WHATX/ESG_Report · Datasets at Hugging Face

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Reducing our direct climate impact.
Our supply chain goal for 2035 is to tackle scope 3 emissions, specifically emissions from purchased goods and services, by engaging with our key vendors to reach net zero. Reaching net zero across our operations not only lowers costs, it also creates the opportunity to extend our client base by becoming the financial provider of choice for those who are working to reduce their own scope 3 emissions. As the frequency and depth of climate regulation increases, prioritizing our alignment to standards such as the TCFD also helps to reduce the risk of business disruption resulting from new climate legislation. Being in a position where we can act rather than react is, in our view, advantageous.
38


Sustainability Report 2022 \| Environment 39.
Managing sustainability and climate risks.
At UBS, sustainability and climate risk is defined as the risk that UBS negatively impacts, or is impacted by, climate change, natural capital, human rights, and other environmental, social and governance (ESG) matters. Sustainability and climate risks may manifest as credit, market, liquidity and/or non-financial risks for UBS, resulting in potential adverse financial, liability and/or reputational impacts. These risks extend to the value of investments and may also affect the value of collateral (e.g., real estate). Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). Physical and transition risks from a changing climate contribute to a structural change across economies and, consequently, can affect banks and the financial sector through financial and non-financial impacts.
The firm’s Sustainability and Climate Risk (SCR) unit (part of Group Risk Control), manages material exposure to sustainability and climate risks. It also advances our firmwide SCR initiative to build in-house capacity for the management of sustainability and climate-related risks. › Refer to the “Appendix 2 – Governance” section of this report for a full description of our sustainability and climate risk policy framework.
Our SCR initiative follows a multi-year roadmap. It is designed to integrate sustainability and climate risk considerations into our firm’s various traditional financial and non-financial risk management frameworks, and related policies and processes. This is necessary to meet expectations regarding the management of sustainability and climate risks and to deliver on climate stress-test exercises. Our roadmap is configured to address current and emerging regulations and builds capacity through expertise and collaboration, for example, structured engagement with internal and external stakeholders (e.g., our Group Compliance, Regulatory & Governance (GCRG) function, for non-financial risks) and pertinent experts.
Our SCR initiative has been set up to address risks across our firm’s business divisions and legal entities. In 2022, it monitored emerging sustainability and climate risk regulation, engaged with select regulators for deep-dives, further advanced efforts toward the goal of full integration of sustainability and climate risk into our firm’s traditional risk management frameworks and stress-testing capacity. Further developments included the introduction of sustainable product guidelines, building new capacity to centrally structure, acquire, and deploy ESG data across the firm, and further refining governance and methodologies driving ESG reporting and disclosure.
Sustainability and climate risk management framework.
We currently identify and manage sustainability and climate risks in our operations, balance sheet, clients’ assets, and our supply chain.
In 2022, we continued to methodologically integrate sustainability and climate-related risk considerations into the firmwide risk management framework to protect both our clients’ and our own assets from climate-related risks. As shown below, this work comprised: (i) risk identification and measurement; (ii) monitoring and risk appetite setting; (iii) risk management and control; and (iv) risk reporting processes.
We are implementing the sustainability and climate risk management framework in line with the multi-year roadmap to integrate sustainability and climate risk into our financial and non-financial risk frameworks and related processes. The development of new and enhanced tools and methodologies in 2022 supports our firm, front-toback, in these integration efforts.
39


Sustainability Report 2022 \| Environment 40.
Integrating sustainability and climate risk into other risk categories – our ambition.
In 2022, we further embedded physical and transition risks into our climate risk management framework. As part of the integration of climate in credit risk, we are developing a playbook to help the business divisions integrate climate into processes, policies and frameworks. This approach is also under development for market risk.
We also established a data model and a business process for scoring sustainability and climate risk at the company and asset levels, across a range of materially relevant types. These types are included in the table below, describing how sustainability and climate risks may transmit financial and non-financial risks to UBS, across a variety of counterparty and asset types.
Sustainability and climate risk management framework.
Sustainability and climate risks are identifi ed and integrated in the Group risk identifi cation process.
Related toolkit.
Key sustainability and climate risk considerations are included in internal and external reporting.
Sustainability and climate risk exposures are monitored and metrics reported internally to enable risk appetite setting.
Management and control processes ensure that material sustainability and climate risks are identifi ed, measured, monitored and escalated in a timely manner 1 Partially implemented, externally disclosed, further development underway. 2 Historic scenario assessments disclosed, scenario analysis and stress test framework development underway . 3 Under development. 4 Partially implemented, internally reported, further developments underway. 5 Climate risk-specific controls, integration, and capacity building are ongoing with further development underway .
4.
Risk reporting and disclosure 1.
Risk identifi cation and measurement 3.
Risk management and control – Annual sustainability and climate materiality1 assessment – Climate risk heatmaps1 – Climate scenario analysis and stress test exercises, including the development of an in-house framework2 – Sustainability and climate risk scorecard3 – Expand scope and automation of periodic risk reports4 – Further align external disclosures1 with TCFD – Disclose and enhance sustainability and climate risk metrics1 – Qualitative climate risk appetite1 – Quantitative climate risk appetite3 – Integrate sustainability and climate risk into policies and processes5 – Build in-house capacity, including training5 – Centralize and execute ESG data strategy5 2.
Monitoring and risk appetite setting 40


Sustainability Report 2022 \| Environment 41.
Climate risk transmission to financial and non-financial risk.
Overview Credit risk Market risk (traded and non-traded)
Non-financial risk (NFR) Reputational risk.
Transmission of sustainability and climate risk drivers, including transition, physical, and naturerelated risks, through counterparties, collateral, and macro shocks impacting UBS.
Amplified or mitigated sectoral, jurisdictional and/or geographic concentrations or structural product considerations.
Financial impact to UBS from climate policies, low-carbon technologies, and/or demand shifts impacting UBS counterparties’ credit worthiness and/or value of collateral held by UBS. Risk drivers may affect: (i) counterparties, including private individuals, corporate entities, investment vehicles or sovereign entities; (ii) counterparties’ ability to service and repay debt to UBS; and (iii) market and/or lending value of collateral held by UBS supporting credit agreements and the ability to fully recover potential losses in the event of a default.
Financial impact to UBS from price shocks and/or market volatility, climate policies, low-carbon technologies, demand shifts and/or market perception impacting the value of UBS’s positions and/or leading to a breakdown in correlations between risk factors or a change in market liquidity.
Includes UBS’s positions and/or assumptions held by UBS (correlations) regarding real estate, equities, debt, commodities and FX and their related liquidity.
Non-financial impact to UBS (compliance, operational risk and financial crime) from inadequate or failed internal processes, people and systems and/or externally by physical climate events or stakeholder legal action impacting UBS through increasing business continuity, legal and regulatory compliance risk associated with climatesensitive investments and businesses.
Risk of unfavorable perception or decline of UBS’s reputation from the point of view of clients/industries, shareholders, regulators, employees, or the general public which may lead to potential financial losses and/or market share.
Is considered in all business activities, transactions, and decisions and as such regarded as an impact.
The table below outlines UBS’s vision on how key sustainability and climate risk considerations may be integrated into financial and non-financial risk frameworks.
Vision of overall approach.
Risk management process.
Credit risk Market risk (traded and non-traded)
Non-financial risk (NFR)
Reputational risk.
Systematically integrate sustainability and climate risks into the firm’s risk identification processes and stress testing framework.
Risk identification and measurement Transition and physical risk ratings (including company/asset-level scorecards and industry-level heatmaps) enable UBS to assess and monitor material concentrations of exposure to climate risk, including sensitive geographies, sectors and counterparties.
Climate risk scenario analysis and stress testing enables UBS to assess risks along different pathways of climate change. This includes the assessment of a range of scenarios with different severities.
The scenarios’ climate-related macroeconomic, financial, and other variables reflect different levels of physical and transition risk across time horizons up to 30 years. Climate risk stress models translate the scenarios into capital and risk-weighted asset (RWA) impacts where appropriate.
Progressive study of market-based responses to climate risk drivers enables UBS to identify new transmission channels of market risk impacts.
Integration of risk ratings to enable risk identification through monitoring potential impact on the value of UBS’s positions that may be materially affected by climate-risk-driven price and/or volatility shifts.
Custom climate stress modeling enabling UBS to quantify potential losses from changes in market variables, such as interest rates, credit spreads, equity and commodity prices, as well as correlations and volatility. This could include approaches like applying instantaneous stress shocks for climate-specific scenarios.
Assess NFR implications across compliance, financial crime, and operational risk taxonomies including business continuity risk to enable UBS to identify potential deficiencies in internal processes or vulnerabilities to external events.
Clients, new transactions, products and services go through standard review and decision processes prior to UBS conducting business. These processes, in addition to day-to-day risk management, support the identification, assessment and escalation of potential reputational risk.
Design and operating effectiveness of the framework relies on inclusion of climate-related risk management processes embedded in the step 1 frameworks below, examples include: – Client onboarding (Financial Crime Prevention / Anti-Money Laundering / Know Your Customer); – Sustainability and climate risks; – Suitability and appropriateness review; – New business and complex transaction approval processes; – Third-party risk management and outsourcing and offshoring processes.
41


