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Sustainability Report 2022 | Appendix 3 | Environment 106.
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Appendix 3 – Environment.
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Our transition plan.
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Our transition plan is a prioritized plan of action following the aspirations outlined in our net-zero and beyond strategy to achieve net-zero carbon emissions in our own operations and our business activities (as set out in our commitments to the Net Zero Asset Managers (NZAMi) initiative and the Net-Zero Banking Alliance (NZBA)) while supporting our clients through their own transitions to net zero. The structure of our plan follows the recommendations of the Glasgow Financial Alliance for Net Zero (GFANZ) outlined in the “Financial Institutions Net-zero Transition Plans” guidelines. GFANZ published these guidelines, to which UBS contributed during their development, at the 27th session of the Conference of the Parties of the UNFCCC (COP 27).
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UBS contributed to the development of these guidelines. This forms part of our engagement with our peers in the financial services industry in order to determine how best to support and finance clients’ transition to a low carbon economy. Contributing to such frameworks, including also by the NZBA, in turn forms an important basis for developing our own approach to transition finance.
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We believe the GFANZ guidelines to be comprehensive and relevant for the financial sector, but will also continue to monitor other potential emerging standards. Our action plan touches on numerous aspects of this Sustainability Report, which are referenced in the table below. › Refer to gfanzero.com/our-work/financial-institution-net-zero-transition-plans/ for GFANZ’s recommendations # Theme Principles Key activities engaged by UBS and where to find more information.
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Foundation 1 Objectives and priorities.
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Conscious of the potential adverse financial, liability and reputational risks that can arise from sustainability and climate risks and in response to client needs: – We are focused on supporting the transition toward a net-zero future, with the goal of limiting global warming to 1.5° C. – We aspire to achieve net-zero greenhouse gas emissions resulting from across our business by 2050. In line with this commitment, we will reduce the carbon footprint of our loan book across sectors that account for a sizable share of our credit portfolio and financed emissions and have set intermediate net-zero targets for 2030 for the following sectors: fossil fuels, power generation, real estate and cement. – We are committed to directing capital toward the low-carbon transition through investments, and by helping our financing clients to achieve their climate targets. – We provide our investing clients with the choice they need to meet their sustainability and impact objectives, including climate impact where that is their priority and in line with our fiduciary duties. – We aspire to lead by example, and have committed to net zero for scope 1 and 2 emissions by 2025, prioritizing emission reduction at source.
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– See SR22 – “Our aspirational goals and progress” subsection for a description of our financing reduction targets for 2030 and Asset Management (AM)’s target to align 20% of total assets under management (AuM) to be in line with net zero. – See SR22 – “Our climate roadmap” subsection for a description of the steps we intend to take toward net zero until 2050 and for our net-zero strategies and approaches to reduce emissions from our financing, investment and own operations. – See SR22 – Appendix 5 – “Objectives 2023” subsection for more details about our objectives aligned to the mid- and long-term targets. – See SR22 – “Managing sustainability and climate risks” subsection and SR22 – Appendix 1 – “Climate-related materiality assessment” subsection for an overview of our reviews of risks, opportunities in the climate materiality assessment and impacts expected from implementation. – See SR22 – Appendix 3 – “Reducing our environmental footprint – additional information” subsection for more details about impact reduction and carbon offset purchases in the context of our own operations.
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106
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Sustainability Report 2022 | Appendix 3 | Environment 107.
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Implementation strategy 2 Products and services – We help our clients assess, manage and protect their assets from climate-related risks by offering innovative products and services in investment, financing and research and through our climate risk disclosure. – We are continually developing and refining sustainable solutions and approaches that help clients manage their exposures to climate change risk. – We will continue to manage and monitor our climate-related risks and our lending activities and aim to orient new and existing business efforts toward net zero by 2050. We aim to do this by further strengthening our operating model and increasing our efforts in the field of transition and green finance. – In AM, during 2023, we intend to implement revisions to fund documentation and investment management agreements to align with our net-zero-aligned frameworks. We continue to invest in the necessary data and infrastructure to support management and monitoring of portfolios, issuer alignment and real economy decarbonization. – Our Global Wealth Management (GWM) business division continues to work toward mainstreaming sustainable and impact investments for our private clients.
