We make responsible behavior an important part of our culture, identity and business practice. As a leading global financial services firm, we want to provide our clients with value-added products and services, promote a corporate culture that adheres to the highest ethical standards, and generate superior but sustainable returns for our shareholders. We are committed to being an equal opportunity employer, protecting the environment, adhering to high social standards, and contributing to the communities that we are a part of.

Behaving responsibly can sometimes mean moving beyond solely profit-oriented considerations and legal requirements when doing business. For us, that translates into four broad fields of action:

– we aim to provide a working environment that is based on the values of equal opportunity, diversity and meritocracy

– we uphold high ethical standards when dealing with our clients and suppliers

– we have a global environmental management process in place to make sure that in all our business dealings we act in an environmentally responsible manner

– we support the communities we are a part of both through donations and by giving our employees the opportunity to engage in volunteer work.

Since 2000, UBS has been a participating member of the UN Global Compact, a United Nations platform that encourages and promotes good corporate practice in the areas of human rights, labor, and the environment. By adhering to its principles, we contribute to the betterment of the communities and societies we work and live in – while also creating sustainable value for our shareholders.

We were also one of the first parties to sign the United Nations Environment Program’s Bank Declaration (UNEP bank declaration) in 1992, which committed us to integrating appropriate environmental measures in our activities. Beyond that, our internal professional environmental management system is regularly certified to the ISO 14001 standard.

Our efforts are widely recognized. We have been a component of the Dow Jones Sustainability Indexes since their inception in 1999. The indexes track the financial performance of the leading sustainability-driven companies worldwide. We are also included in the FTSE4Good Index, which measures the performance of global companies in the areas of environmental sustainability, stakeholder relations and support for human rights.

Our corporate responsibility processes

In 2001, we created a Corporate Responsibility Committee (CRC). It assesses how to meet the evolving expectations of our stakeholders related to our corporate conduct. If the committee concludes that there is a gap between what stakeholders expect and what we practice – and that this gap represents either a risk or an opportunity to the firm – the CRC suggests appropriate measures to management.

The committee is chaired by Marco Suter, Executive Vice-Chairman of UBS and Group Environmental Representative, and includes one other member of the Board of Directors and eight senior UBS executives representing our businesses, as well as a number of corporate functions, including legal and communication.

The committee’s work is supported by a working group that comprises representatives from all our Business Groups, as well as functional experts. It evaluates any new issues potentially related to corporate conduct, and ensures that all are brought to the attention of the committee.

Neither the committee nor the working group runs ongoing operational processes related to corporate responsibility; rather they ensure that UBS aligns business practices with changing societal expectations.

Contributing to society – preventing money laundering

Extensive and constant efforts to prevent money laundering and terrorist financing are important contributions to society. The integrity of the financial system is the responsibility of all those involved in it. We take our duties extremely seriously – in protecting both the system at large and our own operations. Our stakeholders expect us to be at the forefront of developing strategies and implementing measures necessary to achieve these objectives. The threats posed by money laundering and terrorism are real, and we all have a role in contributing to the fight against them as effectively as possible.

The Group Money Laundering Prevention Unit leads our efforts to fight money laundering, corruption, and the financing of terrorism. Its key task is to help employees to recognize, and then manage and report suspicious activities – in a way that neither treats all clients as criminals nor unduly hinders our normal banking business. While doing so, we remain completely committed to the respect and protection of our clients’ privacy, a cornerstone of our firm’s philosophy, which we integrate into our money laundering prevention structure to the best of our abilities.

The best way to achieve our goals is through a real spirit of partnership across the firm – between those who manage client relationships and the risk managers and controllers who support them. Our employees should be focused on really getting to know clients, understanding their needs – and then questioning things that do not make sense. In order to assist our employees in staying ahead of the curve in respect of their “know your customer" (KYC) skills and the identification of new trends in suspicious behavior, we ensure that they undertake regular training courses, both in the form of on-line training and seminars. In fact, we believe that one reason clients choose UBS is because they are confident of our first-class reputation for integrity.

To prevent money laundering, we take a risk-oriented approach that is tailored to our different business lines and their specific risks and exposures. This includes establishing, where applicable, consistent criteria by which a business relationship should be judged “higher-risk". We utilize advanced technology to assist us in the identification of transaction patterns or unusual dealings.