Sustainability Report 2022 \| Environment 42.
Execution of BoD- and GEB-defined risk appetite for sustainability and climate risks, based on identified material risks.
Monitoring and risk appetite setting.
Integration of climate-related risks (quantitative) into the firm’s risk appetite framework, including, but not limited to, climate-related credit limits (considering materiality thresholds), based on risk rating methodologies, at sectoral, geographic and/or divisional levels, and/or carbon budgets and utilization aligned with UBS net-zero implementation targets.
Ongoing monitoring of potential new transmission channels of climate-related credit risks to UBS.
Integration into market risk monitoring processes reflecting insights from risk identification and ongoing assessment of exposure developments to industry sectors, sovereign debt, commodity prices, foreign exchanges rates and interest rates.
Setting risk appetite against potentially identified material climatesensitive exposure to sectoral, geographic and/or asset type and timely escalation of potential concentrations.
Monitoring and tracking of global climate-related regulations enabling UBS to understand and anticipate impacts to current operations, such as those addressing greenwashing risks or central bank supervisory expectations. Including dynamic assessment processes to reflect evolving regulatory developments and changes in business activities.
UBS’s Risk Appetite Framework ensures that risk-taking at every level of the organization is in line with the firm’s strategic priorities, capital and liquidity plans, as well as our pillars, principles and behaviors. The framework takes a comprehensive approach, integrating all material risks across the firm and is designed to protect UBS’s franchise and reputation.
Established processes within the step 1 frameworks ensure consistent assessment, monitoring and escalation of reputational risk.
Quantitative and qualitative sustainability and climate risk principles integrated into risk management frameworks and processes.
Risk management and control Integration of climate risk considerations into the credit lifecycle, including onboarding, deal review, collateral valuation and periodic credit processes, enable UBS to mitigate the potential for climate-related credit losses.
Driven by standard methodologies (e.g., scorecards), and potential quantitative integration into probability of default, loss given default, riskweighted asset or qualitative integration into decisionmaking.
Mitigants may include the setting of limits to control or minimize material climaterelated credit risks, portfolio management measures (e.g., hedges) and/or of business acceptance criteria.
Integration of climaterelated market risk appetite into how UBS controls market risk, which may include assessing climate risk considerations into management systems and processes to mitigate loss potential.
Iterative feedback and learning loops between market, credit and liquidity risk management approaches to progressively challenge existing risk control measures.
Embed ESG factors into NFR assessment and control frameworks including enhancements to new business initiatives, client onboarding, oversight of marketing materials related to sustainability, business continuity planning adaptations and/or minimum product standards of sustainability characteristics.
On-going review of the framework design and operating effectiveness and ESG controls embedded in key processes, such as new business controls, suitability, and appropriateness reviews, monitoring and surveillance activities, enables UBS to continuously evolve its reputational risk management capacity.
Dashboards on climate-driven risk insights, internal and external reporting on climate risk management framework status.
Risk reporting and disclosure Timely reporting of material changes in climate-credit and market-risk identification, quantification, monitoring, utilization of risk appetite, and/or key risk management and control decisions to key decision-makers in UBS (e.g., senior management), reflecting and based on latest-available advanced ESG data and methodologies.
Periodic climate-related credit and market risk metrics (e.g., climate-driven delta risk or expected credit loss from climatesensitive loans) are integrated in standard internal risk reports for example at the Group, significant Group entities, and/or business divisional levels.
Automation of risk metrics into external disclosure processes, accompanied by materially relevant information on climate risk identification, monitoring (e.g., new transmission channels), exposure trends and mitigating actions.
Roll-out independent ESG data assurance to our Sustainability Report initially (to be extended to other Sustainability Dashboard metrics on riskbased approach over time) and SOX 302 style certification by senior management on our Sustainability Report.
A consolidated view across the Group of all high inherent reputational risks cases that have been raised through the reputational risk review process is provided as inputs into the Group Risk Report on a quarterly basis.
Our plan for liquidity risk.
We aim to integrate identified material risks into our internal liquidity risk management framework. We recognize climate risk drivers may transmit to liquidity adequacy through our ability to raise funds, liquidate assets, or indirectly through our customers’ demands for liquidity (e.g., given a market or physical climate shock).
We plan to assimilate insights gained from our efforts to quantify and integrate climate-related credit and market risks, to collectively determine how liquidity risks may be more accurately captured. We see the integration of climate risk into the liquidity risk management (as with other climate-driven risks) as an iterative, improving the quality of data, analytics and insights over time, as further described in the “ESG data” section below.
Note: As climate risk analysis is a novel area of research, with methodologies, tools and data availability still evolving, we will continue to develop our risk identification and measurement approaches.
42


