The protection of our environment is one of the most pressing issues facing our world today. Climate change for instance, will have wide-ranging effects on ecosystems, on societies and on economies worldwide. The increasing awareness of environmental issues has resulted in a fast-changing regulatory and competitive landscape which is affecting UBS, our suppliers and our clients. In response to these emerging risks and opportunities, appropriate strategies are being shaped.

UBS was one of the first financial institutions to sign the United Nations Environment Programme's "Statement by Financial Institutions on the Environment and Sustainable Development" in 1992. UBS was also among the first companies to endorse the UN Global Compact, is an original signatory of the Carbon Disclosure Project (CDP), and UBS Global Asset Management is an Investment Manager signatory to the UN Principles for Responsible Investment (UNPRI).

UBS is committed to observe international environmental standards in all that it does - not only with respect to its direct impact, but also when providing financial services to its clients, and when reporting its environmental performance to stakeholders. This commitment is underpinned with an ISO 14001 certified environmental management system and a third party assurance of the firm's sustainability reporting according to the Global Reporting Initiative (GRI).

The environmental policy sets out UBS's approach to managing environmental risks and opportunities. It is the firm's objective that it be embedded in its culture, management practices and control principles.

UBS is committed to acting in an environmentally responsible manner in all its business dealings. The policy defines principles and responsibilities for managing environmental issues and aims to create long term value for the firm and its stakeholders. The policy dictates that:

• UBS identifies and manages its environmental risks
• UBS provides clients with a range of financial products and services that address environmental challenges
• UBS improves its environmental performance and resource efficiency continuously

The policy applies world-wide to all transactions, services and activities involving environmental issues entered into by or on behalf of UBS in the course of business. Both banking activities and in-house operations are subject to and must be conducted in compliance with this policy.

Principle 1: Risk Management

• UBS applies an environmental risk framework¹ to all transactions, products, services and activities in order to identify and assess potential environmental issues and to manage any identified risks. As part of this process, UBS will engage with clients and suppliers in order to understand their processes and policies and to explore how environmental risks may be mitigated. UBS avoids transactions, products, services, activities or suppliers if there are material environmental risks that cannot be properly assessed or where, in the judgment of UBS, the counterparty/issuer is not addressing environmental issues in an appropriate and responsible manner.

Principle 2: Business Opportunities

• UBS provides its clients with financial products and services that help them manage their environmentally-related business opportunities and risks. UBS also helps investors benefit from environmental market opportunities by offering thematic and SRI funds², and by integrating environmental considerations, where relevant, in research and investment analysis.

Principle 3: In-house Environmental Management

• UBS sets quantitative targets to reduce group-wide CO2 emissions and the environmental impact of paper consumption and waste. Environmental programs include measures to improve resource efficiency, increase the proportion of environmental-friendly alternatives (such as renewable energy or recycled paper) and offset CO2 emissions that cannot be reduced by other means.

• UBS considers the environmental impact of its suppliers' business practices, products and services, and engages with them to promote environmentally-responsible practices.

UBS implements the policy efficiently through a global environmental management system certified according to ISO 14001, the international environmental management standard. This certificate attests that UBS's environmental management system is an appropriate tool for complying with the relevant environmental regulations, for achieving self-defined environmental objectives, and for maintaining continual improvement of environmental performance. The management system is structured in a cycle consisting of planning, implementation, controlling and review including corrective actions³.

Environmental awareness and expertise play an important role in implementing our goals. UBS therefore invests in know-how and integrates environmental considerations into internal communications and training.

UBS regularly reports on progress made in implementing the environmental policy as part of UBS's annual reporting. The firm seeks to maintain open dialogue and active communications with stakeholders.

Implementation of this policy is a process of continual improvement.

³ Detailed requirements, responsibilities and procedures are described in UBS's ISO 14001 manual

The Group Executive Board is responsible for approving the environmental policy, for nominating a Group environmental representative and for approving the annual ISO 14001 environmental management review.