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– See SR22 – “Our approach to sustainable finance” subsection, for examples of our sustainable finance offering, including products and services launched in 2022. – See SR22 – Appendix 1 – “Sustainable finance at UBS – additional information” subsection for a selected list of the products and services we offer to support our net-zero transition strategy and SR22 – Appendix 1 – “Climaterelated materiality assessment” subsection to see how we incorporate climate considerations into our product development and strategy. – See SR22 – “Outlook for net zero for lending” subsection and SR22 – “Supporting the net-zero goals of our investing clients” subsection for information on our net-zero alignment approach.
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3 Activities and decisionmaking – Our Group Risk Control unit manages our sustainability and climate risk (SCR) program to further integrate SCR into our various risk management frameworks and related processes. We are further strengthening our operating model to ensure we monitor and steer our clients’ assets and our own assets effectively. The operating model encompasses the processes we follow to aim to align new and existing business toward net zero by 2050. – We are integrating our net-zero targets as part of standard financial and non-financial risk processes to ensure that material sustainability and climate risks are identified, assessed, approved, and escalated in a timely manner. These integrations cover processes across client onboarding, transaction due diligence, product development and investment decision processes, own operations, supply chain management, and portfolio reviews.
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– See SR22 – “Managing sustainability and climate risks” subsection for a description of our risk processes and our climate risk program (including the board-set risk appetite, a carbon utilization measurement conceptualized in 2022 and aligned with our net-zero implementation and targets, and a company / asset-level transition and physical risk scorecard). – See SR22 our sustainability report’s Supplementary Information for “Informing and evolving our strategy – our materiality assessments” subsection for sustainability and climate risk assessment of products, services and activities deemed as having high risk.
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4 Policies and conditions Our comprehensive and long-standing SCR policy framework: – applies Group-wide to relevant activities, including client and supplier relationships; – is integrated into management practices and control principles and overseen by senior management; – supports transition toward a net-zero future; and – focuses on priority sectors and activities and other sectors that are carbon high-emitting (or otherwise harmful to the climate), to define business boundaries in line with our net-zero ambitions and priorities. We will continue to enhance and refine our SCR policy framework in line with the evolving regulatory guidance and market practices.
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– See SR22 – Appendix 2 – “Our sustainability and climate risk policy framework” subsection setting our standards including “Controversial activities – where UBS will not do business” and “Areas of concern – where UBS will only do business under stringent criteria”. – See SR22 – Appendix 2 – “Forests and biodiversity” subsection describing our view on deforestation and forest degradation. – See our Asset Management Sustainability Exclusion policy for details about AM’s exclusion approaches where we exclude individual companies or industries from a portfolio, either because their activities do not meet certain ESG criteria, and/or they do not align with the client’s values and/or UBS’s.
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Engagement strategy 5 Clients and portfolio companies – We work alongside our clients and portfolio companies to support their efforts to transition in line with the Paris Agreement-aligned 1.5°C net-zero pathways. We proactively and constructively provide feedback and support to our corporate clients on their netzero-aligned transition strategies, plans and progress. – For transition of investment portfolio, we see our active ownership strategy as a powerful tool in influencing corporate behavior to achieve real-economy outcomes. We have had a dedicated climate engagement program in place since 2017 to address climaterelated risks with measurable progress tracked. Similarly, and in line with our intermediate net-zero targets for 2030, we engage with our corporate clients on these matters.
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– See SR22 – “Sustainable investing for our clients” subsection for details about how we approach active ownership and a selection of our engagement programs. – See SR22 – “Supporting the net-zero goals of our investing clients – Asset Management” subsection for our dedicated climate engagement program.
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– See our Asset Management Stewardship Report and our Global Stewardship Policy for information about our active approach to stewardship as a crucial part of any sustainable investing strategy across asset classes through engagement, proxy voting and advocacy, enabling us to work with firms to influence behaviors, drive changes and achieve better outcomes.
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6 Industry – We proactively engage with peers in the industry to: i) as appropriate and in line with local rules and regulations, exchange transition expertise and collectively work on finding solutions to common challenges; and ii) represent the financial sector’s views cohesively to external stakeholders, such as clients and governments.
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7 Government and public sector – We proactively engage in political initiatives relating to climaterelated issues based on our climate strategy and net-zero planning. We focus our engagement around an orderly transition that is aligned with the Paris Agreement. – We actively participate in political discussions to share our expertise on proposed regulatory and supervisory changes across regions on a regular basis in our key markets.