Sustainability Report 2022 \| Environment 43.
Integrating sustainability and climate risk into other risk categories – progress in 2022.
Credit risk As part of the integration of climate considerations in credit risk, we began designing an internal playbook to guide business divisions on UBS-specific best practices for integrating climate into processes, policies and frameworks. We established a baseline of climate-credit impacted processes and procedures for the Group and business divisions and began discussions towards adapting existing controls to reflect climate considerations.

Reducing our direct climate impact.

Our supply chain goal for 2035 is to tackle scope 3 emissions, specifically emissions from purchased goods and services, by engaging with our key vendors to reach net zero. Reaching net zero across our operations not only lowers costs, it also creates the opportunity to extend our client base by becoming the financial provider of choice for those who are working to reduce their own scope 3 emissions. As the frequency and depth of climate regulation increases, prioritizing our alignment to standards such as the TCFD also helps to reduce the risk of business disruption resulting from new climate legislation. Being in a position where we can act rather than react is, in our view, advantageous.

38

Sustainability Report 2022 | Environment 39.

Managing sustainability and climate risks.

At UBS, sustainability and climate risk is defined as the risk that UBS negatively impacts, or is impacted by, climate change, natural capital, human rights, and other environmental, social and governance (ESG) matters. Sustainability and climate risks may manifest as credit, market, liquidity and/or non-financial risks for UBS, resulting in potential adverse financial, liability and/or reputational impacts. These risks extend to the value of investments and may also affect the value of collateral (e.g., real estate). Climate risks can arise from either changing climate conditions (physical risks) or from efforts to mitigate climate change (transition risks). Physical and transition risks from a changing climate contribute to a structural change across economies and, consequently, can affect banks and the financial sector through financial and non-financial impacts.

The firm’s Sustainability and Climate Risk (SCR) unit (part of Group Risk Control), manages material exposure to sustainability and climate risks. It also advances our firmwide SCR initiative to build in-house capacity for the management of sustainability and climate-related risks. › Refer to the “Appendix 2 – Governance” section of this report for a full description of our sustainability and climate risk policy framework.

Our SCR initiative follows a multi-year roadmap. It is designed to integrate sustainability and climate risk considerations into our firm’s various traditional financial and non-financial risk management frameworks, and related policies and processes. This is necessary to meet expectations regarding the management of sustainability and climate risks and to deliver on climate stress-test exercises. Our roadmap is configured to address current and emerging regulations and builds capacity through expertise and collaboration, for example, structured engagement with internal and external stakeholders (e.g., our Group Compliance, Regulatory & Governance (GCRG) function, for non-financial risks) and pertinent experts.

