Environmental & social risk management

UBS seeks to identify, manage and control environmental risks in its business transactions. Examples of environmental risk include the impairment of a client's cash flow or assets by environmental factors (such as inefficient processes or property that is polluted or contaminated) or through liability risk, such as when a bank takes environmentally unsound collateral onto its own books. As environmental risks can manifest themselves across the wide variety of risks inherent in UBS's business activities, including credit risks, liability risks and reputational risks, UBS has designed environmental procedures and tools for their identification, management and control. These environmental procedures and tools are integrated into existing processes, such as due diligence on transactions or investments and ongoing risk management.

UBS has developed internal industry sector guidelines to support the consistent identification and assessment of environmental and social risks in all its banking activities. The sector guidelines cover industry sectors that have a high potential for environmental and social risk including chemicals, oil and gas, utilities, infrastructure, forestry products and biofuels and metals and mining. The guidelines summarize industry standards for dealing with these issues in the various life cycles of the sector.

Not all products and services provided by UBS have the same risk potential. UBS takes a risk-based approach to environmental risk management and regularly analyzes its portfolio of products and services to assess their respective environmental risk potential. With its current business profile and operating environment, UBS's potential for material risk is greater within the context of its lending and capital markets businesses, as well as its direct real estate and infrastructure investments. As a result, Global Wealth Management & Business Banking has introduced a standardized environmental risk check to identify material environmental risk in its lending to all relevant clients, including its roughly 140,000 corporate clients in Switzerland. In the Investment Bank, the environmental risk framework covers all banking activities including debt and equity underwriting, financial advisory services and lending. For its part, Global Asset Management has put environmental due diligence processes in place for its real estate and infrastructure funds. If significant potential environmental risks are identified in a transaction, the risks are assessed. Wherever possible, UBS seeks to engage with the client to discuss possible mitigating measures. Where this is not possible or successful, the firm may decline the transaction altogether.

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Global Wealth Management & Business Banking

The business division assesses its environmental risks in a three-stage process. Client advisors complete the first screenings, looking at financial risks linked to environmental aspects such as compliance with environmental legislation, workplace safety, contaminated sites and natural hazards. In 2008, close to 100,000 lending transactions in Switzerland were subject to such a screening. If the risks cannot be fully ruled out during the first screening, a credit officer initiates a second screening and decides whether the risks identified are transparent enough for the credit decision to be taken. Transactions entailing significant environmental risk undergo a detailed environmental assessment as a third step, – a service provided by the business division’s environmental risk competence center. In 2008, 32 such detailed assessments took place and 134 client advisors and credit officers were trained.

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Investment Bank

The Global Environmental Risk Guidelines apply to all transactions, services and activities within the Investment Bank. The Guidelines are supported by an environmental risk framework that is integrated into the business division's due diligence and approval processes. Investment Bank staff identify potential environmental risks in the initial due diligence phase and alert the Investment Bank’s environmental advisory group (EAG) of significant potential risks. Assessments by lawyers and / or external consultants are routinely sought for certain sectors and products. The EAG works with the relevant business and control functions (80 transactions in 2008) to assess the risks, determine any mitigating measures and direct further due diligence, as required. In this way the relevant senior business committee may fully consider the potential environmental risk in the course of its review of the transaction and / or client. The implementation of the environmental risk framework is supported by training and awareness raising activities. In 2008, sector-specific training was provided to 443 bankers and support functions and high-level training to a further 107 employees.

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Global Asset Management

The business division introduced a formal environmental risk matrix in 2004 in order to assess the reputational and environmental risks that investments made on behalf of its clients might imply. The matrix is reviewed annually for applicability and comprehensiveness and forms part of the environmental management system employed within the business division. In 2008, all properties acquired or developed by Global Real Estate for its direct investment vehicles were subject to a thorough environmental due diligence process, in accordance with local regulations and internal best practice guidance. Similar processes are in operation in Infrastructure Asset Management.

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