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– See SR22 – Supplementary Information document – “Evolving and informing our strategy – our contributions to the advancement of sustainability” subsection for how we engage with stakeholders on key climate topics on a regular basis. – See SR22 – Supplementary Information document – “Supporting our strategic goals – our engagement in partnerships” subsection for how we take action both on our own and in partnership with other large investors, standard setters, regulators, political parties, our clients and our peers, as well as our communities and our own employees and how we advance sustainability in the financial sector.
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Sustainability Report 2022 | Appendix 3 | Environment 108.
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Metrics and targets 8 Metrics and targets – We support the goals of the Paris Agreement which includes aligning our own operations and business activities with the pathway of a five-step net-zero plan to: (i) measure carbon emissions; (ii) define a roadmap and set targets; (iii) reduce climate impact; (iv) finance climate action and support the transition of our clients; and (v) communicate and engage. – We have established a suite of metrics and targets to drive execution of our net-zero transition plan and monitor the progress of our results in the near, medium and long term.
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– See SR22 – “Our aspirational goals and progress” subsection for a description of our aspirational goals pertaining to the planet and progress in 2022. – See SR22 – “Reducing our environmental footprint” subsection for a description of how we will manage any residual scope 1 and 2 emissions that cannot be mitigated through reducing at source. – See SR22 – “Monitoring the environmental impact of our supply chain” subsection, SR22 – “Managing our supply chain responsibly” for our actions pertaining to our supply chain. – See SR22 – Appendix 3 – “Climate-related methodologies – net zero approach for our financing activities” subsection for further information about our methodology, targets and sector-by-sector approach and metrics. – See SR22 – Appendix 3 – “Climate-related methodologies – net zero approach for our financing activities” subsection, and SR22 – Appendix 3 – “Climate-related methodologies – defining net-zero aligned investment portfolios” subsection for a description of assumptions, scope, uncertainties and key methodologies associated with the transition plan, as well as our view on carbon sequestration.
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Governance 9 Roles, responsibilities and remuneration – Our climate strategy and activities are overseen at the highest level of our firm. The Board of Directors’ Corporate Culture and Responsibility Committee is the body primarily responsible for corporate culture, responsibility and sustainability including climate). It oversees our sustainability and impact strategy and activities and approves Group-wide sustainability and impact objectives. – Our Group Executive Board (the GEB) Lead for Sustainability and Impact steers our efforts on sustainability (including climate). ESGrelated goals are also assigned for all GEB members. We have established a Sustainability and Climate Task Force to implement our firm’s climate strategy and to monitor progress against that strategy. – We are continuously improving the governance, execution and control of the processes in place to support our net-zero efforts.
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– See SR22 – “Our sustainability governance” subsection for a description of how UBS governs its sustainability and climate strategy. – See SR22 – “Pay our people fairly and equitably” subsection and our UBS Compensation Report 2022 at ubs.com/annualreporting for information about how sustainability objectives are included in the scorecards for our Group CEO and members of the GEB that impact the relevant performance assessment and compensation decisions. – See SR22 – Appendix 5 – “Independent assurance report by Ernst & Young“ subsection for the independent assurance report by EY.
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10 Skills and culture – To support the development and implementation of our net-zero transition plan, we implement a change management program and ensure alignment and embed the plan into the organization’s culture and practices, as well as providing support to individuals so that they have sufficient skills and knowledge to perform their roles. – We provide specialized and awareness training sessions on sustainability and climate risk. For example, in 2022 we continued our climate risk-related training for our employees and also delivered awareness training across our business divisions and Group Functions that includes climate risk aspects.
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– See SR22 – “Climate risk management and control” subsection for details about training provided to employees with regard to climate risk. – See SR22 – Appendix 2 “Sustainability-related training and raising awareness” subsection for details about how we engage in education and awareness raising for staff, clients and local communities, regarding corporate responsibility and sustainability topics and issues.
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108
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Sustainability Report 2022 | Appendix 3 | Environment 109.
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Climate-related methodologies – net-zero approach for our financing activities.
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As part of our net-zero commitment (available on ubs.com/gri) in April 2021, we pledged to set targets that further align our financing activities with the Paris Agreement and became a founding member of the Net-Zero Banking Alliance (the NZBA). Collaborative organizations such as the NZBA or the Partnership for Carbon Accounting Financials (PCAF) are gradually developing pertinent standards and guidelines or expanding on existing ones. However, currently divergence continues to exist in how financial institutions approach the matter. At UBS, we strive to achieve appropriate levels of comparability and consistency throughout the measurement and reporting of our carbon footprint. › Refer to the “Appendix 1 – Strategy” section of this report for an overview of key climate- and nature-related organizations.
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In this section, our focus is on our net-zero approach for our financing activities and the process we are following to define the sectoral ambitions for our lending portfolio. It also details pertinent climate-related methodologies and scenarios used in this process.
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Scope and boundaries.
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The scope covered by our net-zero ambitions and a first assessment of the overall emissions associated with UBS’s corporate lending and real estate mortgages. Our net-zero ambitions are based on the full lending commitment made to our clients. This includes our outstanding loans, as well as undrawn irrevocable commitments, i.e., amounts that we would be obliged to provide if requested by a counterparty. In our view, this is the most relevant approach to measure and steer our lending portfolio toward our ambitions. The preliminary assessment of total financed emissions is calculated based on our outstanding lending exposure in line with PCAF guidance.
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We recognize that capital markets facilitation also plays an important role in the financing of our clients. These transactions are therefore subject to our sustainability and climate risk (SCR) policy framework but are currently not part of our net-zero analysis. There is currently no accepted industry-wide standard on how to account and aggregate carbon emissions facilitated by capital market activities. We are engaging with standard setters such as PCAF on emerging approaches in order to consider those activities in our future ambitions.
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For non-financial corporate loans, we have prioritized the climate-sensitive sectors recommended by the NZBA where we have material financial exposure and where methodologies and metrics exist to measure and steer the transition toward net zero. In addition, our net-zero approach is closely aligned to the methodology outlined by Paris Agreement Capital Transition Assessment (PACTA) white paper. As such, we have considered parts of the value chain within climate-sensitive sectors that hold the bulk of the impact on the climate system and where the decision-making power or capacity to reduce carbon emissions directly or indirectly resides.
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Sustainability Report 2022 | Appendix 3 | Environment 110.
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Metrics.
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Scope 1, 2 and 3 greenhouse gas emissions As defined in PCAF standards1, greenhouse gas (GHG) emissions accounting refers to the processes required to consistently measure the amount of GHGs generated, avoided or removed by an entity, allowing it to track and report these emissions over time. The emissions measured are the seven gases mandated under the Kyoto Protocol and to be included in national inventories under the United Nations Framework Convention on Climate Change (the UNFCCC): carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). For ease of accounting, these gases are usually converted to and expressed as carbon dioxide equivalents (CO2e).
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According to PCAF’s GHG Protocol Corporate Accounting and Reporting Standard (the GHG Protocol), direct emissions are emissions from sources owned or controlled by the reporting company. Indirect emissions are emissions that are a consequence of the operations of the reporting company but that occur at sources owned or controlled by another company.
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Direct and indirect emissions are further categorized by scope and distinguished according to the source of the emissions and where in an organization’s value chain the emissions occur. The three scopes defined by the GHG Protocol – scopes 1, 2 and 3 – are briefly described below: – Scope 1: Direct GHG emissions that occur from sources owned or controlled by the reporting company, i.e., emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
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– Scope 2: Indirect GHG emissions from the generation of purchased or acquired electricity, steam, heating, or cooling consumed by the reporting company. Scope 2 emissions physically occur at the facility where the electricity, steam, heating, or cooling is generated.
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– Scope 3: All other indirect GHG emissions (not included in scope 2) that occur in the value chain of the reporting company. Scope 3 can be broken down into upstream emissions that occur in the supply chain (for example, from production or extraction of purchased materials) and downstream emissions that occur as a consequence of using the organization’s products or services.
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1 PCAF (2022). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Second Edition.
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Part of the sectors' value chains in scope.
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In scope of PACTA methodology.
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Oil and gas.
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Coal.
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Power.
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Steel.
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Cement.
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Aviation.
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Shipping.
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Automotive.
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Upstream.
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Iron ore mining.
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Suppliers.
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Mining.
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Generation.
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Limestone quarrying.
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Suppliers, contractors.
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Parts supplier.
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Midstream.
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Manufacturing.
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Ship manufacturers.
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Separation and preparation.
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Transformation.
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Manufacturing.
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Car manufacturers.
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Aircraft manufacturer.
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Downstream.
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End products.
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Ship owners and operators.
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Storage.
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Transmission.
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Concretes.
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Parts distributors, and dealerships.
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Owner.
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Trade.
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Distribution.
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Construction industry.
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Workshops.
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Operator.
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Source: PACTA for Banks Methodology document – climate scenario analysis for corporate lending portfolios – version 1.2.1.
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110
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