Our climate strategy - UBS
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Our climate strategy
What we do to act on a low-carbon
future – our climate strategy
Our climate strategy1 underpins underpins our our activities
activities designed to support
our clients and our firm in preparing for an increasingly carbon- carbon- Climate action – a snapshot
constrained world. It underlines our commitment to the
Sustainable Development Goals (SDGs) on climate action and on The transition to a low-carbon economy poses both risks
affordable and clean energy as well as the Paris Agreement. and opportunities for the economy and the financial sector.
These key UBS commitments are embedded in the Principles for Scientists warn that, without a timely decarbonization, by
Responsible Banking (PRB). This global framework specifies the 2100 our planet will be warmer than at any other time in
role of banks in supporting a sustainable future and scaling up human history. Achieving the Paris Agreement goals
their contribution to the achievement of both the SDGs and the demands unprecedented levels of investment. With regard
Paris Agreement. to current progress on climate action and the SDGs, there is
We have reported on our climate strategy aligned with the a recognized climate finance as well as an investment gap –
Financial Stability Board’sBoard’s TaskTask Force on Climate-related
Climate-related Financial to meet the low-carbon transition targets. At the same time,
Disclosures (TCFD)
Disclosures (TCFD) recommendations
recommendations since 2017. sinceThe2017. recommen- The we see a clear investor appetite for directing capital toward
recommendations
dations call on companiescall ontocompanies
disclose thetoimpacts
disclose of the impacts
climate change of a low-carbon future. In 2020, we confirmed our continued
climate
on their change
businesses.on their
This businesses. This willand
will allow investors allow investors
financial and
institu- commitment on being at the vanguard of sustainability by
financial
tions institutions
to make better to make better
investment investment
decisions with adecisions
common with set of a receiving leading corporate sustainability ratings and actively
common
data set the
to assess of climate-related
data to assessrisks theand climate-related
opportunities of risks and
specific collaborating with the financial community on developing
opportunities
companies. Weofarespecific
committed companies.
to aligning Weourare committed
climate disclosure to solutions to better understand climate risks and to make
aligningtheour
within climatepathway
five-year disclosure within
outlined by the five-year
the TCFD (untilpathway
end of climate-smart investments available. By partnering with
outlined
2022) andbytothe TCFD (until
collaborating end the
within of 2022)
industryand to collaborating
to close gaps. industry bodies, we seek to amplify our message: the time
within
We the industry
publicly to close
support gaps.
international, collaborative action against to act on climate is now.
We publicly
climate change.support international,
Our Chairman is a collaborative
signatory to action against
the European
climate change.
Financial Services Our Round Chairman is a signatory
Table’s statement to theofEuropean
in support a strong, Our climate strategy – 2020 highlights
Financial Services
ambitious response Round to climate Table’s
change. statement
Our Group in CEOsupport of a
is a mem-
strong,
ber of theambitious
Alliance response
of CEO Climateto climate change.
Leaders, Our Group
an informal networkCEOof is – Our climate strategy underlines our commitment to the
a member
CEOs convenedof the byAlliance
the World of Economic
CEO Climate Forum Leaders, an informal
and committed to SDGs on climate action and on affordable and clean
networkaction.
climate of CEOs We convened
also continue by tothesupport
World the Economic Forum and
TCFD development energy and supports an orderly transition to a low-
committed
with formal to climate action.
representation We
in the Taskalso continue
Force to support the
since 2016. carbon economy, as defined by the Paris Agreement.
TCFDOurdevelopment
climate-related withachievements
formal representationhave been in the Taskrecog-
widely Force – Our exposure to carbon-related assets on our banking
since 2016.
nized by external experts. In 2020, UBS underscored its leading balance sheet is low, at 1.9% or USD 5.4 billion as of
Our inclimate-related
position sustainability by achievements
being ranked number have one beengloballywidely
for 31 December 2020, a further decrease from 2.3% at the
recognized
the by external
sixth consecutive yearexperts. In 2020, Financial
in the Diversified UBS underscored
Services and its end of 2019 and 2.8% at the end of 2018.
leading Markets
Capital position Industry
in sustainability
of the Dow by being
Jonesranked numberIndex
Sustainability one – Our climate-related sustainable investments increased to
globallyThis
(DJSI). foristhethesixth
mostconsecutive year in the
widely recognized Diversified
corporate Financial
sustainability USD 160.8 billion in 2020 from USD 108 billion in 2019.
ServicesCDP,
rating. andwhich Capitalruns Markets
a global Industry
disclosureof the that
system DowenablesJones – We became a founding signatory of the Net Zero Asset
Sustainabilitycities,
companies, Indexstates(DJSI).andThisregions
is the tomost widelyand
measure recognized
manage Managers Initiative, a leading group of global asset
corporate
their sustainability
environmental impacts, rating.
awarded CDP, UBSwhich runs a global
with Leadership status managers committed to supporting the goal of net zero
disclosure
and a Climate system thatrating.
A List enables companies,
In 2020, cities, statesin and
UBS participated the greenhouse gas (GHG) emissions by 2050 or sooner. We
regionsAssociation
Global to measureofand Risk manage
Professionalstheir (GARP)
environmental
Climate Risk impacts,
Sur- actively engaged on climate topics with 49 oil and gas,
awarded
vey and was UBSrecognized
with Leadership amongst statusthe and
firmsa that
Climate A List rating.
are currently pro- and utilities companies, and voted on 50 climate-related
In 2020,
viding UBSpractice
leading participated in the
in climate Global
financial riskAssociation
management. of Risk shareholder resolutions.
Professionals
In 2020, our (GARP) Climatea Risk
firm became foundingSurvey and was
member of therecognized
Net Zero – We piloted a novel transition risk heatmap methodology
amongst
Asset the firms
Managers that are
initiative, andcurrently
a founding providing
memberleadingof the Net practice
Zero to further inform our climate risk management strategy.
in climate
Banking financial
Alliance risk management.
in 2021. These industry-led alliances bring together – We reached our goal of 100% renewable electricity
banks and asset managers committed to reaching net zero emis- consumption and committed to achieving net zero
sions by 2050. In April 2021, we issued a Net Zero Commitment, emissions in our own operations (scope 1 and 2) by
pledging our firm to achieve net zero greenhouse gas emissions 2025.
resulting from all aspects (Scope 1, 2, 3) of our business by 2050, – We were awarded top ratings and rankings by external
with intermediate milestones established to ensure progress. experts, including climate industry group leader in the
› Refer to www.ubs.com/climate for the UBS Net Zero Dow Jones Sustainability Indices and CDP’s top Climate A
Commitment Statement List.