We are also strongly committed to promoting stringent anti-money laundering standards for the financial industry as a whole. As a prime example of this, UBS was one of the driving forces behind the launch of the Wolfsberg Group and its issuance of global anti-money laundering principles in 2000. In subsequent years, we also strongly supported its efforts to suppress terrorism finance, its monitoring, screening, and searching guidelines, and its correspondent banking principles.

As part of the group, and at the request of Russian and Chinese banking authorities, we have held seminars in both countries on how to prevent money laundering. In addition to the training programs accomplished within the context of the Wolfsberg Group, UBS frequently conducts, at the request of the Swiss Ministry of Foreign Affairs, training seminars for countries still developing anti money laundering or contra terrorist financing legislation. In 2005, we held training seminars in Morocco, Tunisia, Algeria, Uzbekistan, Tajikistan, Azerbaijan, and China.

Investing in our communities

The “raison d’être" behind our well-established program of community investment is the recognition that our success depends not only on the skills and resources of our people and the relationships we foster with clients, but also on the health and prosperity of the communities we work in. UBS supports communities in various ways: we make direct cash donations to selected organizations, match donations from our employees to most charities, and promote employee volunteering. Dedicated teams worldwide work closely with staff at all levels to build partnerships with organizations in the communities where we operate, focusing on education, regeneration and environmental projects.

Overall, in 2005, UBS donated more than CHF 46 million to support charitable causes and immediate disaster relief. Our employees, through their donations and volunteer efforts, make further significant contributions to the communities they live in, and, depending on location, UBS supports their commitment by offering up to two days per year for volunteering.

UBS has expanded its community affairs program around the globe. In 2005, a new community affairs coordination function for Switzerland was established. This recently created function coordinates all charitable activities by UBS and its staff across all Business Groups in Switzerland and is also responsible for the newly introduced employee volunteering program as well as the matched giving program in Switzerland.

Besides the engagement of the firm and its employees, we also give our clients the opportunity to contribute to charitable causes. The UBS Optimus Foundation invests donations from our clients into a number of programs and organizations that focus on children and medical and biological research. The projects involve close collaboration with respected partner organizations and are selected by a team of specialists within the foundation, who also closely monitor their implementation. The costs of managing and administering the UBS Optimus Foundation are borne in full by UBS, so that the full contribution from our clients reaches the projects. In December 2005, we started issuing a new credit card, the UBS Optimus Foundation Charity Card, to give clients the benefits of a normal credit card while allowing them to make charitable contributions in a simple and effective way. Every year, UBS will donate 0.5 % of the combined turnover and a portion of the annual fees received from all Charity Cards to the UBS Optimus Foundation.

A glimpse of what we do

Despite the significant donations to disaster relief efforts in 2005, we also continued to support our ongoing, well-established community affairs programs around the world. The following provides a brief glance at some of our activities:

In the UK, we are the first financial firm to sponsor a new secondary school under the UK government’s ‘Academy’ program in Hackney, London. We are making a financial contribution of GBP 2 million to the project – half of which is being provided by a private client – but expect to make an even more valuable long-term investment through the skills and commitment of our employee school volunteers. The school will educate 1,150 students when completed and specialize in maths and music.

In the Americas, the Junior Achievement program explains the role of business and economics in society from elementary school level through to high school. To complement the financial contributions we make, employees engage in unique volunteer initiatives and offer “real-world" experience to the subjects that are taught. Examples include so-called “Job Shadow" days, teaching classes, and the “Company Program", a three-month evening program for high school students in which employees work with a team of students to start a business, and develop and market a product. In 2005, nine employees served on the boards of JA Chapters in the US.

In Asia Pacific, UBS is continuously expanding its community affairs program. In the Philippines, UBS launched its community affairs efforts in 2005 with a project coordinated with the Association of Mouth and Foot Painting Artists (AMFPA), an organization that supports severely disabled artists. With the assistance of the sales, presentation and marketing expertise of all employees of the UBS Securities Philippines office, AMFPA organized an exhibition where artists could display and promote their work. Through this event, the organization was able to sell paintings, hundreds of Christmas cards, children’s books and puzzles.

With the launch of a community affairs program in Switzerland last year, UBS intensified its charitable activities. In Zurich, UBS employees joined mentally handicapped persons in baking and selling Christmas cookies. Proceeds benefited the organization “Insieme", which organizes among other things, recreational activities for disabled people. In Basel, we started a mentoring program for young adults together with public teachers. UBS employees helped students find a workplace or a position as an apprentice.

