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Sustainability Report 2022 | Appendix 5 | Other 160.
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Additional UBS Europe SE Considerations for sustainability and climate management.
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UBS Europe SE is a significant entity of UBS Group. Therefore, UBS Group’s management of sustainability and climate risks and related risk assessments implicitly cover UBS Europe SE’s portfolios. In addition, UBS Europe SE maintains an explicit management and assessment of sustainability and climate risks. This includes a tailored risk strategy and business strategy, review of the UBS net-zero commitment, as well as dedicated materiality assessments and stress testing with respect to sustainability and climate risks.
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Strategy & Business Planning Pursuant to the German Banking Act in connection with the European Banking Authority guidelines on Internal Governance and the Minimum Requirements for Risk Management (MaRisk) published by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin), UBS Europe SE manages a robust and durable business strategy. The business strategy sets targets for all important business activities and defines the measures required to achieve these targets, which are updated at least on an annual basis. Some of these targets and measures consider sustainability and climate risks. Sustainability and climate risks are also included in the risk strategy where a risk appetite statement for these risks is defined.
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Net zero and UBS Europe SE As part of the UBS Group, UBS Europe SE is fully committed to supporting the goals of the Paris Agreement, which includes aligning our own operations and business activities with the pathway of a five-step net-zero plan to: (i) measure carbon emissions; (ii) define a roadmap and set targets; (iii) reduce climate impact; (iv) finance climate action and support the transition of our clients; and (v) communicate and engage. These ambitions, activities and related targets are coordinated at the UBS Group level, and then reviewed from a UBS Europe SE materiality perspective.
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Climate risk scenario analysis and stress testing UBS Europe SE has participated in the ECB supervisory climate risk stress test, which assesses how prepared banks are for dealing with financial and macroeconomic shocks stemming from climate risk. The exercise was conducted in the first half of 2022. The results indicated low exposure to corporate counterparties in high-risk sectors.
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UBS Europe SE’s internal climate risk scenario analysis and stress testing capabilities are currently being developed aligned to UBS Group. UBS is developing a climate risk scenario analysis and stress testing framework, which includes the development of internal climate risk scenarios covering transition and physical risks. Further, UBS Group is in the process of developing corresponding climate risk models for major risk types including credit risks and nonfinancial risks. This will allow risk assessments across different severities of climate change and time horizons.
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Currently, UBS Europe SE assesses climate risk in an internal capital adequacy assessment process (ICAAP)-related annual sensitivity assessment. This assessment covers most relevant credit risks in the ICAAP economic perspective. It is based on the heatmaps for physical and transition risks that primarily focus on sectoral vulnerabilities.
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Overall, the credit risk sensitivity assessment as well as the results from the ECB supervisory climate risk stress test indicate a low sensitivity to climate risk and therefore a low relevance for UBS Europe SE’s risk profile and business model.
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Materiality assessment UBS Europe SE considers sustainability and climate risk as part of the regular risk identification process that feeds into the Risk Strategy. This includes an evaluation whether SCR has a material impact on other risk categories. For example, this assessment leverages results from the credit risk sensitivity analysis. Based on these evaluations, SCR is currently assessed as not material after consideration of mitigating measures (see section UBS management of sustainability and climate risks). This indicates a low relevance for UBS Europe SE’s risk profile and business model.
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160
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Sustainability Report 2022 | Appendix 5 | Other 161.
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Independent assurance report 161
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Sustainability Report 2022 | Appendix 5 | Other 162 162
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Sustainability Report 2022 | Appendix 5 | Other 163 163
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Sustainability Report 2022 | Appendix 5 | Other 164 164
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Sustainability Report 2022 | Appendix 5 | Other 165 165
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Sustainability Report 2022 | Appendix 5 | Other 166.
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Basis of Reporting.
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Sustainable investments.
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Theme Sustainable products.
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Metric(s) – Total sustainable investments assets under management (USD billion) – Sustainability focus assets under management (USD billion) – Impact investing assets under management (USD billion) – Sustainable investments proportion of total invested assets (%)
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Definition and method – overall Sustainable investment (SI) focuses on investment decisions that seek to make a difference while generating competitive financial returns.