1 This document has been updated following the release of the UBS Net Zero Commitment Statement in April 2021.
2Climate governance – Mobilizing private and institutional capital: We mobilize
private and institutional capital toward investments that
Climate
Our governance
climate strategy is overseen by the Board of Directors’ (BoD) – facilitate
Mobilizingclimate
private and mitigation
change institutionaland capital: We mobilize
adaptation, and we
Corporate Culture and Responsibility Committee (CCRC), as private
also and institutional
support the transition capital
to a toward
low-carbon investments
economythat as
Our climate instrategy
embedded is overseen Regulations
the Organization by the BoardofofUBS Directors’
Group(BoD)
AG. facilitate climate
corporate advisor,change
and / ormitigation and adaptation,
with our lending capacity. Inand we
2020,
Corporate
Within the Culture
parametersand set
Responsibility
by the CCRC, Committee
the UBS(CCRC), as
in Society also support
our the transition
climate-related to a low-carbon
sustainable investmentseconomy rose as to
embedded in the Organization
Steering Committee Regulations
ensures firm-wide of UBS
execution of Group AG.
the climate corporate
USD 160.8advisor,
billion, and
from/ orUSDwith
108 our lending
billion capacity.
at the end of In 2019,
2020,
Within
strategythe parameters
while our firm’s set by the CCRC,
climate-related the UBSisinsetSociety
risk appetite at the our the
and climate-related
deal value in equitysustainable
and debt investments
capital marketrose to
services,
Steering
Group Executive Board level. In joint meetings, theofBoD’s
Committee ensures firm-wide execution the climate
CCRC USD 160.8 billion, from USD 108 billion at the
and in financial advisory services, related to climate change end of 2019,
strategy
and Risk while our firm’s climate-related
Committee regularly and riskcritically
appetite review
is set at the and the deal
mitigation and value in equity and
adaptation, rosedebt
to USDcapital market
98.9 services,
billion, from
Group Executive
assessments andBoard
stepslevel.
takenIn joint meetings,
by these the BoD’s bodies
management CCRC and in
USD financial
87.2 advisory
billion in 2019. services, related to climate change
and Risk
toward Committee
executing regularlystrategy.
our climate and critically
The CCRC review the
approves – mitigation
Reducing our anddirect
adaptation, rose toWe
climate impact: USD 98.9 billion,
continue to drivefrom
the
assessments
UBS’s annualandclimate-related
steps taken by these management
objectives and oversees bodies
the USD 87.2 billion
reduction of our in 2019.
GHG emissions and therefore have
toward executing
progressive alignmentourofclimate strategy.
our climate The CCRC
disclosure with theapproves
TCFD – committed
Reducing ourtodirect climatenet
achieving impact:
zero We continueintoour
emissions driveown
the
UBS’s annual climate-related
recommendations. These annual objectives
plans and and objectives
oversees the are reduction (scope
operations of our1 GHG and 2) emissions
by 2025. Inand 2020,therefore
we achieved have
progressive alignment of our climate disclosure
managed as part of our ISO 14001-certified environmental with the TCFD committed
the target oftousing achieving
100% net zero emissions
renewable electricity. in
Thisour own
reduces
recommendations.
management system These(EMS),
annualwith plansdefined
and objectives
management are operations (scope 1 and 2) by 2025. In 2020,
our firm’s GHG footprint by 79% compared with 2004 levels. we achieved
managed as part of our ISO 14001-certified
accountabilities across the firm. The EMS helps us to environmental › Refer
the target of using
to “What we do 100% renewable
for our clients” in electricity. This reduces
the UBS Sustainability
management system
systematically reduce (EMS), with defined
environmental management
risks, seize market our firm’s GHG footprint by 79% compared
Report 2020 for more information on our sustainable with 2004 levels.
finance
accountabilitiesandacross
opportunities the firm.
continuously improveTheourEMS helps us and
environmental to › Refer to “What we do for our clients” in the UBS Sustainability
activities
systematically
climate reduce
performance environmental
and resource risks, seize market
efficiency. › Refer to2020
Report for more
“Reducing information
our on our
environmental sustainable
footprint“ finance
andfinance
Appendix
› Refer to the
opportunities and continuouslygovernance”
”Sustainability improve our environmental
graph in the and activities
activities
4 in the UBS Sustainability Report 2020 for more information
climate performance
“How” section of and resource
the UBS efficiency.
Sustainability Report 2020 › environmental footprint“
Refer to “Reducing our environmental footprint“in
and
theAppendix
UBS
› Refer to the ”Sustainability governance” graph in the Climate
4 in risk management
the UBS Sustainability
Sustainability Report 2020 Report 2020
for more for more information
information
Climate strategy
“How” section of the UBS Sustainability Report 2020
Climate
The risk management
physical and transition risks from a changing climate
Climate
As one strategy
of the world’s largest managers of private and contribute to a structural change across economies and
institutional wealth, we play an active role in shaping a The physical
therefore and
affect bankstransition
and therisks from sector
financial a changing
as a whole.climateIn
As one offuture.
sustainable the world’s
We aim to largest managers
be a leading of private
financial providerand in contribute to a structural change across
order to protect our clients’ and our own assets from climate- economies and
institutional wealth,
enabling investors we playprivate
to mobilize an active role in shaping
and institutional capital toa therefore
related affect
risks, webanks
continueand tothedrive
financial sector as aofwhole.
the integration climate-In
sustainable
climate change future. We aimand
mitigation to be a leadingwhile
adaptation financial providerthe
supporting in order torisk
related protect
into ourourstandard
clients’ risk
andmanagement
our own assets from climate-
framework.
enabling
transitioninvestors to mobilize
to a low-carbon private and
economy. institutional
In 2020, we again capital
sawtoa related
UBS risks,
manages we continue
climate risksto drive
in ourtheownintegration
operations,of climate-
balance
climate
growth change mitigation
in investor appetite andforadaptation
directing while
capital supporting
into climate the relatedclient
sheet, risk into ourand
assets standard
supplyrisk management
chain. framework.
We are embedding climate
solutions. We address this by continuously developing oura
transition to a low-carbon economy. In 2020, we again saw riskUBS
intomanages
the UBS climate risks in
risk appetite our own and
framework operations,
operationalbalance
risk
growth inin investor
offering appetite
sustainable for directing
finance and actively capital into climate
engaging with sheet,
appetite client assets and
statement. supplywe
In 2020, chain. We are
further embedding
integrated climate
climate risk
solutions.
clients. OurWe address
climate thissupports
strategy by continuously
our clients developing
and our firmour in risk intoidentification,
in risk the UBS risk management
appetite framework and operational
stress testing methodology risk
offering inforsustainable
preparing success infinance and actively
an increasingly engaging with
carbon-constrained appetite statement. In 2020, we further integrated
and reporting processes across the organization. We have climate risk
clients. Our climate strategy supports our clients and our firm in
world. in risk identification,
consistently reduced our management
exposure tostress testing methodology
carbon-related assets and
preparing
We advancefor success
toward thisin goal
an increasingly
through our carbon-constrained
innovative financial and reporting
continued processes efforts
our multi-year acrosstothe organization.
develop methodologiesWe have that
world.
product offering and advisory, as well as through embedding consistently
enable morereduced
robustour andexposure to carbon-related
transparent disclosure of assets and
climate
We advance
climate risk in ourtoward this goal
firm-wide risk through
management our innovative
framework financial
and in continuedThis
metrics. ourwork
multi-year efforts toour
will continue develop
effortsmethodologies
to ensure we that are
product offering and advisory, as well as through
our own operations. Our climate strategy focuses on four pillars: embedding enable
preparedmore robust to
to respond and transparent
increased disclosure
regulatory of climate
requirements on
–climate risk in our
Protecting our own
firm-wide
assets:riskWemanagement
seek to protect framework
our assetsand byin metrics.
climate This risk, work
are will continue
aligning our our efforts towith
disclosure ensure
the weTCFD are
ourlimiting
own operations. Our climate
our risk appetite forstrategy focuses on
carbon-related four and
assets pillars:
by prepared to respond
recommendations andtocollaborate
increased within
regulatory requirements
the industry on
to close
– estimating
Protecting our ourown assets:
firm’s We seek to protect
vulnerability our assetsrisks
climate-related by climate
gaps. risk, are aligning our disclosure with the TCFD
limitingscenario-based
using our risk appetite for carbon-related
stress-testing approaches assets
andand otherby recommendations
In 2020, we also andrefined
collaborate withintothe
our ability industrythe
estimate to firm’s
close
estimating our portfolio
forward-looking firm’s vulnerability
analyses. We to have
climate-related
reduced carbon- risks gaps.
vulnerability to climate-related risks using forward-looking
using scenario-based
related assets on our stress-testing
banking balance approaches
sheet to and 1.9%, otheror In 2020, weapproaches,
scenario-based also refinedand ourdeveloped
ability to aestimate
climate the firm’s
transition
forward-looking portfolio analyses. We have
USD 5.4 billion, as of 31 December 2020, down from 2.3% reduced carbon- vulnerability
risk heatmap. to climate-related risks using forward-looking
related
at the endassets on our
of 2019 and banking
2.8% at the balance
end ofsheet2018.to 1.9%, or scenario-based
› Refer to theapproaches, and developedstandards
subsequent ”Climate-related a climate transition
in the
USD 5.4 billion, as of 31 December
– Protecting our clients’ assets: We support 2020, down ourfrom 2.3%
clients in risk heatmap.
energy and utilities sectors” table
at the end ofand
assessing 2019 managing
and 2.8% at climate-related
the end of 2018. risks and
›› Refer to
Refer to the subsequent
”Scenario ”Climate-related
analysis” standards in the
in this document
– opportunities
Protecting ourthroughclients’ourassets: We products
innovative support and our services
clients in energy and utilities sectors” table
assessing and
investment, financingmanaging
and research.climate-related
We actively risks engageand on › Refer to ”Scenario analysis” in this document
opportunities
climate topicsthrough our innovative
with companies thatproducts
we invest and services
in. Asset in
investment,
Managementfinancing (AM) and has research.
implemented We actively engage on
an engagement
climate
program topics
with 49 with companies
companies fromthat we gas,
oil and investand in.utilities
Asset
Management (AM) has implemented
sectors and we voted on 50 climate-related shareholder an engagement
program with
resolutions 49 2020.
during companies from oil and gas, and utilities
sectors and we voted on 50 climate-related shareholder
resolutions during 2020.
3
3Climate-related standards in the energy and utilities sectors
Climate-related standards
Climate-related standardsininthe
theenergy
energyand
andutilities
utilitiessectors
sectors
Coal-fired power plants Not providing project-level finance to new coal-fired power plants globally
Coal-fired power plants Not providing globally
Coal-fired power plants Not providing project-level
project-levelfinance
financetotonew
newcoal-fired
coal-firedpower plants
power globally.
plants globally.
Only supportingfinancing
Only supporting financingtototransactions
transactionsofofexisting
existing coal-fired
coal-fired operators
operators (>20%
(>30% coalcoal
reliance)
Coal Only supporting
reliance) financing to transactions of existing coal-firedtheoperators (>30%
(>20% Pariscoal reliance) if
Coal who haveifathey have
transition astrategy
transition strategy
in place thatthat
alignsaligns
withwith
a pathway goals
under of the
the Paris Agreement,
Agreement,
who
they
or if havetransaction
the a transitionisstrategy
related in
to place
that thatwith
aligns
renewable aligns
thewith
energy goals
or aclean
pathway
of the under
Paris the Paris or
Agreement,
technology. Agreement,
if the
Coal or if the transaction is related to renewable energy
or if the transaction
transaction is relatedistorelated to renewable
renewable energy orenergy
clean technology.
Coal mining Not providing financing where the stated use of proceeds is for greenfield1 1 thermal coal mines.
Coal mining Not providing financing where the stated use of proceeds is for greenfield1 thermal
Coal mining Not providing
Only financing to
provide financing where the stated
existing thermal usecoal-mining
of proceedscompanies
is for greenfield
(>20%thermal
of revenues) if they
coal mines
coal mines
havemines.
a transition strategy that aligns with the goals of the Paris Agreement, or if the
Continuing to severely restrict lending and capital raising to the coal mining sector
Continuing
Only provideto
transaction severelyto
isfinancing
related restrict lending
torenewable
existing and coal-mining
energy
thermal capital
or cleanraising to the coal
technology.
companies mining
(>20% of sector
revenues) if they
have a transition strategy that aligns with the goals of the Paris Agreement, or if the transaction
Mountaintop removal
Mountaintop removal(MTR)
(MTR) Not providing
Not providing financing to
tocoal-mining
financingenergy coal-mining companies
companiesengaged
engaged in in
MTR
MTRoperations
operations.