Our SCR initiative has been set up to address risks across our firm’s business divisions and legal entities. In 2022, it monitored emerging sustainability and climate risk regulation, engaged with select regulators for deep-dives, further advanced efforts toward the goal of full integration of sustainability and climate risk into our firm’s traditional risk management frameworks and stress-testing capacity. Further developments included the introduction of sustainable product guidelines, building new capacity to centrally structure, acquire, and deploy ESG data across the firm, and further refining governance and methodologies driving ESG reporting and disclosure.

Sustainability and climate risk management framework.

We currently identify and manage sustainability and climate risks in our operations, balance sheet, clients’ assets, and our supply chain.

In 2022, we continued to methodologically integrate sustainability and climate-related risk considerations into the firmwide risk management framework to protect both our clients’ and our own assets from climate-related risks. As shown below, this work comprised: (i) risk identification and measurement; (ii) monitoring and risk appetite setting; (iii) risk management and control; and (iv) risk reporting processes.

We are implementing the sustainability and climate risk management framework in line with the multi-year roadmap to integrate sustainability and climate risk into our financial and non-financial risk frameworks and related processes. The development of new and enhanced tools and methodologies in 2022 supports our firm, front-toback, in these integration efforts.

39

Sustainability Report 2022 | Environment 40.

Integrating sustainability and climate risk into other risk categories – our ambition.

In 2022, we further embedded physical and transition risks into our climate risk management framework. As part of the integration of climate in credit risk, we are developing a playbook to help the business divisions integrate climate into processes, policies and frameworks. This approach is also under development for market risk.

We also established a data model and a business process for scoring sustainability and climate risk at the company and asset levels, across a range of materially relevant types. These types are included in the table below, describing how sustainability and climate risks may transmit financial and non-financial risks to UBS, across a variety of counterparty and asset types.

Sustainability and climate risk management framework.

Sustainability and climate risks are identifi ed and integrated in the Group risk identifi cation process.

Related toolkit.

Key sustainability and climate risk considerations are included in internal and external reporting.

Sustainability and climate risk exposures are monitored and metrics reported internally to enable risk appetite setting.

Management and control processes ensure that material sustainability and climate risks are identifi ed, measured, monitored and escalated in a timely manner 1 Partially implemented, externally disclosed, further development underway. 2 Historic scenario assessments disclosed, scenario analysis and stress test framework development underway . 3 Under development. 4 Partially implemented, internally reported, further developments underway. 5 Climate risk-specific controls, integration, and capacity building are ongoing with further development underway .

4.

Risk reporting and disclosure 1.

Risk identifi cation and measurement 3.

Risk management and control – Annual sustainability and climate materiality1 assessment – Climate risk heatmaps1 – Climate scenario analysis and stress test exercises, including the development of an in-house framework2 – Sustainability and climate risk scorecard3 – Expand scope and automation of periodic risk reports4 – Further align external disclosures1 with TCFD – Disclose and enhance sustainability and climate risk metrics1 – Qualitative climate risk appetite1 – Quantitative climate risk appetite3 – Integrate sustainability and climate risk into policies and processes5 – Build in-house capacity, including training5 – Centralize and execute ESG data strategy5 2.

Monitoring and risk appetite setting 40

Sustainability Report 2022 | Environment 41.

Climate risk transmission to financial and non-financial risk.

Overview Credit risk Market risk (traded and non-traded)

Non-financial risk (NFR) Reputational risk.

Transmission of sustainability and climate risk drivers, including transition, physical, and naturerelated risks, through counterparties, collateral, and macro shocks impacting UBS.

Amplified or mitigated sectoral, jurisdictional and/or geographic concentrations or structural product considerations.

Financial impact to UBS from climate policies, low-carbon technologies, and/or demand shifts impacting UBS counterparties’ credit worthiness and/or value of collateral held by UBS. Risk drivers may affect: (i) counterparties, including private individuals, corporate entities, investment vehicles or sovereign entities; (ii) counterparties’ ability to service and repay debt to UBS; and (iii) market and/or lending value of collateral held by UBS supporting credit agreements and the ability to fully recover potential losses in the event of a default.

