Environmental & social risk management

Environmental & social risk management

We apply a robust risk framework to all of our transactions, products, services and activities in order to identify and manage environmental and social risks faced by our clients' and our firm. This is augmented by our stringent due diligence process which identifies and assesses any environmental and social risks associated with a particular client, supplier or transaction. We will not do business with a client or supplier whose activities contravene our position on controversial activities. The same goes for particular transactions. There are certain activities we will only engage in under stringent, pre-established guidelines. Each case is judged on its merits and we apply an enhanced due diligence and approval process before a final decision is made.

We apply a risk framework to all of our transactions, products, services and activities in order to identify and manage potential adverse impacts to the environment and to human rights, as well as the associated environmental and social risks to which our clients’ and our own assets are exposed. Environmental and social (including human rights) risks are broadly defined as the possibility of UBS suffering reputational or financial harm from transactions, products, services or activities such as lending, capital raising, advisory services or investments that involve a party associated with environmentally or socially sensitive activities. For products, services and activities identified as potentially posing significant environmental and social risks, procedures and tools for the identification, assessment, escalation and monitoring of such risks are applied and integrated into standard risk, compliance and operations processes:

  • Client on-boarding or conflict clearance: new corporate clients are assessed for environmental and social risks associated with their business activities.
  • Transaction due diligence: before proceeding with a transaction, environmental and social risks are identified and analyzed as part of standard transaction due diligence processes.
  • Product development: new financial products and services are reviewed before their launch in order to assess their compatibility and consistency with UBS’s environmental and human rights principles.
  • Supply chain management: prior to any new or renewed contract being awarded, standardized checks are completed to assess supplier- and commodity-specific environmental, labor and human rights risks.
  • Own operations: our operational activities and employees, or contractors working on UBS premises, are assessed for compliance with relevant environmental, health and safety and labor rights regulations.

Business or control functions are responsible for identifying and assessing environmental and social risks as part of the client, supplier or transaction due diligence processes. Where these functions determine the existence of potential material risks, they refer the client, supplier or transaction to a specialized environmental and social risk unit for enhanced due diligence. To support the consistent identification and assessment of such risks, our internal industry sector guidelines provide an overview of key environmental and human rights issues that arise in the various life cycles of the sector, and summarize industry standards in dealing with them. These guidelines currently cover six sectors: chemicals; forestry products and biofuels; infrastructure; metals and mining; oil and gas; and utilities. If identified risks are believed to pose potentially significant environmental or social risks, they are escalated for approval to senior management, at divisional, regional, or group level, depending on their significance.

This position stipulates activities that we will not engage in. We will not knowingly provide financial services to corporate clients, or purchase goods or services from suppliers, where the use of proceeds or primary business activity of the client, supplier or acquisition target involves environmental and social risks, defined as follows:

Extractive industries, heavy infrastructure, forestry and plantations operations that risk severe environmental damage to or through:

endangered species of wild flora and fauna listed in Appendix 1 of the Convention on International Trade in Endangered Species (CITES)

high-conservation-value forests as defined by the six categories of the Forest Stewardship Council (FSC)

uncontrolled and / or illegal use of fire for land clearance

illegal logging, including the purchase of illegally harvested timber (logs or roundwood)

wetlands on the Ramsar List of Wetlands of International Importance

All commercial activities that:

engage in child labor as defined by the International Labor Organization’s Conventions 138 (minimum age) and 182 (worst forms)

engage in forced labor as defined by the International Labor Organization’s Convention 29

threaten indigenous peoples’ rights as defined by the International Finance Corporation’s Performance Standard 7

engage in diamond mining and trading of rough diamonds 
unless Kimberley Process-certified

An enhanced due diligence and approval process is triggered for areas in which we will only provide financial services under stringent, pre-established guidelines. Such areas include

palm oil production, clients have to be a member in good standing of the Roundtable on Sustainable Palm Oil and are actively seeking to enhance certification of their production

mountaintop removal as a coal extraction method (read the UBS statement on mountaintop removal coal mining)

hydraulic fracturing as an exploration or extraction method for oil and gas and exploration

development of oil sands.

Enhanced due diligence includes an assessment of the company’s regulatory compliance, past and present environmental performance records, as well as concerns from stakeholder groups.

Clients, transactions or suppliers potentially in breach of UBS’s position, or otherwise subject to significant environmental and human rights controversies, are identified as part of UBS’s know-your-client compliance processes. Advanced data analytics on companies associated with such risks is integrated into the web-based compliance tool used by our staff before they enter into a client or supplier relationship, or a transaction. The systematic nature of this tool significantly enhances our ability to identify potential reputational risk. The increasing number of cases referred for assessment to our environmental and social risk units in 2013 is explained by the extension of the scope of application of this process.

