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Time horizon.
Risk to UBS short-term medium-term long-term lowest risk highest risk.
R2-Reputational.
R4-Business.
R3-Op. compliance.
R3-Op. continuity.
R1-Financial.
D3-Policy.
D5-Market sentiment.
D1-Acute.
D4-Technology.
D2-Chronic 83
Sustainability Report 2022 | Appendix 1 | Strategy 84.
Physical risk drivers D1-Acute: Impacts from extreme weather events may affect the value of physical assets that UBS owns and finances, especially in the short- and medium-term time horizons. These impacts should be diligently addressed with regard to UBS’s financial risk assessment. We consider the risks to our own physical assets through our comprehensive business continuity planning and physical climate risk identification process.
D2-Chronic: Impacts from incremental climate change may affect the value of physical assets that UBS owns and finances. Incremental changes in climate (e.g., rising temperatures and changes in precipitation patterns) can exacerbate extreme events, making them more frequent and severe, which in turn affects economic output and productivity. Such events could reduce the value of properties held as collateral. We see these potential risks emerging in the long term. Relevance of physical risks equally derives from geographical and sectoral disaggregation. Based on physical risk heatmaps, our exposure to climate-sensitive regions is considered moderately low. Similar conclusions are reached based on the sectoral disaggregation of our businesses.
Transition risk drivers D3-Policy and regulatory: As a global financial services firm active in wealth management, asset management, investment banking and the provision of services to corporate and institutional clients, our firm can be affected directly and indirectly by new carbon pricing regulation and energy transition policies. These measures can be designed to both constrain the impacts of climate change and/or promote an adaptive response to climate change impacts. They could impact our own operations, as well as the business operations of our corporate clients, given that such clients rely on the firm to finance their activities across a range of sectors. We routinely assess the impact of current and emerging regulation, either directly affecting our operations or indirectly affecting those sectors where we have clients. Assessments and gap-analysis exercises are conducted several times a year, following a standardized identification process defined by the climate risk program. Additionally, regulatory developments are assessed for impacts via quarterly monitoring.
D4-Technological change: Together with corporate clients that rely on UBS to finance their activities in a range of sectors, our firm is both directly and indirectly exposed to technological changes. We analyze these changes, such as the rise of electric vehicle and battery technologies in the automotive sector, or energy storage technology advancement impacts on the power utility sectors, through scenario analysis approaches.
D5-Market sentiment: We have made protecting our clients’ assets a strategic pillar in our climate approach. Amid the growing demand for climate-focused products and services, we need to actively respond to market changes driven by the low-carbon transition and our clients’ interest in managing climate-related risks. We address this potential risk through our comprehensive sustainability- and climate-focused product and service offering.
Climate-driven risks R1-Financial: On the credit risk side, we assess the impact to our firm through counterparties: household, corporate, or sovereign income and/or wealth given the ability to repay and service debt (income); or our ability to fully recover value of the loan in the event of a default, due to collateral devaluation (wealth). On the market-risk side, we assess the impact on the value of our financial assets, by altering or revealing new information about potential future economic conditions or the value of real or financial assets, resulting in downward price shocks and an increase in market volatility; that leads to a breakdown in correlations between assets or a change in market liquidity for certain assets.
R2-Reputational: Our reputation may be adversely affected if our climate-related actions and methods are not perceived as meeting existing or future industry standards and best practices. Examples of this would be allegations related to greenwashing or inadequate action on climate change. Increased reputational risks could lead to loss of business and may result in changes in regulations, which in turn could impact our business model.
R3-Operational: Climate-driven operational risk may increase with regulatory compliance and liability (operational compliance) and/or business continuity (operational continuity), associated with climate-sensitive investments and businesses. These can arise internally by inadequate or failed internal processes, people, and systems and/or externally by physical climate events or stakeholder legal action.
R4-Business: Business risk may materialize as client and investor sentiment changes. This could lead to changes in demand for existing and new products and services which could materially impact the bank’s revenue performance. › Refer to the “Environment” section and the “Appendix 3 – Environment” section for more details about climaterelated risks 84
Sustainability Report 2022 | Appendix 1 | Strategy 85.
Supporting our strategy – our stakeholder engagement.
We engage with stakeholders on a regular basis and on a wide range of topics. This engagement yields important information about their goals, expectations and concerns. It makes a critical contribution to our understanding and management of issues that have a potential impact (whether positive or negative) on our firm and on our stakeholders.
Clients, employees and investors Understanding the needs and expectations of our clients and investors enables us to best serve their interests and to create value for them. Our interactions with these key stakeholder groups are described in our Annual Report, including the multiple techniques we use to regularly assess our achievements and the satisfaction of our clients. We have regular interaction with institutional investors, financial analysts and other market participants, such as credit rating agencies, including on sustainability topics. We are dedicated to being a world-class employer for talented individuals across all our markets, with our employees executing our business strategy and delivering on our client promise. Employee engagement is therefore critical to the success of our firm and described in detail in this report. › Refer to the “How we create value for our stakeholders” section of the Annual Report 2022 for more information › Refer to the “Social” section of this report for detailed information about employee engagement.
Governments and regulators Financial market stability is largely dependent on the overall economic, regulatory and political environment, and the conduct of firms within the sector. We actively participate in political discussions to share our expertise on proposed regulatory and supervisory changes. We also actively engage in discussions relating to corporate responsibility and sustainability. Sustainability and sustainable finance continue to remain key focus topics in our interactions with our financial regulators and supervisors. These are subject to ongoing oversight and control by the second and third lines of defense.
Regarding climate, our engagement aims to share expertise on an orderly transition towards a net-zero economy. Our sustainability and climate governance ensures alignment of the engagement, based on our climate strategy and net-zero planning, and clear accountabilities regarding regulatory and governmental developments.
On a global level, we support the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (the TCFD) and the Taskforce on Nature-related Financial Disclosures (the TNFD). In 2022, we endorsed the initiative of the IFRS Foundation International Sustainability Standards Board (ISSB) to establish international sustainability disclosure standards. In Switzerland, where our headquarters is located, we expressed support in 2022 of the plans of the Swiss Government to introduce mandatory climate-related disclosure requirements for large public companies. Together with trade associations, we stressed the urgency for a new revision of the Swiss CO2-Act during the consultation. UBS has contributed to new environmental, social and governance (ESG) self-regulation in Switzerland for the client advisory process, mortgages, and asset management. UBS also contributed to the Swiss Climate Scores as a key instrument to further increase transparency on the climate alignment of financial products.
On a regional basis, we contribute to various forums in order to engage with policymakers regarding the European Commission’s Sustainable Finance Action Plan, as well as with policymakers in our key Asia Pacific jurisdictions and the Americas. › Refer to UBS’s quarterly reports and annual reports available at ubs.com/investors for more information about regulatory topics.
Politicians and political parties We maintain a regular dialogue with politicians globally and strive to establish long-term relationships with political representatives. We comply with legal requirements on disclosing political donations, as applicable in the relevant jurisdictions. In the US, eligible employees may make financial contributions through a federal Political Action Committee (a PAC), the UBS Americas Inc. PAC. That PAC makes contributions to federal candidates. These employee contributions do not constitute political donations by UBS. Outside of Switzerland, financial support to political parties or candidates is subject to a strict due diligence and approval process. The process applied in Switzerland is explained in the following.
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Sustainability Report 2022 | Appendix 1 | Strategy 86.
Support of the Swiss militia system Swiss citizens actively and voluntarily engage in political institutions at all three levels of the Swiss state (federal, cantonal and local) as public officials (e.g., members of parliament, members of commissions and executive mandates), while they continue to pursue other professional activities. This arrangement (citizens taking on public tasks and mandates on a part-time basis) is referred to as the militia system.
In this system, members of parliament in Switzerland are (usually) not professional politicians and political parties do not receive state funding. It is for this reason that we view the support of the militia system as a crucial component of our societal responsibility in our home market. In recognition of the vital function of Switzerland’s political parties, we provided a total of CHF 0.75 million to political parties in 2022 as a contribution to their operational costs. Financial contributions are calculated based on the number of parliamentary seats the respective party holds at the federal and cantonal level. Swiss parties are eligible to apply for a financial contribution if they commit to free competition, the market economy and to the Swiss financial center. They should also have a national focus and either form a parliamentary group in the federal parliament or be represented in at least one cantonal government. We view our contribution to political parties in Switzerland as a long-term commitment, which is, however, subject to regular reviews.
We also expressly support the political involvement of our employees. About 250 employees currently hold political offices at the federal, cantonal and local level. UBS runs an initiative for political mandate holders to further support the militia system. If necessary, employees may spend a certain amount of their working time on their public duties. We organize an annual political forum at which senior management and political office holders discuss topics of relevance to UBS in Switzerland.
Peers We actively engage in regular discussions about corporate responsibility and sustainability issues with specialists in peer banks, and more widely through trade bodies and associations. Sharing experiences and assessments of corporate responsibility and sustainability issues helps us to compare and improve our strategy, approach and tools. We are a founding signatory of the Net Zero Asset Managers initiative, the Net-Zero Banking Alliance and the Principles for Responsible Banking.
We are a founding member of the Wolfsberg Group, an association of global banks that aims to develop financial services industry standards regarding anti-money laundering, know-your-client and counter-terrorist financing policies. Meeting regularly, the Wolfsberg Group also works closely with the Financial Action Task Force.
We are also a founding member of the Thun Group of Banks. The group focuses on helping identify key challenges and best practice examples for the banking sector’s implementation of the UN Guiding Principles on Business and Human Rights.
Communities At UBS, we recognize that our long-term success depends on the health and prosperity of the communities that we are a part of. Our approach is to build sustainable and successful partnerships with non-profit organizations and social enterprises to help our contributions have a lasting impact. Our community impact programs seek to overcome disadvantage through long-term investment in education and entrepreneurship in the communities in which we operate.
Through local execution and partnerships, which operate under a global framework and with coordination across regions, we endeavor to deliver business and community impact by identifying innovative and high-quality programs that are aligned to the business. We provide focused financial and human support, including skills-based employee volunteering programs and client participation where appropriate. We are an active member of Business Investment for Social Impact (B4SI), which provides an internationally recognized framework for measuring corporate community investment. › Refer to the “Appendix 4 – Social” section of this report for further community impact information and data.
Vendors In 2022, we spent USD 6.39 billion on a broad range of products and services. A large portion of this expenditure consisted of real estate, outsourcing and IT costs, as well as consultancy and legal fees. Our sourcing and procurement services are provided by an external company, which applies our responsible supply chain management (RSCM) framework and processes. Their experienced procurement and sourcing specialists perform vendor due diligence and establish remediation measures, supported by a centralized team of experts within UBS.
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Sustainability Report 2022 | Appendix 1 | Strategy 87.
We aim to ensure that our social and environmental values are being followed throughout the supply chain. A Group-wide RSCM guideline provides systematic assistance on identifying, assessing and monitoring vendor practices in the areas of human and labor rights, environmental protection, and anti-corruption. A central component of this guideline is the UBS Responsible Supply Chain Standard, to which our direct vendors are normally bound by contract. We expect our vendors to apply these same standards to relationships with their vendors. › Refer to the “Social” section of this report for more information on our responsible supply chain management.
Non-governmental organizations We regularly interact with non-governmental organizations (NGOs) and appreciate their input and insight, as those help us consider our approach to, and understanding of, societal issues and concerns.
NGOs have long established themselves as critical watchdogs of companies, both scrutinizing and challenging how we address a broad range of environmental, social and human rights concerns. In 2022, discussions with NGOs were particularly focused on climate change (notably on fossil fuels). Other topics discussed included sustainable finance, human rights and biodiversity.
Media Our media teams maintain direct and long-term relationships with media representatives across all our business regions and provide them with timely information on a wide range of global, regional and local topics. Senior management (at the Board of Directors and Group Executive Board level) also regularly provide accounts to journalists, predominantly through interviews. In addition to interviews at our corporate events (i.e., via quarterly and annual reporting), senior management conducted many other interviews in 2022. We also communicated with media representatives, through interviews or background conversations, on a broad range of corporate responsibility and sustainability topics, such as climate change, human rights and sustainability and climate risks in general. › Refer to ubs.com/media for further information about UBS media relations.
ESG rating and research agencies We actively engage in dialogue with analysts at rating and research agencies. The assessment of specialized agencies helps to evaluate our sustainability performance and activities and provides a useful means for benchmarking. In 2022, we provided detailed information about our sustainability performance to a range of agencies, either in response to questionnaires or via calls (with ESG analysts). Our Sustainability Report regularly serves as a key source of information for these agencies.
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Sustainability Report 2022 | Appendix 2 | Governance 88.
Appendix 2 – Governance.
Our sustainability governance – additional information.
This overview table provides summary information about key bodies governing and implementing sustainability and climate at UBS, with a particular focus on the Board of Directors (the BoD) and Group Executive Board (the GEB) levels. At the level of the business divisions (BDs) and Group Functions, dedicated management bodies consider sustainability and climate matters as applicable to the (business) focus / mandate of the respective division or function. Pertinent aspects arising from these discussions are reported into the GEB and BoD directly (or via, for example, the Sustainability and Climate Task Force). › Refer to the “Governance” section of this report for the overarching description of our firm’s sustainability governance.
Governance body.
Lead and other membership information.
Sustainability / climate agenda frequency.
Purpose and responsibilities related to sustainability- and climate-related issues.
Topics considered in 2022.
BoD Corporate Culture and Responsibility Committee (the CCRC)
Chairman of UBS Group AG.
Permanent guests: Group CEO, Group Chief Risk Officer (the GCRO), GEB lead for sustainability and impact, Chief Sustainability Officer (the CSO), Group General Counsel.
Quarterly – Supports the BoD in its duties to safeguard and advance the Group’s reputation for responsible and sustainable conduct. – Oversees the firm’s sustainability and impact strategy and activities and approves Group-wide sustainability and impact objectives. – Reviews the annual Sustainability Report and proposes it to the BoD of UBS Group AG for approval.
– Sustainability and impact governance, strategy, and objectives. – Net-zero commitment and associated implementation steps. – Climate risk program. – Regulatory and governmental developments pertaining to sustainability and finance. – Sustainability and climate disclosures (including external assurance thereof). – Sustainable finance. – Sustainability-related memberships.
BoD Risk Committee (the RC)
Non-executive director At least semiannually – Oversees and supports the BoD in fulfilling its duty to set and supervise an appropriate risk management and control framework. – Considers the progress of UBS’s climate risk program, jointly with the CCRC.
– Regulatory and governmental developments pertaining to sustainability and finance (jointly with the CCRC). – Climate risk program (jointly with the CCRC). – Biodiversity (jointly with the CCRC). – Human rights (jointly with the CCRC).
BoD Audit Committee (the AC)
Non-executive director At least semiannually – Provides oversight of financial reporting and internal controls over financial reporting. – Provides oversight of the effectiveness of the external and internal audit functions, and the effectiveness of whistleblowing procedures.
– Sustainability and climate disclosures (jointly with the CCRC). – ESG (environmental, social and governance) metrics and control framework.
BoD Compensation Committee.
Non-executive director Annually – Supports the BoD in its duties to set guidelines on compensation and benefits. – Approves the total compensation for the Chairman and the non-independent BoD members.
– ESG in compensation.
GEB Group CEO At least quarterly – Reviews the Group’s sustainability and impact strategy and related objectives, as well as proposing strategy and objectives to the CCRC. – Signs off on divisional sustainability objectives, in alignment with the GEB Lead for Sustainability and Impact. – Ensures firm-wide execution of the firm’s climate strategy, including its net-zero commitment.
– Sustainability and impact objectives. – Net-zero commitment and associated implementation steps. – Climate action plan. – ESG data strategy.
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Sustainability Report 2022 | Appendix 2 | Governance 89.
Governance body.
Lead and other membership information.
Sustainability / climate agenda frequency.
Purpose and responsibilities related to sustainability- and climate-related issues.
Topics considered in 2022 – Sets the overall risk appetite for the firm and resolves overarching matters relating to sustainability and climate risk (SCR).
Group Sustainability and Impact (GSI)
GEB Lead for Sustainability and Impact.
Ongoing – Led by the GEB Lead for Sustainability and Impact, who has the responsibility for driving the firm’s sustainability and impact strategy, in agreement with fellow GEB members. – Supports the GEB Lead for Sustainability and Impact with carrying out her responsibilities. – Consists of the Chief Sustainability and Social Impact offices, headed by the CSO and the Head Social Impact, respectively, with the CSO responsible for driving the implementation of the Group-wide sustainability and impact strategy, and the Head Social Impact responsible for driving and implementing the firm’s social impact strategy.
– Implementation of sustainability and impact strategy. – Climate action plan. – Net zero. – Inclusive growth. – Nature and biodiversity. – ESG data architecture. –
Sustainability and Climate Task Force.
GEB Lead for Sustainability and Impact.