Financial impact to UBS from price shocks and/or market volatility, climate policies, low-carbon technologies, demand shifts and/or market perception impacting the value of UBS’s positions and/or leading to a breakdown in correlations between risk factors or a change in market liquidity.

Includes UBS’s positions and/or assumptions held by UBS (correlations) regarding real estate, equities, debt, commodities and FX and their related liquidity.

Non-financial impact to UBS (compliance, operational risk and financial crime) from inadequate or failed internal processes, people and systems and/or externally by physical climate events or stakeholder legal action impacting UBS through increasing business continuity, legal and regulatory compliance risk associated with climatesensitive investments and businesses.

Risk of unfavorable perception or decline of UBS’s reputation from the point of view of clients/industries, shareholders, regulators, employees, or the general public which may lead to potential financial losses and/or market share.

Is considered in all business activities, transactions, and decisions and as such regarded as an impact.

The table below outlines UBS’s vision on how key sustainability and climate risk considerations may be integrated into financial and non-financial risk frameworks.

Vision of overall approach.

Risk management process.

Credit risk Market risk (traded and non-traded)

Non-financial risk (NFR)

Reputational risk.

Systematically integrate sustainability and climate risks into the firm’s risk identification processes and stress testing framework.

Risk identification and measurement Transition and physical risk ratings (including company/asset-level scorecards and industry-level heatmaps) enable UBS to assess and monitor material concentrations of exposure to climate risk, including sensitive geographies, sectors and counterparties.

Climate risk scenario analysis and stress testing enables UBS to assess risks along different pathways of climate change. This includes the assessment of a range of scenarios with different severities.

The scenarios’ climate-related macroeconomic, financial, and other variables reflect different levels of physical and transition risk across time horizons up to 30 years. Climate risk stress models translate the scenarios into capital and risk-weighted asset (RWA) impacts where appropriate.

Progressive study of market-based responses to climate risk drivers enables UBS to identify new transmission channels of market risk impacts.

Integration of risk ratings to enable risk identification through monitoring potential impact on the value of UBS’s positions that may be materially affected by climate-risk-driven price and/or volatility shifts.

Custom climate stress modeling enabling UBS to quantify potential losses from changes in market variables, such as interest rates, credit spreads, equity and commodity prices, as well as correlations and volatility. This could include approaches like applying instantaneous stress shocks for climate-specific scenarios.

Assess NFR implications across compliance, financial crime, and operational risk taxonomies including business continuity risk to enable UBS to identify potential deficiencies in internal processes or vulnerabilities to external events.

Clients, new transactions, products and services go through standard review and decision processes prior to UBS conducting business. These processes, in addition to day-to-day risk management, support the identification, assessment and escalation of potential reputational risk.

Design and operating effectiveness of the framework relies on inclusion of climate-related risk management processes embedded in the step 1 frameworks below, examples include: – Client onboarding (Financial Crime Prevention / Anti-Money Laundering / Know Your Customer); – Sustainability and climate risks; – Suitability and appropriateness review; – New business and complex transaction approval processes; – Third-party risk management and outsourcing and offshoring processes.

41

Sustainability Report 2022 | Environment 42.

Execution of BoD- and GEB-defined risk appetite for sustainability and climate risks, based on identified material risks.

Monitoring and risk appetite setting.

Integration of climate-related risks (quantitative) into the firm’s risk appetite framework, including, but not limited to, climate-related credit limits (considering materiality thresholds), based on risk rating methodologies, at sectoral, geographic and/or divisional levels, and/or carbon budgets and utilization aligned with UBS net-zero implementation targets.

Ongoing monitoring of potential new transmission channels of climate-related credit risks to UBS.

Integration into market risk monitoring processes reflecting insights from risk identification and ongoing assessment of exposure developments to industry sectors, sovereign debt, commodity prices, foreign exchanges rates and interest rates.

Setting risk appetite against potentially identified material climatesensitive exposure to sectoral, geographic and/or asset type and timely escalation of potential concentrations.