Mountaintop removal (MTR) is related to renewable
providing financing to or clean companies
coal-mining technology. engaged in MTR operations
Arctic oil
Arctic oil and
and oil
oilsands
sands(MTR) Not providing
Not financing
providing financing
financingto where
where the
thestated
stated use
useof proceeds is for new offshore oil oil
projects
Mountaintop
Arctic oil and removal
oil sands Not providing wherecoal-mining
the stated ofofproceeds
companies
use proceeds
engaged is for
is in
for MTR
newnew offshore
operations.
offshore projects in
oil projects
in the
the Arcticororgreenfield
Arctic greenfield 1 oil sands projects
1
in the Arctic or greenfield1oil oilsands
sandsprojects.
projects
Arctic oil and oil sands Onlyproviding
Not
Only provide
provide financing
financingto
financing companies
where
to that
the stated
companies with have
use ofsignificant
proceeds
significant reserves
is for new
reserves or or production
offshore
production in arcticoiloil
oilinprojects
arctic
Only provide financing to companies that have significant reserves or production in arctic oil
and
in
andthe/or
/ or oil sands
Arctic
oil sands
or (>30% 1of
greenfield
(>20% ofoilreserves
sands
reserves or production)
projects.
or production) where
if they the
havestated
a use of proceeds
transition strategy isthat
related
Oil and gas and / or oil sands (>30% of reserves or production) where the stated use of proceeds is related
Oil and gas to
Onlyrenewable
aligns with theenergy
provide financinggoals or
of conventional
the Paris oil and
Agreement, gas orassets
if the transaction is related to renewable
to renewable energy orto companies with
conventional significant
oil and gas assets reserves or production in arctic oil and / or
energy
oil sandsor(>20%clean technology.
of reserves or production) if they have a transition strategy that aligns with the
Liquefied natural gas (LNG) Transactions
goals directly
of the Paris related
Agreement, to LNG infrastructure assets are tosubject to enhanced
energy environmental
Oil and gas Liquefied natural gas (LNG) Transactions directly related toorLNG if the transaction assets
infrastructure is related renewable
are subject to enhanced or clean
environmental
Liquefied natural gasdrilling
and ultra-deepwater (LNG) and social riskdirectly
Transactions
technology. (ESR) due diligence
related to LNGconsidering relevant
infrastructure factors
assets are such as management
subject to enhanced of methane
and ultra-deepwater drilling and social risk (ESR) due diligence considering relevant factors such as management of methane
and ultra-deepwater drilling leaks as well as and
environmental the company’s past and present environmental and socialfactors
performance
leaks as well as the company’s past and present environmental and social performanceas
social risk (ESR) due diligence considering relevant such
Liquefied natural gas (LNG) management
Transactions of methane leaks
directly as well as the company’s
ultra-deepwater drilling arepast
assetsassets areand present
subject environmental
to enhanced ESR due
Transactions
and directly related
socialconsidering
performance. related to to LNG infrastructure
ultra-deepwater drilling assets subject to
are subject enhanced
to enhancedenvironmental
ESR due
and ultra-deepwater drilling diligence
and social risk (ESR) relevant
due diligence factors such
consideringas environmental
relevant factors impact
such analysis,
as spill
management prevention
of methane
diligence considering relevant factors such as environmental impact analysis, spill prevention
and response
leaks as
Transactions well asplans,
the
directly and the company’s
company’s
related topast and past andenvironmental
present
ultra-deepwater present
drilling environmental
assets and
are social and
subject social
performance.
to performance
enhanced ESR
and response plans, and the company’s past and present environmental and social performance
due diligencedirectly
Transactions considering
relatedrelevant factors suchdrilling
to ultra-deepwater as environmental
assets are subjectimpact toanalysis,
enhanced spill
ESR due
prevention and response
diligence considering relevantplans, and the
factors suchcompany’s
as environmentalpast and presentenvironmental
impact and
analysis, spill prevention
social
and
1 Greenfield means a new mine / well or an expansion of an existing mine / well which performance.
response
results plans,
in a material and
increase inthe company’s
existing productionpast and
capacity. present environmental and social
1 Greenfield means a new mine / well or an expansion of an existing mine / well which results in a material increase in existing production capacity.
performance.
1 Greenfield means a new mine / well or an expansion of an existing mine / well which results in a material increase in existing production capacity.
1 Greenfield means a new mine / well or an expansion of an existing mine / well which results in a material increase in existing production capacity.
4
4Scenario
Scenario analysis
analysis
We
We have
have been
been using
using scenario-based
scenario-based approaches
approaches since since 2014
2014 toto We
We have
have performed
performed bothboth top-down
top-down balance
balance sheet
sheet stress
stress
assess
assessour
ourexposure
exposure toto physical
physical and
and transition
transition risks
risks stemming
stemming from
from testing
testing (across
(across the
the firm),
firm), as
as well
well as
as targeted,
targeted, bottom-up
bottom-up analysis
analysis
Scenario
climate analysis
climate change.
change. These
These early
early in-house
in-house scenario
scenario analyses
analyses have
have been
been of
of specific
specific sector
sector exposures
exposures covering
covering short-,
short-, mid-,
mid-, and
and long-term
long-term
We havebybeen
followed using scenario-based approaches since 2014 to We have performed both top-down balanceUBS
sheet stress
followed by aa series
series of
of assessments
assessments performed
performed through
through industry
industry time
time horizons.
horizons. TheThe table
table below
below summarizes
summarizes thethe UBS scenario
scenario
assess our exposure
collaborations in to physical
order to and transition
harmonize risks stemming
approaches in from
addressing testing (across
assessments the firm), as well as targeted, bottom-up analysis
collaborations in order to harmonize approaches in addressing assessments performed
performed to to date.
date.
climate change.
identified These early in-house scenario analyses have been of specific sector exposures covering short-, mid-, and long-term
identifiedmethodological
methodologicaland anddata
datagaps.
gaps.
followed by a series of assessments performed through industry time horizons. The table below summarizes the UBS scenario
collaborations in order to harmonize approaches in addressing assessments performed to date.
