Risk Management in the Investment Bank

The Global Environmental Risk Guidelines apply to all transactions, services and activities within the Investment Bank. This requirement is supported by an Environmental Risk Framework that is integrated into the Investment Bank’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 to assess the risks, determine any mitigating measures and direct further due diligence, as required, so that 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 EAG reinforces this requirement with training and awareness raising activities. In 2007, the EAG provided sector-specific training on the Environmental Risk Framework to 500 bankers and support functions and high level training to a further 600 employees and advised on environmental issues in 108 transactions.

Case studies

2005 – Participation in an Initial Public Offering (IPO)
Environmental risks in the Oil & Gas sector are potentially significant and may involve air emissions, water and land pollution, transportation, facility decommissioning and site remediation, legal regulations (climate change – emissions restrictions and chemical regulations) and employee safety.

As part of its normal due diligence, UBS will carefully scrutinize a company examining its past and current performance concerning the environment. As part of the due diligence process we focused on identifying and characterizing potentially significant environmental, health and safety liabilities associated with the practices of the firm. Our due diligence confirmed the company has a solid environmental management program that is able to detect and manage its risks. In instances where there have been accidents or contamination, the company acted in a responsible manner and either cleaned up the facility themselves or hired the appropriate expertise to assist them. In addition, the company has made a commitment to developing renewable energy sources and has implemented programs that are focused on climate change, lower carbon energy, clean fuels, biodiversity, water and social investment. UBS’ assessment of this company was confirmed when reviewing Innovest Strategic Value Advisors’ research who rated the company AAA for environmental and social performance

2004 – Senior credit facility and co-manger for a bond for a chemical company
UBS was approached to issue a senior credit facility and act as co-manager for a high-yield bond offering for a chemical company.

Environmental risks in the chemical sector are potentially significant and may include soil and water contamination, use of raw materials, legal liabilities and general public opposition.

As part of its due diligence, UBS performed a Phase I and II evaluation of the counterparty. Phase I due diligence focused on identifying and characterizing significant potential environmental, health and safety liabilities associated with past and current practices at the facility or with off-site sources. Phase II environmental site assessments characterized the nature and extent of potential contamination and produced estimates of the costs of remediation. UBS made sure that reserves, including cash reserves, were established for remediation and potential liabilities.

Based upon the internal and external assessments, UBS concluded that it was comfortable engaging in a business relationship with the counterparty because it had provided the following warranties: