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Physical risk by sector and geographic (country) scores.
Marker size indicates relative exposure magnitude 0.1 0.2 0.5 0.6 0.7 0.9 1.0 0.2 0.3 0.6.
High 1.0.
Agriculture.
Financial services.
Fossil fuels.
Lombard4 0.5 0.4.
Country score.
Metals and mining 0.4.
Real estate (development, commercial)5,6 0.1 0.
Low 0.3.
Services and technology.
Transportation.
Industrials 0.8.
Utilities.
High.
Climate risk heatmap (physical risk)1,2.
In USD billion.
Consists of total loans and advances to customers and guarantees, as well as irrevocable loan commitments (within the scope of expected credit loss), and are based on consolidated and standalone IFRS numbers. Climate-related risks are scored between 0 and 1, based upon sustainability and climate risk transmission channels, as outlined in the Methodology Appendix. Risk ratings represent a range of scores across, 5 risk rating categories: low, moderately low, moderate, moderately high, and high. Climate sensitive exposure metric is determined based upon the top 3 out of 5 rated categories: high to moderate. Sectors, such as fossil fuels, are further segmented to categories refl ecting a range of risk vulnerabilities from high to moderate, within the sensitive sector. Total exposure calculation is subject to rounding to two decimal places, hence potential deviation from actual. Methodologies for assessing climate-related risks are emerging and may change over time. As the methodologies, tools, and data availability improve, we will further develop our risk identifi cation and measurement approaches, including updated geospatial analysis of properties securing fi nancing with UBS (real estate) and better understanding how private lending (e.g., Lombard) activities may result in direct fi nancial impacts to UBS. Not classifi ed represents portion of UBS business activities where methodologies and data are not yet able to provide a rating. Lombard lending rating is assigned based on the average riskiness of loans. Residential real estate is not given a sector score, therefore not included in this chart, however, is rated “low” based on periodic geospatial analysis. UBS has identifi ed select properties in its portfolio that are vulnerable to acute climate hazards, however portfolio-level risks are inherently low, given the integration of such information into UBS’s loan underwriting processes.
1 2 3 4 5 6 226.59 Low 184.85 Moderately low 8.71 Not classifi ed 1.42 High 4.15 Moderately high 24.44 Moderate 450.17 3,4.
Total exposure.
Sector score.
Average country and sector score.
Lower risk Higher risk 50
Sustainability Report 2022 | Environment 51.
Nature-related risk Since 2021, our firm has been a member of the Taskforce on Nature-related Financial Disclosures (the TNFD). The TNFD is a market-led, science-based and government-backed initiative. It was formed to develop a risk management and disclosure framework for organizations to report and act on evolving nature-related risks, with the aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
Since 2018, we have also been a member of the UNEP-FI working group to develop a natural capital dependency and impact methodology, also known as Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE). In 2022, UBS piloted a new quantification approach for natural capital risk based on nature-related dependency data in the Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tool developed by the Natural Capital Finance Alliance (the NCFA) and the World Conservation Monitoring Centre (the UNEP-WCMC). The nature-related risk metric measures our exposure to nature-sensitive economic sectors that are vulnerable to financial impacts caused by the disruption of ecosystem services.
The ENCORE tool assigns a materiality rating to production processes to assess their potential dependencies on ecosystem services. The dependency ratings range from high to low and consider the potential loss of functionality of a production process and financial loss, if an ecosystem service is disrupted. Our SCR unit has assigned each primary industry code (GICS) a mapping to an ENCORE-specific production process (or its closest proximate process), subject to three rounds of subject matter expert review and challenge. The maximum rating of a group of production processes (defined as an ENCORE-specific subsector) then defines the dependency rating for each industry code. Exposure values are then aggregated and summarized by rating. Risk ratings from ENCORE are translated to integral scores and scored based on a normalized cumulative distribution function.
Our pilot nature-related risk metric shows that the Group-wide lending exposure of corporate counterparties to sectors with moderate or high-risk ratings for nature-related risk is relatively low, at 9.8%. The table under climate risk monitoring and risk appetite shows the nature dependency risk ratings and exposure by sector. › Refer to the “Appendix 3 – Environment” section of this report for our approach to nature.
Climate scenario analysis We use scenario-based approaches to assess our exposure to physical and transition risks stemming from climate change. We have introduced a series of assessments performed through industry collaborations in order to harmonize approaches for addressing methodological and data gaps. We have performed top-down balance sheet stress testing (across the Group), as well as targeted, bottom-up analysis of specific sector exposures covering short-, medium-, and long-term time horizons.
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Sustainability Report 2022 | Environment 52 › Refer to the “Appendix 3 – Environment” section of this report for details on our climate scenario analysis, and to our Sustainability Report 2021, pages 52–53.
Regulatory scenario analysis and stress test exercises.
UBS first participated in regulatory scenario analysis and stress test exercises in 2021, namely the Bank of England (BoE) 2021 Climate Biennial Exploratory Scenario (CBES): Financial risks from climate change; and the Climate Risk Stress Test (CST) of the European Central Bank (the ECB).
For the 2021 CBES exercise, the BoE used exploratory scenarios to investigate a range of climate risks stemming from climate change. The CBES exercise consisted of three 30-year climate risk scenarios, with varying degrees of severity (early policy action, late policy action and no additional policy action). It included an assessment of management actions in response to scenario results, as well as a counterparty-level analysis and a qualitative questionnaire. Overall, the scenario analyses showed mild losses and low exposure of climate-sensitive segments for business booked in UBS AG, London Branch. UBS as a firm was not formally required to participate in the exercise (as we are not a UK-headquartered bank), but volunteered to participate in order to learn from the effort given our footprint in the UK.
Since 2021.
Since 2017.
Since 2014.
Regulatory stress test exercises1 – European Central Bank (ECB) climate risk stress test – Bank of England Climate Biennial Exploratory Scenario (CBES): Financial risks from climate change – Swiss Financial Market Supervisory Authority (FINMA) / Swiss National Bank (SNB) climate risk assessment: focus on measurement of climate-related transition risks.
Scenario analysis informed by industry collaboration2 – 2 Degrees Investing Initiative (2DII); Paris Agreement Capital Transition.
Assessment (PACTA) – Collaboration with the UNEP-FI TCFD projects for banks – Collaboration with the Natural Capital Finance Alliance / UNEP-FI.
Key highlights of UBS climate scenario analysis.
In-house scenario analysis3 – A top-down stress test to assess the fi rm-wide vulnerability to climate change – Bottom-up climate transition risk impacts on oil, gas and electric utilities credit portfolio – Bottom-up (asset level) physical acute climate hazard potential impacts on mortgage portfolios 1 Please refer to Regulatory scenario analysis and stress test exercises. 2 Please refer to Scenario analysis informed by industry collaboration. 3 Please refer to In-house scenario assessments in our Sustainability Report 2021. Note: Climate risk analysis is a novel area of research, and, as the methodologies, tools, and data availability improve, we will further develop our risk identifi cation and measurement approaches.
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Sustainability Report 2022 | Environment 53.
Throughout 2022, we engaged with a range of regulatory surveys and other requests for information from supervisors around the globe. We also participated in industry efforts to evaluate regulatory exercises to date. We will continue leveraging these learnings, as they improve testing methodologies.
During the first half of 2022, we participated in the CST exercise to assess banks’ preparedness for dealing with financial and economic shocks stemming from climate risk. The CST exercise included a self-assessment questionnaire, climate risk metrics and stress test projections. The scope of the exercise covered UBS Europe SE, which contributed starting point data for supervisory top-down assessments. Due to the ECB’s proportionality principle, we were not asked to provide bottom-up stress test projections. Overall, the exercise showed that UBS Europe SE has low exposure to climate risks.
We enhanced our capabilities for assessing risks and vulnerabilities from climate change in 2022, fostered by deliveries regarding the aforementioned supervisory stress tests, as well as internal developments in climate risk scenario analysis and stress testing.
We also contributed to the NGFS’s work exploring the potential for risk differentials among assets due to climate change. We joined industry efforts to evaluate regulatory exercises to date. This included the IIF report “Navigating Climate Headwinds,” which examined learnings from 20 global institutions on regulatory climate scenario analysis and stress test exercises.
In 2022, we also began developing a climate risk scenario analysis and stress testing framework. The framework aims to measure our exposures to climate risks in order to understand the impact of climate change on our business model and manage potential risks to our capital position. To support this, we have been developing internal climate risk scenarios covering transition and physical risks. In addition, we are in the process of developing corresponding climate risk models for major risk types, including credit risks and non-financial risks.
Scenario analysis informed by industry collaboration.
In 2020, we were one of the pilot banks testing the Paris Agreement Capital Transition Assessment (PACTA) methodology. This methodology provides an assessment of a bank’s credit-financed activities in relation to the global shift to a low-carbon economy. We studied the alignment of select climate-sensitive sectors in our corporate credit portfolio with Paris Agreement benchmarks.
One of the results shown by the PACTA for lending assessment was that the fuel mix in UBS’s power utilities credit portfolio was significantly less carbon-intensive than the global corporate economy, as of 2019. As an outcome of the collaboration between UBS and 16 other international banks, academia and experts, a PACTA for Banks Methodology Document was published.
In 2022, we participated in the PACTA climate alignment test focused on assessing listed investments (including equities and bonds), mortgages and direct real estate portfolios. The 2022 PACTA results for this portfolio were compared with the aggregated results of all participating banks’ portfolios.
A detailed report of the PACTA 2022 climate alignment test for the Swiss financial market is available from the Swiss Federal Office for the Environment (FOEN). It promotes industry learning and supports information flow on progress made and efforts still needed. Overall, the test results have confirmed findings from our previous in-house assessment on climate risk. So far, we have not identified significant climate-related financial risk on our balance sheet. This is explained by our firm’s relatively small lending book in climate-sensitive sectors and the availability of insurance where we have relevant exposures to such sectors (e.g., Swiss mortgage lending book). › Refer to bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate-and-financial-markets/pacta.html for more information on the PACTA 2022 climate alignment test.
Climate risk monitoring and risk appetite In 2022, we expanded our suite of climate risk metrics in response to evolving industry and regulatory guidance. This included the further enhancement of both transition and physical risk heatmap methodologies, the introduction of a nature-related risk metric, and the expansion of legal-entity-level climate risk metrics. › Refer to our transition and physical risk heatmaps above.
The current inventory of UBS’s exposure to climate-sensitive activities (transition, physical and nature-related risks) at the sector level is summarized in the tables below. Exposures may appear either under one or more of the risk types, as the methodologies are distinct in their approach and application and should not be added up as one total exposure figure. Climate risk analysis is a novel area of research, and, as the methodologies, tools and data availability improve, we will further develop our risk identification and measurement approaches.
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Sustainability Report 2022 | Environment 54.
Risk exposures by sector1,2.
Exposure Transition risk Physical risk Nature-related risk6.
Sector / Subsector 2020– 2022 trend 2022 (USD billion) 2022 climatesensitive exposure3 2022 risk- rating category3 2020– 2022 trend in risk profile4.
In scope of netzero target (%)5 2022 climatesensitive exposure3 2022 risk-rating category3 2020– 2022 trend in risk profile4 2022 naturerelated sensitive exposure3 2022 risk-rating category3 2020– 2022 trend in risk profile4.
Agriculture.
Agriculture, fishing and forestry  0.3 0.0 Moderately low  0.3 Moderate  0.2 Moderate 
Food and beverage  3.2 1.4 Moderate  2.3 Moderate  1.3 Moderately low  FFinancial services.
Financial services  46.9 0.0 Low  7.1 Moderately low  0.7 Low  IIndustrials.
Cement or concrete manufacture  0.5 0.5 Moderately high  98 0.5 Moderate  0.5 Moderately low 
Chemicals manufacture  1.0 1.0 Moderately high  1.0 Moderate  0.5 Moderate  Electronics manufacture  1.8 0.0 Moderately low  0.1 Moderately low  0.5 Moderately low 
Goods and apparel manufacture  2.1 1.0 Moderate  0.9 Moderately low  1.2 Moderate 
Machinery manufacturing  2.9 2.6 Moderate  0.1 Moderately low  2.3 Moderate  Pharmaceuticals manufacture  1.9 1.9 Moderately high  0.2 Moderately low  1.7 Moderate 
Plastics and petrochemicals manufacture  0.9 0.9 Moderate  0.8 Moderate  0.4 Moderately low 
MMetals and mining.
Conglomerates (incl. trading)  2.4 2.4 Moderate  0.4 Moderately low  0.0 Moderately low 
Mining and quarrying  0.4 0.0 Moderately low  0.4 Moderately high  0.4 Moderately low  Production  0.4 0.4 Moderate  0.1 Moderate  0.3 Moderate  FFossil fuels.
Downstream refining, distribution  0.3 0.3 Moderate  0.3 Moderate  0.0 Moderately low 
Integrated  0.4 0.4 Moderately high  100 0.4 Moderate  0.0 Moderately low  Midstream transport, storage  0.0 0.0 Moderate  0.0 Moderate  0.0 Low 
Trading  5.2 5.2 Moderate  5.2 Moderately high  0.0 Moderately low  Upstream extraction  0.1 0.1 Moderately high  95 0.1 Moderate  0.0 Moderately low  RReal estate.