Environmental & social risk escalation process

Environmental and social risk escalation process

Environmental and social risk assessments

Environmental and social risk assessments


For the year ended  

% change from


GRI 1 31.12.13 31.12.12 31.12.11 31.12.12
Cases referred for assessment 2 FS2 1,716 1,039 416 65
by region          
Americas FS2 367 288 111 27
Asia Pacific FS2 296 222 136 33
Europe, Middle East and Africa FS2 373 225 119 66
Switzerland FS2 680 304 50 124
by business division          
Wealth Management FS2 298 157 59 90
Wealth Management Americas FS2 46 5 5 820
Retail & Corporate FS2 598 223 22 168
Global Asset Management FS2 14 12 n/a 17
Investment Bank 3 FS2 657 533 330 23
Corporate Center FS2 103 109 n/a (6)
by sector          
Metals and mining FS2 418 217 n/a 93
Oil and gas FS2 239 136 n/a 76
Agribusiness 4 FS2 155 45 n/a 244
Utilities FS2 95 38 n/a 150
Chemicals FS2 67 29 n/a 131
Infrastructure 5 FS2 51 15 n/a 240
Other FS2 691 559 n/a 24
by outcome          
approved 6 FS2 1,462 812 n/a 80
approved with qualifications 7 FS2/FS3 196 171 n/a 15
rejected or not further pursued 8 FS2 42 56 n/a (25)
pending 9 FS2 16 0 n/a n/a

1 Global Reporting Initiative (see also www.globalreporting.org). FS stands for the Performance Indicators defined in the GRI Financial Services Sector Supplement.
2 Transactions and onboarding requests referred to environmental and social risk (ESR) functions.
3 Relates to procurement / sourcing of products and services.
4 includes since 2013 e.g. forestry products, biofuels, food and beverage.
5 Include e.g. financial institutions, aerospace and defence, telecom, technology.
6 Client / transaction / supplier subject to an ESR assessment and considered in compliance with UBS's ESR framework.
7 Client / transaction / supplier subject to an ESR assessment and approved with qualifications. Qualifications may include ring-fencing of certain assets, conditions towards client / supplier or internal recommendations.
8 Client / transaction / supplier subject to an ESR assessment and rejected or not further pursued.
9 Decision pending.

In light of Switzerland's ratification of the Convention on Cluster Munitions and the subsequent changes to Swiss law, UBS amended its policies and guidelines pertaining to controversial weapons.

Relevant UBS policies and guidelines are consistent with the revised "Swiss Federal Act on War Materials". UBS does not directly or indirectly finance the development, production or purchase of controversial weapons of such companies determined to fall within the law.

All dealings with potentially affected companies require a case by case assessment of the transaction and of the likelihood that the transaction could be used to circumvent above financing prohibition. Dealings with potentially affected companies require pre-approval from UBS's Sanctions Compliance department.

UBS employs external expert advice for the assessment of whether a company falls within the restrictions established by Swiss law.

On the topic of cluster munitions and anti-personnel mines:

  • UBS does not provide credit facilities to nor conduct capital market transactions for companies that are involved in the development, production or purchase of cluster munitions and anti-personnel mines.
  • UBS does not include securities of affected companies in its actively-managed retail and institutional funds and in discretionary mandates.

UBS was approached by a mining company operating in sub-Saharan Africa. The mining industry often is associated with severe environmental impacts, including the loss of biodiversity and environmental pollution, as well as social issues such as involuntary resettlements, poor working conditions, and child labor. The company was facing severe media criticism stating that it was indirectly sourcing from artisanal miners, including children that were all working without any safety equipment.

UBS's sector guideline on metals and mining provides guidance on dealing with the environmental and social issues the sector faces. If significant risks are identified during due diligence, they have to be escalated to senior management for approval. UBS's position on controversial activities states that UBS will not knowingly provide financial services to corporate clients that are engaged in child labor. UBS communicated these requirements to the company and discussed the allegations with them. The company provided insights into the supply chain process it had in place to make sure that suppliers were in line with, among others, ILO standards on child labor and occupational health and safety. Given the severe allegations in the media on the one hand and the company response on the other hand, UBS decided to engage an independent third party to assess the implementation of the firm's supply chain process.

The independent third party confirmed the company's responses, providing confidence that the company was managing its supply chain in line with UBS Standards. The approval was given and certain conditions were stipulated, allowing UBS to monitor the company and withdraw from its obligations would the client be subject to similar allegations in the future and not be able to refute these.