Moreover, besides direct donations from our business, UBS has established a number of independent foundations and associations that donate money to worthy causes in Switzerland. One, called “A Helping Hand from UBS Employees", assists disabled and disadvantaged people to lead active, independent lives. We encourage employee involvement by matching some of the funds raised. We also have endowed two independent charities with our money. The first, called the UBS Cultural Foundation, fosters creativity, appreciation of different cultural expression, and contact between artists and society. The foundation financially supports fine arts, film, literature, music, preservation of historic buildings, archaological projects and studies in history and philosophy in Switzerland.

In similar fashion, the purpose of the second, the UBS Foundation for Social Issues and Education, is to support deprived communities in Switzerland in various forms. Non-profit, charitable organizations, projects and initiatives aiming at improving social welfare receive monetary assistance from these funds.

Socially Responsible Investments

UBS has strong expertise in incorporating environmental and social aspects into its research and advisory activities. In addition to financial considerations, socially responsible investments (SRI) put special focus on environmental, social, or ethical criteria.

Our Global Asset Management business offers a wide range of SRI products to both private and institutional investors. In Switzerland and Japan, we use an approach that actively selects the best performers in each industry on environmental and social criteria. A new SRI Responsibility Fund umbrella was created last year composed of a global SRI fund, a European SRI fund, and a Global Innovators fund. The latter mainly invests in small companies with products that have significant potential in the areas of renewable energy, water management, food, healthcare and mobility. The newly launched European SRI fund uses both our SRI and mainstream research platforms to construct a concentrated portfolio of leading SRI stocks. We are currently able to offer global, European, and Japanese equity products; all benchmarked against MSCI or Topix indices. In the US, Global Asset Management manages various institutional accounts that exclude certain companies or sectors using “negative" screening criteria. In the UK, Global Asset Management seeks to influence corporate responsibility and corporate governance performance of the companies it invests in. UBS also offers SRI products from third party providers.

In the Investment Bank, UBS has established a Socially Responsible Investment (SRI) research team to produce original research on areas of increasing or diminishing risk. It also monitors ratings provided by external SRI agencies, organizes collaborative research by analysts about emerging SRI themes, and writes about and advises on quantifying the effects on share prices of companies with exposure to such issues. A Socially Responsible Investment page is now available to UBS’s institutional clients on UBS’s Research Web. The Global Wealth Management & Business Banking Business Group decided to increase the awareness of SRI initiatives and products internally following interviews with client advisors and detailed market research that showed increased interest and sensitivity in applying social responsibility criteria when planning investment decisions. As a result, an awareness campaign was launched in Switzerland in 2005 to sensitize client advisors to SRI and to support them in the analysis and understanding of the respective client needs.

Environmental management

Our commitment to the environment is underpinned by a global environmental management system certified under the ISO 14001 standard. The system covers both banking activities and in-house operations and was successfully re-certified in 2005 by our auditors SGS.

We remain committed to integrating environmental considerations into all our business activities. Our environmental policy is based on five principles:

– we seek to consider environmental risks in all our businesses, especially in lending, investment banking, advisory and research, and in our own investments.

– we seek to pursue opportunities in the financial market for environmentally friendly products and services, such as Socially Responsible Investments.

– we are committed to actively seeking ways to reduce our direct environmental impact on air, soil and water from in-house operations, with a primary focus on reducing greenhouse gas emissions. We will also seek to assess the environmental impact of our suppliers’ products and services.

– we ensure efficient implementation of our policy through a global environmental management system certified according to ISO 14001 – the international environmental management standard.

– we invest in know how and integrate environmental considerations into internal communications and training.

The Group Executive Board is responsible for approving UBS’s environmental policy and for nominating a Group environmental representative to guide UBS’s environmental strategy and raise relevant environmental concerns with the Corporate Responsibility Committee. The primary responsibility for implementing environmental policy as stipulated by ISO 14001 lies within the Business Groups.

Environmental performance indicators

Every year, we provide a detailed description of our environmental performance using key performance indicators (KPIs), which allow for annual comparisons. They are based on industry standards such as the Global Reporting Initiative (GRI) and VfU (both include environmental performance indicators tailored to financial institutions).

The management indicators above provide an overview of our environmental management system at Group level.

