We would like to draw your attention to UBS Climate Report 2021
In 2021, UBS once again received external recognition for our climate action by maintaining the leading score across the environmental dimension of the Dow Jones Sustainability Indices. Out of nearly 12,000 companies ranked by the global environmental non-profit CDP, we were one of only 200 that were A-listed for environmental transparency and action to cut emissions, mitigate climate risks and develop the low-carbon economy. Why does UBS see climate change as a strategic topic? Aside from it being the right thing to do for the planet, we believe it is the right thing to do for our business. The time to move from words to actions is now.
Our overall strategy for managing ESG risks (including climate risks) is to integrate risk data and insights into our sector materiality framework and embed relevant environmental risk considerations into issuer research if such risk is material. Portfolio Managers make portfolio construction investment decisions on issuers based on these risk insights.
During 2022 we onboarded new datasets to incorporate climate physical and transition risks into our investment management and risk management processes.
- Physical risk arises from the impact of weather events and long-term or widespread environmental changes. High physical risks imply high probability of a company’s assets value reduction or production interruption. Our climate physical risk assessment considers events such as heat/cold wave, water stress, flooding, sea-level rise, hurricanes and wildfires.
- Transition risk covers the adjustment to an environmentally sustainable economy, including changes in public policies, disruptive technological developments and shifts in consumer and investor preferences. We assess transition risk using an “Earning at risk” approach, which analyzes the unpriced carbon cost to a company as % of its EBITDA (Earnings before interest, taxes, depreciation, and amortization).
We have enhanced our proprietary ESG Dashboard with the climate physical and transition risk data and alerts to highlight the highest risk issuers. We have also developed risk exposure monitoring of GHG emissions at portfolio level in our global risk system.
In compliance with Hong Kong and Singapore environmental risk regulations, we implemented a multi-scenario analysis for physical and transition risks. Physical risks feature different temperature increase scenarios and transition risks consider different carbon price development scenarios. The scenarios are analyzed for three time horizons up to 2050 which can be used to determine future climate-related risk in investment portfolios.
UBS AM is in the process of expanding climate risk monitoring globally. For some of our portfolios, the assessment of climate related risks is not possible in the investment management and risk management processes due to lack of available data. For these portfolios, risk assessments will incorporate climate physical and transition risks as data becomes available.
As part of the second line of defense controls performed by Group Risk Control, we integrate climate risk in the risk control and monitoring process of Asset Management portfolios. We have developed a dashboard for Risk Control to identify, assess and monitor climate risks. Among other sustainability risk metrics such as ESG scores and risk ratings, the dashboard allows us to monitor the weighted average carbon intensity of portfolios against their respective benchmarks. Through this dashboard Risk Control provides internal reporting of sustainability risk exposures for further assessment and escalation.
To further assess climate transition and physical risk exposures for portfolios under different climate scenarios, the application of scenario analysis was enabled. In addition, we are working on introducing climate transition and physical risk heatmaps by leveraging the UBS heatmap methodology helping to identify concentrations of exposure in funds.
In 2023, we further aim to monitor the progress of aligning eligible assets to net zero as part of Asset Management’s net-zero commitment
As part of the 2022 environmental risk analysis for Hong Kong and Singapore, material physical risks were not identified. However, our transition risk analysis highlighted select portfolios with elevated mid-term exposure which are being monitored and have been reviewed and acknowledged by the relevant governance bodies.
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