Time
Time
Time 1
identified methodological
Assessmentand data gaps.
Assessment
Assessment Year
Year
Year
Scenarios used
Scenarios
Scenariosused
used
horizon
Time 11
horizon
horizon
Outcomes
Outcomes
Outcomes
Assessment Year Scenarios used horizon1 Outcomes
UBS
UBSclimate
UBS climatestress
climate stresstest
stress testto
test totoassess
assess
assess firm-wide
firm-wide
firm-wide 2014
2014
2014 Climate
Climatescenario
scenario
Climate scenario ––– ST
ST
ST Moderate
Moderatefinancial
Moderate financialimpact
financial impactin
impact ininline
line
vulnerability
vulnerability to climate
toclimate change
climatechange (impacts
change(impacts to
(impactstoto developed
developedin-house
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line other stress scenarios, such
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as
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anoil
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assets)
assets) 2014 Climate scenario – ST Moderate
oil shock financial impact in line
scenario assets)
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firm-wide 2014 Climate scenario – ST Moderate financial impact in line
scenario vulnerability to climate change to developed in-house – MT with other stress scenarios, such
analysis vulnerability to climate change (impacts to developed in-house with other stress scenarios, such
analysis balance sheet,
Assessment
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physical income
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2015
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scenario
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MT
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financial
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shock
insurance that foresee
coverage an oil
and loan
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mortgage portfolios
portfolios secured
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by real
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estate developed
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insurance coverage
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and loan
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analysis Bottom-up
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scenario – STST Low financial impact due toto
Assessment
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risk impacts
impacts 2015
2015 Climate
Climate ––– ST Low
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financial impactdue
dueto high
on mortgage
Assessment
(changing ofportfolios
oil, physical
gas and secured
climate
coal by
hazard
prices, real estatean
impacts
implying 2015 Climate scenario
developed in-house
scenario
developed in-house
ST
––– MT
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MT
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quality
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and
due
and
maturity
to
to high
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(changing oil,
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prices, implying an developed in-house quality and maturity profile of
on mortgage
increased carbonportfolios
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gas real
and estate an
electric
developed
developed in-house
in-house –– MT
– MT
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quality
maturity
insurance
profile
and maturity
ofprofile
profile
coverage and loan
portfolio
of
increased
increased carbon
carbon price)
price) on oil, gas
gas and
and electric
electric portfolio
portfolio
utilitiescredit
creditportfolios
portfolios maturity profile
utilities
utilities credit
Assessment ofportfolios
climate transition risk impacts 2015 Climate scenario – ST Low financial impact due to high
(changing
Assessment
Natural oil,
Capital gas and coal
of climate
Finance prices,risk
transition
Alliance implying
/ Unitedimpacts an
Nations 2015
2017 developed in-house
Climate academic
Historic scenario – ST
ST quality and maturity
Lowsignificant
No financial impact profile
due toof
production high
Natural
Natural Capital
Capital Finance
Finance Alliance
Alliance //United
United Nations
Nations 2017
2017 Historic
Historicacademic
academic –– MT
– ST
ST No
No significant
significant production
production impact
impact
increased
(changing
Environment carbon price)
oil,Programme
gas and coal on oil,
Financegas
prices, and
implyingelectric
Initiative an developed in-house
precipitation – MT
MT portfolio
quality
impact and
from maturity
drought profile of
Environment
Environment Programme
Programme Finance Initiative (UNEP precipitation ––– MT from drought
utilities
increased
(UNEP credit
FI): carbonportfolios
Assessment price) of onFinance gasInitiative
oil, impact
the andofelectric(UNEP precipitation
observations MT from drought
portfolio
FI):
FI): Assessment
Assessment of the impact
of the impact of increasedof increased observations
observations
utilities
increased credit
droughtportfolios
on productivity ofinborrowers
drought
droughtCapitalon
onproductivity
productivity ofofborrowers
borrowers inUBS
UBS
Natural
in UBScredit energy Finance
credit Alliance
portfolio / United Nations 2017 Historic academic – ST No significant production impact
energy
energy credit portfolio
portfolio
Environment
Natural Capital Programme
Finance Alliance Finance/ Initiative
United Nations (UNEP 2017 precipitation
Historic academic –– MT
ST from drought production impact
No significant
FI):
UNEP Assessment
Environment
FITCFD of theI impact
TCFDProgramme
phase Finance
project of
for increased
Initiative
banks: (UNEP 2018 – observations
precipitation
Integrated from drought credit loss from
UNEP
UNEP FI
FI TCFD phase
phase | project for banks: 2018– Integrated ––– ST
ST
MT No
No significant
No significantcredit
significant creditloss lossfrom
drought
FI): Assessment of the| project
on productivity for
of borrowers
impact banks:
of increased in UBS 2018–
2019
Integrated
observations
Assessment
ST
transitionrisksrisks in 2 degree
from
Developmentofofa acredit
Development credit analysis methodology 2019
2019 Assessment
Assessment ––– MT
MT transition
transition risksinin22degree degree
Development
energy
droughtcredit of a creditanalysis
portfolio
on productivity analysis
of borrowersmethodology
methodology
in UBS Modeling MT scenarios,nor norimpacts
impactsfrom from
that
that uses
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integrated assessment
assessment modeling Modeling
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scenarios, nor impacts from
that
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credit portfolio assessmentmodeling modeling(IAM) (IAM) Consortium(IAMC)
(IAMC) physicalrisks
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(IAM) climate scenarios; pilot the
testing the Consortium
Consortium physical risksinincredit
climate
UNEP FIscenarios;
climate TCFD phase
scenarios; pilot
pilot testing
| project
testingfor methodology
thebanks:
methodology 2018– Integrated (IAMC) – ST physical
No significant
scenarios
4- and loss2 from
degree
onmethodology
UBS on UBS power utilities credit scenarios
scenarios
UNEP
on UBSFIpower
Development TCFDof
power utilities
phase
utilities
a credit | credit
project
credit portfolio
for methodology
portfolio
analysis banks: 2019
2018– Assessment
Integrated –– MT
ST transition
No significantrisks credit
in 2 degree
loss from
portfolio
that uses integrated
Development of a credit assessmentanalysismodeling
methodology (IAM) 2019 Modeling
Assessment – MT scenarios, nor impacts
transition risks in 2 degree from
UNEP
UNEP FIFITCFD
TCFD phase
phase IIIIproject
project for banks: 2020 –– IAMC
IAMCbased on –– ST UBS has
hasarisks
avery
norinlow exposure
climate
that uses scenarios;