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Accordingly, UBS’s sustainable investment products exhibit a defined and explicit intention to align with or contribute to sustainability-related objectives, while targeting market-rate financial returns. UBS’s Sustainable Investments Assets Under Management are defined as the sum of AuM in the following two categories: – Sustainability Focus: investment strategies that have explicit sustainable intentions or objectives that drive the strategy. Underlying investments may contribute to positive sustainability outcomes through products / services / use of proceeds. Targeting market-rate investment returns. – Impact Investing: investment strategies that have an explicit intention to generate measurable, verifiable, positive sustainability outcomes. Impact generated is attributable to investor action and/or contribution. Targeting market-rate investment returns. Sustainability objectives or outcomes may include, but are not limited to, the UN Sustainable Developments Goals (SDGs) as identified in the United Nations’ 2030 Agenda for Sustainable Development.
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At a Group level, UBS has established a high-level framework to classify sustainable investment products. It is designed to ensure a consistent approach to product development and marketing across the different investment businesses of UBS. The high-level character of this Group framework is reflective of i) the need to cover and be compatible with different regional regulatory regimes as well as ii) UBS’s diversified business model.
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Definition and method – Asset Management In designating any specific investment fund or mandate as sustainable, the below two-step identification / classification process is followed. This is applied to new product onboardings as well as changes to existing classifications.
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– Assignment of a specific Sustainable Investment classification to a product by the Product Manager (for funds) or Customer Relationship Manager (CRM) (for mandates). – Review of assigned classification for both funds and mandates by investment specialist (by asset class). Criteria applied in determining whether an investment strategy for both funds and mandates qualifies as sustainability focus or impact investing include the following:
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Sustainability Focus – Certain exclusions (e.g., thermal coal-based power generation, controversial business activities) as per UBS Asset Management exclusions policy – ESG risk (i.e., negative) screening incorporated into portfolio construction – Promotion of positive sustainability characteristics Impact Investing (in addition to Sustainability Focus criteria) – Sustainability goals and investment universe of the strategy are currently linked to UN SDGs – Strategy-specific voting and/or engagement intended to generate company and/or investor contribution Taking into account ESG factors as part of the portfolio construction process is mandatory for Sustainability Focus and Impact strategies.
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For UBS Asset Management’s approach to exclusions, please consider the UBS Asset Management Exclusion Policy.
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Definition and method – Global Wealth Management.
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Investment products included by Global Wealth Management in UBS’s Sustainable Investment AuM include:
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Mutual funds (e.g., UCITS) and Separately Managed Accounts (SMAs): In determining whether an investment fund qualifies as a sustainable investment, UBS Global Wealth Management’s Fund Investment Solutions and Investment Manager Analysis teams perform a detailed due diligence, with a focus on assessing the intentionality of the ESG criteria utilized in the investment process. The due diligence process involves ESG questionnaires and can include interviews with fund managers. The fund due diligence is designed to determine whether a fund strategy should be labeled as sustainability focus or impact investing. The fund must be approved via designated approval bodies within Global Wealth Management to obtain the SI / Impact product classification.
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Private Market and Hedge Funds: In determining whether a hedge fund qualifies as a sustainable investment, UBS Global Wealth Management’s Global Alternative Investment Solutions team partners with our Chief Investment Office to assess the degree to which the fund manager systematically addresses sustainability and/or impact objectives across the investment process and the overall portfolio. Currently, Global Wealth Management only considers private market funds that meet the Impact Investing criteria (see below), while hedge fund investments are mostly classified as Sustainability Focus.
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Direct Holdings of green, social, sustainability and sustainability-linked bonds, as well as of Multilateral Development Bank bonds: based on bond coverage by our Chief Investment Office with explicit use of proceeds, or issued by Multilateral Development Banks (MDBs).
