy and Statement of Investment Principles. This doesn’t mean it’s new to us, in fact it’s something we’ve been implementing for some time now, we’ve just formally defined it. It’s also reflected in our Responsible Investment Beliefs and Ambitions Statement, which, as you’d expect, outlines our beliefs and ambitions in this space.

As our statement outlines, we believe that collaboration with other Universal Owners and long-term investors is likely to improve investor and stakeholder outcomes. We plan to focus our collective efforts where we can have the greatest impact so watch this space for an update on those collaborations and the progress we’re making. Alongside this, our ongoing active stewardship will continue to be a fundamental part of how we operate, as will working towards our net zero ambition.

You can find more about our approach to responsible investment on our dedicated page.

Universal Ownership – Why environmental externalities matter to institutional investors – United Nations Environment – Finance Initiative (