integrated pilot testingfor
assessment the banks:
methodology
modeling (IAM) 2020 Consortium
Modelling based on
(IAMC) ST UBS
physical
scenarios, very low
impacts exposure
4- and 2 degree
from
––on Further development of NGFS
NGFSscenarios
scenarios to
to economic
economic
scenarios activities
activities with
with
UNEP UBSFIpower
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climate TCFD phase
development
scenarios; utilities
pilot ofclimate
IIcredit
project
climate
testing forscenarios,
portfolio
the banks: in
scenarios,
methodology in 2020 –Consortium
IAMC based on
(IAMC) ––– MT
ST
MT UBS has risks
physical a very in low
4 and exposure
2 degree
moderate
moderate to high
to high transition
withrisk;
transition risk;
–online
line
UBS with
Further with
power the
therange
rangeof
utilities
development of reference
reference
credit portfolio
of climate scenarios
scenarios
scenarios, in –– CICERO
NGFS
CICEROscenarios ––– LT
MT
LT
to economic
scenarios activities
published
UNEPlineFIwith
published TCFD by
the the
byphase
the
rangeNetwork
II project
Network forforGreening
for
of reference banks:
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the 2020 – CICERO
IAMC based on –– LT
ST no significant
moderate
UBSsignificant
no to credit
high
has a verycredit loss
lossfrom
transition
low exposure from
Industry Financial
UNEP FI TCFD System
phase (NGFS)
II project banks: 2020 – NGFS
IAMC scenarios
based on transition
risk;
to no
economicarisks
hassignificantinin orderly
activities credit
withand
loss
Industry Financial System (NGFS)
– Further development of climate scenarios,the
published by the Network for Greening in –– MT
ST UBS
transition very
risks low exposure
orderly and
NGFS scenarios disorderly
from
moderate
to economic
disorderly 1.5
transition
to degree
1.5high risks scenarios
in orderly
transition
activities
degree with risk;
scenarios
collaboration –– Development
collaboration Financial
line
Further
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withdevelopment
the ofofaa(NGFS)
range heatmap
of of
heatmap methodology
reference
climate scenarios in
scenarios,
methodology – CICERO –– LT
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and disorderly 1.5transition
degree risk;
published
line testing
––– Pilot with
Development bythe
the the
range Network
ofcredit ofanalysis
a heatmap formethodology
reference Greening
scenarios
methodology the – CICERO moderate
no significantto high
credit loss from
Pilot testing the credit analysis methodology – LT scenarios
Financial
published oilSystem
bythe gas(NGFS)
the Network for Greening
physicalthe transition
no significantriskscredit
in orderly and
loss from
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our oil
testing and
and gas portfolio
portfolio
credit and
and
analysis physical
methodology risk
risk
collaboration – analysis
Industry Financial
Development
analysis on
onSystem
our
ourofreala(NGFS)
real estate
estatemortgage
heatmap methodology
mortgage portfolio
portfolio disorderly 1.5 degree
transition risks in orderly scenarios
and
on our oil and gas portfolio and physical risk
disorderly 1.5 degree scenarios
collaboration –– Pilot
Development
analysis testingon ourtheofreal
a heatmap
credit estate
analysis methodology
mortgage
methodology
UNEP
UNEP FI TCFD
FI testing
TCFD phase
phase III project
IIIportfolio
project for
for banks
banks and
andrisk 2021
2021 –– To
Tobe
bedefined
defined –– STST To
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definedduring
during2021 2021
portfolio
– onPilotour oil and thegas credit analysisandmethodology
physical
investors:
investors: deep dive on climate transition risks in during
during2021
on our deep
analysis onand
oil dive
our real
gas on climate
estate
portfolio transition
mortgage
and risks
riskin
portfolio
physical 2021 –– MTMT
real estate,
estate,portfolio
realanalysis portfolio alignment
alignment methods,
methods, and
and
UNEP FI TCFD on ourphase realIIIestateproject mortgage
for banks portfolio
and 2021 – To be defined –– LTLT
ST To be defined during 2021
client-centric
client-centric approaches for
forsupporting
UNEP FI TCFDapproaches phase III project supporting
for banks and 2021 – To be defined – ST To be defined during 2021
investors:
transition
transition deep
strategies
strategies dive on climate transition risks during 2021 –– MT
investors:
UNEP FI deep
TCFD dive on
phase III climate for
project transition
banks risks in
and 2021 – during 2021
To be defined – MTST To be defined during 2021
in real estate, portfolio alignment methods,
real estate,deep
investors: portfolio
dive alignment
on climate for methods,
transition and
risks in during 2021 –– LT
MT
and
Paris
Paris client-centric
Agreement
Agreement approaches
Capital
Capital Transition
Transition supporting
Assessment
Assessment 2019–
2019– –– IEA 2
IEA2 ––– ST
LT
ST UBS
UBShas
hasaalow
lowlending
lendingexposure
exposure
client-centric
real estate, approaches
portfolio alignment for supporting
methods, and
transition
(PACTA):
(PACTA): strategies
Testing
Testing the alignment
the alignment of UBS
of UBS 2020
2020 –– B2DS 3 –
– MT LT to
tohigh-carbon
high-carbonsectors
sectors
transition
client-centric strategies
approaches for supporting B2DS3 – MT
corporate
corporate lending portfolios
lending portfolios with Paris with Paris
transition strategies –– SDS
SDS4
4
Agreement
Agreement benchmarks
benchmarks
Agreement
Paris Agreement CapitalTransition
Capital TransitionAssessmentAssessment 2019– –– IEA
IEA2525
NPS – ST
ST UBS has aa low low lending
lendingexposure
exposure
– NPS2
(PACTA):
Paris AgreementTesting Capital
Testing the alignment
the alignment
Transition ofofUBS UBS
Assessment 2020
2019– – B2DS
IEA6 33 – MT
––
ST
MT to
UBS high-carbon
high-carbon
has a low lending sectorsexposure
sectors
PACTA
PACTA 2020
2020 climate
climate alignment
alignment test:
test: studying
studying 2020
2020 –– B2DS
– CPS – ST
ST Listed
Listed investments results show
corporate
corporate
(PACTA): Testing lendingthe
lending portfolios
portfolios
alignment with
with Paris
ofParis
UBS 2020 CPS6 3
– MT to high-carbon sectors show
investments results
the
the climate alignment
climatelending
Agreement alignment
benchmarks
of
ofSwiss
Swiss mortgages,
mortgages, direct
direct –– SDS
B2DS
SDS 44
–– MT that
thatUBS
UBShas hasaarelatively
relativelylow low
Agreement
corporate benchmarks portfolios with Paris MT
real
real estate
estate investments
investments and
and listed
listed investments
investments –– NPS
SDS554
NPS exposure
exposureto topower,
power,automotive
automotive
Agreement benchmarks
portfolios
portfolios – CPS
NPS66 5 and
and fossil
fossil fuel
fuel sectors
sectors overall,
overall,
PACTA 2020 climate alignment test: studying 2020 – CPS – ST Listed investments results show
PACTA 2020 climate alignment test: studying 2020 – ST compared
Listed
compared totothe
investments
the aggregated
results show
aggregated
the
PACTA climate
2020 alignment
climate alignment of Swiss mortgages,
test: studying direct
2020 – CPS6 –
– MTST that
ListedUBS has
investmentsa relatively
resultslowshow
the climate alignment of Swiss mortgages, – MT results
that UBS
results of all
has
of has participating
a
all power, relatively
participating banks’
low
banks’
real estate investments
the climate alignment of and listed
Swiss investments
mortgages, direct – MT exposure
that UBS to automotive
a relatively low
direct real estate investments and listed portfolios
exposure
portfolios to power, automotive
portfolios
real estate investments and listed investments and fossil to
exposure fuel sectorsautomotive
power, overall,
investments portfolios and fossil fuel sectors overall,
11ST= short term, 0–3 years;portfolios
ST= short term, 0–3 years; MT
MT==medium
mediumterm,term,3–10
3–10years;years;LTLT==long
longterm,
term,over
over1010years.