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For Impact Investing strategies only, the assessment process additionally considers whether an investment fund / strategy complies with our Chief Investment Office’s criteria for impact investments as specified in a dedicated governance document. The assessment can be conducted across asset classes; at the present time, only shareholder and bondholder engagement funds, private market funds and Multilateral Development Bank bonds are considered impact investments by Global Wealth Management.
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› Refer to the “Strategy” section of this report for more information about our firm’s investment approaches. › Please note that direct holdings of green, social, sustainability and sustainability-linked bonds are currently only included for clients of Global Wealth Management in the United States, mainly due to regulatory reasons.
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166
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Sustainability Report 2022 | Appendix 5 | Other 167.
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Global Wealth Management clients’ SDG-related impact commitments and invested assets.
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Theme Sustainable products.
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Metric(s) Global Wealth Management clients’ SDG-related impact commitments and invested assets (USD billion)
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Definition and method We monitor the GWM offering of impact investment options related to the UN Sustainability Development Goals (SDGs).
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The metric is the sum (in USD billion) of: 100% of client commitment to Private Market Vehicles recognized as impact investments by the GWM Chief Investment Office (CIO) based on the CIO SI framework (ESG and beyond), and in alignment with the Operating Principles for Impact Management.
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– Impact private market vehicles are strategies that finance private companies with the aim to generate incremental measurable positive environmental and social impact, investable through fund structures or as co-investments / direct investments into companies.
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Market value of investment funds, separately managed accounts and ETFs recognized as Impact investments by GWM CIO.
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Change in market value of World Bank bonds (starting from 01 Jan 2017) and of Multilateral Development Bonds (starting from 01 Jan 2019).
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Global Wealth Management clients’ discretionary assets aligned to SI Strategic Asset Allocation.
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Theme Sustainable products.
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Metric(s) Global Wealth Management clients’ discretionary assets aligned to SI Strategic Asset Allocation (USD billion)
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Definition and method The metric comprises the sum of assets under management (AuM) for GWM discretionary offerings aligned to SI Strategic Asset Allocation (SI SAA). For further details on SI SAA please see: Asset allocation models: Sustainable Investing Strategic Asset Allocations.
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The metric is the sum (in USD billion) of the following products: – UBS Manage SI mandates: – UBS Manage [Sustainable Investing] – UBS Manage Advanced [Sustainable Investing] – UBS Manage Premium [Sustainable Investing] For more information please see: UBS Discretionary Mandates – UBS Asset Allocation Funds CIO SI SAA aligned. These are CIO SI SAA aligned funds which meet SI requirements as outlined in: Asset allocation models: Sustainable Investing Strategic Asset Allocations – UBS Sustainable Investment Portfolio Separately Managed Accounts (SMAs) (US). Please refer to UBS Sustainable Investments Portfolios for more information 167
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Sustainability Report 2022 | Appendix 5 | Other 168.
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Sustainable investment in Personal Banking.
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Theme Sustainable products.
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Metric(s) – % SI share of assets under custody in Personal Banking – % Net new sustainable investments in Personal Banking.
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Definition and method – The percentage represents the sum of Sustainable Investing related holdings (USD) of clients booked in Personal Banking in relation to the overall volume of Custody Account Assets in Personal Banking. – The percentage represents the sum of Net New Sustainable Investments of clients booked in Personal Banking (USD) in relation to overall volume of Net New Investment Products in Personal Banking. The metrics consider the following investment solutions as sustainable: – 100% of UBS Manage [SI] – 100% of UBS Manage Advanced [SI] – 50% of UBS Manage [Selection] – 100% of UBS Vitainvest Funds Sustainable – 100% of UBS Strategy Funds Sustainable – 100% of UBS SI Strategy Funds UBS sustainable product information is found here: UBS Discretionary Mandates.
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50% of UBS Manage [Selection] is a blended managed solution between UBS Manage SI and non-SI mandates. The overall share of sustainable investments is between 60–80% depending on the investment strategy. 50% is used for the metric based on a conservative assumption.
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The metrics include the Personal Banking division within the Personal and Corporate business.
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Green, social, sustainability and sustainability-linked (GSSS) bond deals.
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Theme Sustainable products.
