Risk Management in Global Wealth Management & Business Banking

Environmental risks are assessed in a three-stage process in the Global Wealth Management & Business Banking business group. The responsible client advisor carries out a first screening, covering financial risks linked to environmental aspects such as compliance with environmental legislation, workplace safety, contaminated sites and natural hazards. 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 third step, a detailed environmental assessment – a service provided by the business group’s environmental risk competence center. In 2007, 36 such detailed assessments took place.

Case studies

2007 – Coal mining in China
A client asked UBS for a credit facility for its coal mining activities in South China. As the sector is exposed to increased environmental risks, the transaction was escalated within the risk organization of Global WM&BB for an enhanced due diligence to the environmental risk competence center.

The due diligence took into account reports by independent third parties that demonstrated that the company had addressed environmental as well as occupational health and safety issues proactively. Also, there was no evidence that the client's business practices would deviate from international best practices. As a result UBS approved the loan.

2007 – Hydropower in Latin America
UBS was approached by a European bank to emit a bid bond for the consortium of a hydropower complex in Latin America. As hydropower is an environmentally sensitive sector, the transaction was flagged in the environmental risk assessment procedures.

An in-depth environmental assessment was carried out by the environmental risk competence center. Material environmental risks were identified that could not be properly assessed within the short time available, In accordance with its Environmental Policy, UBS decided not to proceed with the transaction.

2005 – Shipment of wood from Central Africa to Europe
Instructed by a client to effect a payment for a shipment of wood from Central Africa to Europe, the environmental credit risk procedures of Global WM&BB revealed that detailed environmental due diligence was required.

Global WM&BB's Environmental Risk Competence Center carried out the due diligence, including a dialogue with the client's senior management and independent forestry experts. The objective was to ensure that the wood was harvested under sustainable conditions and stemmed from legal sources.

The environmental due diligence confirmed that the client managed environmental and social aspects professionally. The client's business activities in the tropical forest were in accordance with international standards and best practice.