22International Energy Agency (IEA), World Energy Outlook. 33Beyond 2-Degrees
years.
International Energy Agency (IEA), World Energy Outlook. compared
and fossil
Beyond 2-Degrees to the
fuel
Scenario
Scenario aggregated
sectors overall,
44Sustainable
SustainableDevelopment
Development
Scenario compared to the aggregated
Scenario 55New
NewPolicies
PoliciesScenario
Scenario 66Current
CurrentPolicies
PoliciesScenario.
Scenario. results
compared of alltoparticipating
the aggregated banks’
results of all participating
Note:
Note:Climate
Climatescenario
scenarioanalysis
analysisisisaanovel
novelarea
areaofofresearch,
research,and
andweweexpect
expectthe
themethodologies,
methodologies,tools
toolsand
anddata
dataavailability
availabilitytotoevolve
evolveand
andimprove
improveover
overtime.
time.This
Thisoverview portfolios
results
summarizes
overviewbanks’ of the
summarizes all participating
thekey
keyscenario banks’and
scenarioassessments
assessments and
pilots portfolios
pilotsconducted
conductedatatUBS
UBSsince
since2014,
2014,which
whichwewewill
willbuild
buildupon
upontotodeepen
deepenour
ourunderstanding
understandingofofclimate
climaterisks
risksand
andopportunities.
opportunities. portfolios
1 ST= short term, 0–3 years; MT = medium term, 3–10 years; LT = long term, over 10 years. 2 International Energy Agency (IEA), World Energy Outlook. 3 Beyond 2-Degrees Scenario 4 Sustainable Development
1Scenario
ST=
Greenfield New 0–3
short 5term,
meansPolicies Scenario
years;
a new MT /=well
mine 6 Current
medium Policies
or anterm, 3–10Scenario.
expansion years
of an ;existing
LT = long term,
mine over
/ well 10 years.
which 2 International
results in Energy Agency
a material increase (IEA),
in existing World Energy
production Outlook. 3 Beyond 2 Degrees Scenario
capacity.
Sustainable
4Note: ClimateDevelopment Scenario
scenario analysis 5 New
is a novel Policies
area Scenario
of research, 6 Current
and we expectPolicies Scenario. tools and data availability to evolve and improve over time. This overview summarizes the key scenario assessments and
the methodologies,
pilots conducted at UBS since 2014, which we will build upon to deepen our understanding of climate risks and opportunities.
Note: Climate scenario analysis is a novel area of research, and we expect the methodologies, tools and data availability to evolve and improve over time. This overview summarizes the key
scenario assessments and pilots conducted at UBS since 2014, which we will build upon to deepen our understanding of climate risks and opportunities.
55Our initial (2014) top-down approach consisted of a scenario- Phase I: Power utilities
based stress test to assess UBS’s balance sheet vulnerability UBS pilot tested a methodology developed with Oliver Wyman
across the firm. Leveraging our existing firm-wide top-down and 16 banks, as part of the UNEP FI TCFD working group, on its
stress-testing methodology, we developed a climate change power utilities portfolio (power). The methodology combines
scenario (which assumes that severe weather events result in quantitative bottom-up borrower-level analysis with top-down
governments around the world agreeing to implement carbon- portfolio segmentation, to analyze for credit-rating impacts
pricing mechanisms to assess the impact on financial assets, under a 2 degree climate scenario. A sample of over
operational income and physical assets). The scenario anticipated 30 counterparties headquartered in the US and the EU was
that these mechanisms will prompt a shift away from coal and analyzed. The main results showed minimal impacts to UBS,
other fossil fuels to cleaner alternatives and adversely impact primarily due to the financial strength of our borrowers and the
markets and gross domestic product. ability for them to adapt to climate-related policy and
Our subsequent (2015) bottom-up analyses of oil and gas technology risks. Counterparties in UBS’s portfolio were
utilities’ as well as electric utilities’ loan portfolios consisted of a quantitatively analyzed based on the narrative that a high
forward-looking analysis to assess impacts of a long-term low carbon price under the climate scenarios would result in reduced
fossil fuel price scenario resulting from policies promoting revenue from high carbon-based assets (e.g., coal-fired power
greater use of renewables, enhancing efficiency standards and plants). Meanwhile, low-carbon capital expenditure would
limiting emissions. We calculated the impact this scenario would increase as these companies invest in renewable technologies to
have on company probability of default and aggregated maintain production capacity. Capital would be raised based on
company-level results at the portfolio level to assess changes to a mixture of debt and equity, based on the companies’ capital
expected loss. We also assessed the vulnerability of loan structure today. Increased revenues from the renewable capacity
portfolios secured by real estate in Switzerland and the US to would offset lost revenues.
physical risk by mapping the location of collateral in over 6,000 Most of UBS’s counterparties tested at the time were
postal code areas against Swiss Re’s CatNet tool, which investment grade large-cap names, many of whom were already
aggregates a large dataset of observed natural hazards such as planning on their own low-carbon transition strategies. These
wildfire, river and pluvial flooding and tropical cyclones. companies are most able to adapt to the shock of carbon pricing
From both top-down and bottom-up approaches, our internal and low-carbon capital expenditure risk factors, and included a
stress tests suggested no immediate threat to UBS’s balance handful of winners in the transition (rating upgrades). The graph
sheet. However, we identified methodological challenges below reflects that credit-rating impacts were more pronounced
ranging from the suitability of climate scenarios for banking risk in small-cap names.
modeling to data availability.