Managing environmental risks in our business transactions

For UBS, it is key to identify, manage, or control environmental risks in our business transactions. An example of such risks might be when a counterparty’s cash flow or assets are impaired by environmental factors such as inefficient production processes, or polluted or contaminated property. Another is liability risk, such as when a bank takes over collateral onto its own books.

Investment Bank

Our Investment Bank has a global environmental risk policy which applies to all transactions, services and activities it performs. The depth of an environmental analysis is based in part on risk classification, on UBS’s familiarity with the counterparty, and on comfort with the contents of any prospectus provided by the client. In the initial due diligence phase, environmental factors are screened by Investment Bank staff. If there are indications of significant environmental risk, an internal environmental competence center may be contacted to provide a more detailed environmental assessment. In 2005, 36 such detailed assessments were completed by the competence center.

Global Wealth Management & Business Banking

The environmental risk policy of Global Wealth Management & Business Banking applies to all credit transactions of this Business Group. The policy ensures, firstly, that portfolios with significant exposure to environmental risk are identified and monitored. Secondly, the policy specifies a generic procedure for managing environmental risk in the credit process. The actual environmental assessments are integrated into these processes and tailored to client segments, transaction size and risk exposure. This generic environmental risk assessment involves a three-step procedure. 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 unit. In 2005, 34 such detailed assessments took place. If a transaction poses substantial environmental risks, the bank can take several courses of action. It can adapt the terms of the loan contract, it may engage the client in a dialogue about possible remedial action, or it may decline the transaction altogether.

Global Asset Management

In 2004, Global Asset Management introduced a formal environmental risk matrix that assesses the reputation and environmental risks that its investments might imply. In this review, investments were reviewed according to business areas and the results of the audit were presented to the ISO 14001 re-certification auditors. This risk matrix now forms part of the environmental management system employed within Global Asset Management.

Environmental and CO2 footprints

We directly impact the environment in a number of ways. Our businesses consume electricity, employees travel for business purposes, they use paper and generate waste in the course of their work, and offices require heating and cooling systems. Improving our use of these resources can boost our operating margins and enhance environmental performance and we have a series of measures that manage our environmental impact efficiently.

Therefore, every year, we analyze our environmental and CO2 footprints. The graph below shows the relative environmental and CO2 footprints of our energy consumption, business travel, paper consumption and waste. It also breaks down our energy consumption according to source, and displays their related environmental and CO2 footprints. This shows that the type of energy mix we purchase has a strong influence on our overall environmental and CO2 footprint. In 2005, 25% of the energy we consumed came from renewable energy sources and district heating.

Overall, our energy consumption in 2005 increased by 3% from a year earlier, which is roughly in line with our 3.2% headcount increase over the same period. CO2 emissions directly and indirectly released by UBS (see CO2 footprints in the table on page 146) increased by 8.6%. There are several reasons for this trend: UBS’s strong growth in the Asia Pacific region and, to a lesser extent, in the US, where the electricity country mixes have higher carbon content than the cleaner energy mixes purchased in Switzerland and London. Our business growth in 2005 also led to more air travel, another major source of increasing carbon emissions. UBS has recognized this trend, which is closely tied to its growth strategy, and has decided to address its CO2 emissions in a systematic and comprehensive way. Our planned carbon strategy is detailed on page 144.

The size of the circles represents the scale of the environmental impact for each factor – the larger the circle area, the greater the environmental significance of the process.

Environmental footprint: shows the environmental impact (i.e. through emissions, use of resources, waste) of each corresponding process. This includes all relevant upstream and downstream processes, such as acquisition of raw materials, manufacturing, transport and disposal. The environmental footprint is approximated based on the amount of non-renewable energy consumed.

CO2 footprint: shows the global warming potential of a process, including all relevant upstream and downstream processes. The CO2 footprint equals the quantity of CO2 and other greenhouse gases that emerge through the corresponding energy consumption process.

Validation by SGS Société Générale de Surveillance SA
We have verified the correctness of the statements in the 2005 Environmental Report of UBS AG and, where necessary, have requested that proof be presented. We hereby confirm that the report has been prepared with the necessary care, that its contents are correct with regard to environmental performance, that it describes the essential aspects of the environmental management system at UBS AG and that it reflects the actual practices and procedures at UBS AG. Elvira Bieri and Dr. Erhard Hug, Zurich, February 2006