Monitoring and tracking of global climate-related regulations enabling UBS to understand and anticipate impacts to current operations, such as those addressing greenwashing risks or central bank supervisory expectations. Including dynamic assessment processes to reflect evolving regulatory developments and changes in business activities.

UBS’s Risk Appetite Framework ensures that risk-taking at every level of the organization is in line with the firm’s strategic priorities, capital and liquidity plans, as well as our pillars, principles and behaviors. The framework takes a comprehensive approach, integrating all material risks across the firm and is designed to protect UBS’s franchise and reputation.

Established processes within the step 1 frameworks ensure consistent assessment, monitoring and escalation of reputational risk.

Quantitative and qualitative sustainability and climate risk principles integrated into risk management frameworks and processes.

Risk management and control Integration of climate risk considerations into the credit lifecycle, including onboarding, deal review, collateral valuation and periodic credit processes, enable UBS to mitigate the potential for climate-related credit losses.

Driven by standard methodologies (e.g., scorecards), and potential quantitative integration into probability of default, loss given default, riskweighted asset or qualitative integration into decisionmaking.

Mitigants may include the setting of limits to control or minimize material climaterelated credit risks, portfolio management measures (e.g., hedges) and/or of business acceptance criteria.

Integration of climaterelated market risk appetite into how UBS controls market risk, which may include assessing climate risk considerations into management systems and processes to mitigate loss potential.

Iterative feedback and learning loops between market, credit and liquidity risk management approaches to progressively challenge existing risk control measures.

Embed ESG factors into NFR assessment and control frameworks including enhancements to new business initiatives, client onboarding, oversight of marketing materials related to sustainability, business continuity planning adaptations and/or minimum product standards of sustainability characteristics.

On-going review of the framework design and operating effectiveness and ESG controls embedded in key processes, such as new business controls, suitability, and appropriateness reviews, monitoring and surveillance activities, enables UBS to continuously evolve its reputational risk management capacity.

Dashboards on climate-driven risk insights, internal and external reporting on climate risk management framework status.

Risk reporting and disclosure Timely reporting of material changes in climate-credit and market-risk identification, quantification, monitoring, utilization of risk appetite, and/or key risk management and control decisions to key decision-makers in UBS (e.g., senior management), reflecting and based on latest-available advanced ESG data and methodologies.

Periodic climate-related credit and market risk metrics (e.g., climate-driven delta risk or expected credit loss from climatesensitive loans) are integrated in standard internal risk reports for example at the Group, significant Group entities, and/or business divisional levels.

Automation of risk metrics into external disclosure processes, accompanied by materially relevant information on climate risk identification, monitoring (e.g., new transmission channels), exposure trends and mitigating actions.

Roll-out independent ESG data assurance to our Sustainability Report initially (to be extended to other Sustainability Dashboard metrics on riskbased approach over time) and SOX 302 style certification by senior management on our Sustainability Report.

A consolidated view across the Group of all high inherent reputational risks cases that have been raised through the reputational risk review process is provided as inputs into the Group Risk Report on a quarterly basis.

Our plan for liquidity risk.

We aim to integrate identified material risks into our internal liquidity risk management framework. We recognize climate risk drivers may transmit to liquidity adequacy through our ability to raise funds, liquidate assets, or indirectly through our customers’ demands for liquidity (e.g., given a market or physical climate shock).

We plan to assimilate insights gained from our efforts to quantify and integrate climate-related credit and market risks, to collectively determine how liquidity risks may be more accurately captured. We see the integration of climate risk into the liquidity risk management (as with other climate-driven risks) as an iterative, improving the quality of data, analytics and insights over time, as further described in the “ESG data” section below.

Note: As climate risk analysis is a novel area of research, with methodologies, tools and data availability still evolving, we will continue to develop our risk identification and measurement approaches.

42

Sustainability Report 2022 | Environment 43.

Integrating sustainability and climate risk into other risk categories – progress in 2022.

Credit risk As part of the integration of climate considerations in credit risk, we began designing an internal playbook to guide business divisions on UBS-specific best practices for integrating climate into processes, policies and frameworks. We established a baseline of climate-credit impacted processes and procedures for the Group and business divisions and began discussions towards adapting existing controls to reflect climate considerations.