Average credit-rating impacts
UNEP FI TCFD Working Group for Banks
In 2018, UBS began a multi-year collaboration with a peer group Average ratings upgrades / downgrades, based on climate-related
of up to 35 banks, the UNEP FI, the IAMC, and risk consultancies financial impacts
Oliver Wyman and Acclimatise. Now entering its third iteration, Grouped by market capitalization (unit: notches up / down according to
our objective is to develop analytical tools to help banks define scale in
internal UBS rating scale, UBS117
page Annual
fromReport 2020, page 117)
UBS AR)
and disclose climate-related risks and opportunities, as
recommended by the TCFD. This includes developing and % change
standardizing how we quantify climate-related risks, addressing
0.5
data gaps in the process, including Paris-aligned scenarios, and
further refining scenario-based stress-testing methodologies. Small Cap Mid Cap
0
These advancements aim for banks to more robustly identify and Large Cap
disclose exposure to climate-related risks and opportunities. –0.5
–1
–1.5
–2
Average of 2030 move Average of 2040 move
6Phase II: Oil and gas
In 2020, UBS pilot tested the methodology on its 2020 oil and Weighted average 2040 probability of default
gas (O&G) portfolio. This time, testing against a range of 1.5˚C
pathways, including an orderly and immediate transition, a in %
disorderly and delayed transition, and a disorderly transition that
assumed low reliance on carbon dioxide removals (CDR). The 10
scenarios were developed in partnership with the IAMC and 8.35%
were also the basis for the reference scenarios issued by the 8
Network for Greening the Financial System (NGFS). 6.33% 6.49%
Close to 50 counterparties were analyzed in the US and EU – 6 5.36%
including both lending and traded products exposure to Baseline 5.36%
corporate entities classified in the O&G sector. Upstream O&G 4
extraction, midstream O&G processing and transport, and
2
integrated O&G companies were included in the analysis. The
total exposure analyzed was around USD 1.4 billion3 (sectoral
0
credit exposure in the Investment Bank). CDR Delayed Immediate NDC
After segmenting the credit portfolio according to the action action
heatmap methodology (see climate risk heatmap section), credit
officers were asked to determine ratings impacts on our Losses were found to be lower in a delayed (disorderly)
counterparties, based on scenario data. To do so, they were transition as certain companies may continue to produce over
given the three different transition risk scenarios and the the next 10 years, which would generate additional cash flow. A
nationally determined contributions (NDC) scenario (considered delayed action scenario also gives integrated companies time to
as a baseline scenario). Scenario variables included O&G adapt, such as implementing stated net-zero commitments.
demand, price, electricity technology use and pricing, and other The exercise highlighted that improving the granularity of
macroeconomic data. Regional (US and EU) and global views scenarios to capture regional dynamics of energy production and
were created to accommodate the geographic focus of the O&G prices would yield a more robust analysis. Further efforts
portfolio and the upstream segments. are required to continue to bridge methodological and data gaps
Credit officers discussed and debated the relative risk factors (e.g., capturing systems impacts and downstream impacts). As
within each scenario and re-rated each company in their companies continue to develop their own TCFD disclosures, we
respective portfolio according to an approximate order of can expect better quality counterparty-level data as well.
magnitude of credit ratings downgrades, for projected years
2030 and 2040. Both 2030 and 2040 were chosen to analyze Climate risk heatmap
impacts from both an immediate and delayed transition. Existing To inform the further development of its climate risk
defaults during COVID-19 and the oil price shock in 2020 were management strategy, UBS has piloted a transition risk heatmap,
considered within their determinations. Ratings estimates based developed in collaboration with the UNEP FI TCFD working
upon mitigants (e.g., transition strategies) were also factored in. group. The heatmap enables UBS to take a materiality-driven
According to our assessment, integrated O&G, as large-cap approach to further inform its climate risk management strategy
companies, are well equipped to forecast and strategize for their by:
role in the transition to a low-carbon economy. Large integrated – helping to identify concentrations of exposure with high
O&G companies are also considered to have control over major climate risk vulnerability, which, in turn, enables resource
reserves, making them some of the last oil drillers in 2040 that prioritization for detailed bottom-up risk analysis;
supply residual oil demand. – supporting a client-centric strategy that prioritizes clients who
Key findings supported earlier analyses: no significant risk to may benefit from UBS products and services in support of
UBS was identified. Expected loss impacts to UBS exposure in the their transition strategies; and by
sector ranged from 0.4% to 1.1% of the total sectoral exposure – providing decision-useful information in internal reports to
in a delayed transition scenario and low-CDR scenario executive and board leadership and external disclosure to
respectively, in 2040. In addition, the weighted average stakeholders.
profitability and default (PD) impacts by scenario show greater
credit impacts in a CDR scenario, followed by an immediate The heatmap rates cross-sectoral credit risk exposure to
action scenario, as shown in the next graph. climate sensitivity, from high to low, through a risk segmentation
process. These ratings are based upon climate risk ratings
determined by ratings agencies, regulators and expert
consultants. The working group discussed how to group
companies with similar risk characteristics into risk segments and
rate those segments according to their vulnerability to climate
policy, low-carbon technology risks, and revenue / demand shifts
under an aggressive approach to meeting the well below 2˚C
Paris goal. The next steps for UBS are to pilot the physical risk
heatmap methodology, also developed with the UNEP FI TCFD
working group, and to examine the applicability of the heatmap
3 UBS corporate lending to climate-sensitive sectors, see page 13 methodology in other traditional risk categories.
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