Real estate development and management  5.6 1.8 Moderately low  0.8 Moderately low  5.5 Moderately low 
Residential2  158.9 0.0 Low  99 0.0 Low  0.0 Not Classified  Commercial2  47.1 1.4 Moderately low  97 1.7 Low  21.0 Moderately low  SServices and technology.
Services and technology  19.6 0.0 Low  3.0 Moderately low  2.1 Low  TTransportation.
Air transport  1.8 1.8 Moderate  1.1 Moderate  1.8 Moderate  Automotive  0.4 0.1 Moderately low  0.0 Moderately low  0.4 Moderate  Parts and equipment supply  0.5 0.5 Moderate  0.1 Moderately low  0.4 Moderately low  Rail freight  0.7 0.0 Low  0.2 Moderately low  0.7 Moderate  Road freight  0.5 0.5 Moderate  0.2 Moderately low  0.0 Moderately low  Transit  0.2 0.0 Moderately low  0.1 Moderately low  0.0 Moderately low  Water transport  0.4 0.0 Moderately low  0.4 Moderate  0.4 Moderately low  UUtilities.
Other  0.2 0.1 Moderately low  0.1 Moderate  0.2 Moderately high  Secondary energy production  2.0 0.5 Moderately low  91 2.0 Moderate  1.5 Moderate 
Secondary energy trading  0.0 0.0 Moderately low  0.0 Moderate  0.0 Moderately high  PPrivate lending.
Lombard2,7  137.3 0.0 Low  0.0 Moderately low  0.0 Low  Private lending, credit cards, other2  4.1 0.0 Not Classified  0.0 Not Classified  0.0 Not Classified 
TTotal  450.0 24.9 Moderately low  30.0 Moderately low  44.0 Moderately low  of which sensitive exposure (%) 5.5 6.7 9.8 1 Consists of total loans and advances to customers and guarantees, as well as irrevocable loan commitments (within the scope of expected credit loss), and based on consolidated and standalone IFRS numbers, in USD billion. Metrics and trends are calculated and restated based on 2022 methodology, across three years of reporting, 2020 to 2022. 2 Methodologies for assessing climate- and nature-related risks are emerging and may change over time. As the methodologies, tools, and data availability improve, we will further develop our risk identification and measurement approaches, including further and updated geospatial analysis of properties securing financing with UBS (real estate) and better understanding how private lending (e.g., Lombard) activities may result in direct financial impacts for UBS. For physical climate risks, UBS has identified select properties in its real estate portfolio that are vulnerable to acute climate hazards. However, real estate rating is assigned based on the riskiness of loan counterparties or qualitative estimates leveraging internal studies. 3 Climate- and nature-related risks are scored between 0 and 1, based upon sustainability and climate risk transmission channels, as outlined in the methodology Appendix. Risk ratings represent a range of scores across five risk-rating categories: low, moderately low, moderate, moderately high, and high. Climate- or nature-sensitive exposure metric is determined based upon the top three out of five rated categories: high to moderate. Legend on risk codes: not classified means the respective category of risk rating is not classified and its range of risk profiles scores 0%; low means the category of risk rating is low and its range of risk profiles scores ≤19%; moderately low means the category of risk rating is moderately low and its range of risk profiles scores >19% and ≤39%; moderate means the category of risk rating is moderate and its range of risk profiles scores >39% and ≤59%; moderately high means: the category of risk rating is moderately high and its range of risk profiles scores >59% and ≤79%; high means the category of risk rating is high and its range of risk profiles scores >79% and ≤100%. 4 A material change in risk profile (discrete risk score, weighted average per sub-sector) is considered as >5% shift up, or down. 5 Calculated as % of total exposure to the sub-sector, overall net-zero targets cover 45.6% of UBS lending, as defined in footnote 1. 6 Nature-sensitive metric is provided as a proof-of-concept, as part of an ongoing collaboration between UBS and UNEP-FI. UBS continues to collaborate to resolve methodological and data challenges, and seeks to integrate both impacts to and dependency on a changing natural and climatic environment, in how it evaluates risks and opportunities. 7 Lombard lending rating is assigned based on the average riskiness of loans.
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Sustainability Report 2022 | Environment 55.