The Group Chief Risk Officer is responsible for the development and implementation of principles and appropriate independent control frameworks for environmental risks within the UBS Group. He is supported by the Environmental & Social Risk Unit.

The business divisions are responsible for implementing the environmental policy's principles.

• Principle 1 (Risk Management): the business divisions are responsible for the identification and assessment of risk and for determining whether the identified risks are acceptable. In the event that any such identified risks are also determined to create potential firm-wide reputational risk, they are escalated to the Group environmental representative for approval.

• Principle 2 (Business Opportunities): the business divisions take full ownership for the identification and development of environmental market opportunities.

• Principle 3 (In-house Environmental Management): Corporate Center is responsible for managing UBS's impact on the environment from its in-house operations and supply chain.

The Environmental & Human Rights Committee oversees the implementation of UBS's environmental policy and provides direction to the business divisions in their adoption of the UBS Statement on Human Rights; it defines Group priorities and objectives to be submitted to the Group Executive Board for approval; it oversees execution by the business divisions and initiates action if required; and it reviews external initiatives and potential commitments and advises the Group Executive Board on their adoption.

The Group environmental representative is UBS's senior level representative for environmental issues. He submits annual objectives to the GEB via the annual ISO 14001 management review and liaises with the Corporate Responsibility Committee of the Board of Directors in order to raise relevant environmental concerns. He is a member of the Environmental & Human Rights Committee.

The Business Division environmental representative is nominated by the Business Division's CEO and is normally a member of the Business Division's Executive Committee. He is responsible, in accordance with ISO 14001, for the implementation of the environmental policy and for the execution of annual objectives within the Business Division. He is a member of the Environmental & Human Rights Committee and is supported by a program manager.

The Corporate Responsibility Committee supports the Board in its duties to safeguard and advance the UBS Group's reputation for responsible corporate conduct. It reviews and monitors the implementation of UBS's environment policy.

Environmental risk

Environmental risk is broadly defined as the possibility that UBS is harmed reputationally or financially as the result of transactions, products, services or activities such as lending, capital raising, advisory services or investments that involve a party associated with environmentally sensitive activities, or that is exposed to environmental risks such as liabilities or changes in environmental regulations, or if UBS employees (or contractors working on behalf of UBS) fail to operate within relevant environmental regulations.

Socially/Sustainable and Responsible Investments and environmental products and services

UBS defines Socially/Sustainable and Responsible Investments (SRI) as an approach to investment that takes account of environmental, social or corporate governance criteria besides traditional financial factors such as risk, return and liquidity when selecting securities. Environmental products and services include SRI as well as thematic funds and research, renewable energy financing and advisory services and emissions products.

In-house environmental management

By improving resources efficiency UBS seeks to reduce its direct environmental impact from in-house operations, with a primary focus on reducing greenhouse gas emissions. The major areas where UBS has a direct impact are, in order of relevance, energy consumption, business travel, paper consumption and waste.

UBS's environmental policy is further supplemented by groupwide guidelines and standards that address specific environmental issues across the firm:

• Industry sector guidelines: Some of UBS's clients operate in sectors that are considered to be particularly environmentally and socially sensitive. To support the consistent identification and assessment of environmental and social (including human rights) risks across the Group, UBS has developed internal industry sector guidelines. The sector guidelines currently cover chemicals, oil and gas, utilities, infrastructure, forestry products and biofuels and metals and mining. These guidelines are being adopted by each of the business divisions in transactional and client due diligence processes. These guidelines provide an overview of key environmental and social issues that arise in the various life cycles of the sector, and summarize industry standards in dealing with them.
  

• In 2010, we decided to further strengthen our environmental and social (including human rights) risk management (including human rights) by identifying controversial activities where we will not do business, or only do business under stringent pre-established guidelines. Therefore we will not knowingly provide financial services to corporate clients, nor will we purchase goods or services from suppliers, where the use of proceeds, primary business activity, or acquisition target - are associated with such controversial activities.

• UBS has adopted a responsible supply chain guideline that provides group-wide guidance for identifying, assessing and monitoring supplier practices in the areas of human and labor rights, the environment and corruption.