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Metric(s) Total GSSS metrics – Number of GSSS bond deals – Total deal value of GSSS bond deals (USD billion) Climate-related metrics – Number of green, sustainability and sustainability-linked bond deals – Total deal value of green, sustainability and sustainability-linked bond deals (USD billion) – UBS apportioned deal value of green, sustainability and sustainability-linked bond deals (USD billion)
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Definition and method The bond deals are issued by UBS clients with the support of Global Banking. The climate-related metrics do not include social bonds.
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The categorization of green, social, sustainability and sustainability-linked (GSSS) bonds is aligned with but not limited to the voluntary ICMA Green Bond Principles, ICMA Social Bond Principles, ICMA Sustainability Bond Guidelines, ICMA SustainabilityLinked Bond Principles (SLBP). The principles include a recommendation that the issuer appoints an external review provider to undertake an independent external review (e.g., Second Party Opinion – SPO). This is consistent with market practice.
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The number of green, social, sustainability and sustainability-linked (GSSS) deals is defined as the sum of all bonds in line with the referenced ICMA Principles and guidelines, where UBS has a role (e.g., bookrunner, sustainability structuring advisor, coordinator). Dual tranche issuances with the same ESG labels are counted as one transaction, whereas dual tranche issuances with different ESG labels are counted as two transactions.
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The Climate-related metrics follow a similar approach to the GSSS bonds. The metric categorization is aligned with but not limited to the ICMA Principles (excluding Social Bond Principles), with GSSS methodology applied to the volume and apportionment calculations.
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The percentage for the calculation of UBS apportioned deal value is obtained from third-party provider Dealogic. In cases where the transaction is not listed in Dealogic, the percentage is obtained from deal documentation, for example the term sheet or subscription agreement.
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GSSS bond and climate-related bond transactions are compiled from an internal transactions database and are corroborated against external sources, Bloomberg and Dealogic. Transactions are screened against the qualifying ESG criteria.
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168
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Sustainability Report 2022 | Appendix 5 | Other 169.
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Green, social and sustainability bonds in Group Treasury.
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Theme Sustainable products.
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Metric(s) Green, social and sustainability bonds in the Treasury Asset Portfolios (USD billion)
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Definition and method UBS tracks the market value of green, social and sustainability bonds in the Treasury asset portfolios (as defined by use-ofproceeds bonds) (USD billion).
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Group Treasury invest its high-quality liquid assets portfolios under a dedicated Treasury ESG Investment Framework as described in the UBS Net Zero commitment. This framework integrates ESG considerations in the investment process and is aligned with, but not limited to, the ICMA Green Bond Principles, ICMA Social Bond Principles and Sustainability Bond Guidelines..
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The metric is the sum of the market value in USD billion equivalent of green, social and sustainability bonds held in the Treasury asset portfolios.
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The green, social and sustainability bonds balance is provided by UBS Group Treasury based on a download of the internal booking system. Bloomberg (external data source) is used for the use-of-proceeds validation.
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Weighted average carbon intensity (WACI)
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Theme Sustainable products.
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Metric(s) – Weighted average carbon intensity – Active Equity Assets (in metric tons CO2e per USD million of revenue) – % AuM weighted average carbon intensity below benchmark (active equity) – Weighted average carbon intensity – Active fixed income assets (in metric tons CO2e per USD million of revenue) – % AuM weighted average carbon intensity below benchmark (active fixed income) – Weighted average carbon intensity – Indexed equity assets (in metric tons CO2e per USD million of revenue) – Weighted average carbon intensity – Indexed fixed income assets (in metric tons CO2e per USD million of revenue)
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Definition and method The primary metrics are an aggregation of portfolio weighted average carbon intensity (WACI) by asset class.
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UBS calculates portfolio WACI according to the Supplemental Guidance for the Financial Sector for TCFD recommendations on Metrics and Targets. It is a measure of the efficiency of emitting carbon in support of economic activities and allows for comparisons between companies and products.
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The asset class metrics represent an aggregation of portfolio WACI weighted by the Assets Under Management (AuM) of the respective portfolios.
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