WHATX/ESG_Report · Datasets at Hugging Face

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Sustainability Report 2022 \| Appendix 3 \| Environment 111.
The GHG Protocol further categorizes scope 3 emissions into 15 upstream and downstream categories. For banks such as UBS, emissions financed via lending activities fall under scope 3 downstream emissions, more precisely under Scope 3 category 15.
Financed emissions reported under scope 3 category 15 include apportioned scope 1 and 2 emissions of the counterparties or assets being financed. Scope 3 is included for certain sectors where methodologies and data are widely available. We have included scope 3 emissions in our assessment of the fossil fuel, power generation and automotive sectors.
Absolute financed emissions Financed emissions represent the carbon emissions of our corporate clients attributed to UBS. Following PCAF guidance, the attribution factor is the fraction of UBS’s loan exposure to the client’s enterprise value including cash (EVIC) or the sum of equity and debt for private companies.
In the case of real estate, the attribution is based on the loan-to-value (LTV) of the property. In accordance with PCAF guidance, residential real estate LTV is calculated using the original property value, while for commercial real estate the most recently available property valuation is used.
Physical emissions intensity.
Physical emissions intensity is a metric that normalizes a company’s emissions by its output (e.g., the megawatthours or metric tons of cement produced). Through this metric we can monitor whether our clients are becoming increasingly efficient. The physical emissions intensity effectively demonstrates the progress made to transition climate-sensitive sectors in our lending portfolio toward net zero.
For real estate, the physical emissions intensity is calculated by dividing the sum of financed emissions by the sum of financed surfaces.
Corporate fi nanced emissions = ∑ (Corporate emissions × )
Financing to corporate.
EVIC or Equity + Debt.
Real estate fi nanced emissions = ∑(Real estate emissions × LTV)
Corporate physical emis. intensity =∑ ( × )
Financing to corporate.
Total sector fi nancing.
Corporate emissions.
Corp. output (e.g., MWh, tons produced)
Real estate physical emissions intensity = ∑(Real estate emissions × LTV) ∑(Real estate surface × LTV) 111


Sustainability Report 2022 \| Appendix 3 \| Environment 112.
Quantifying clients’ emissions.
To estimate the emissions from our clients we rely on data available in their own disclosures, data from specialized third-party providers and internal data. Current limitations on the availability of emissions data at company or asset level required us to include approximations in the calculations; for example, by applying a sector-level proxy where company- or asset-level data is not available.
We expect the availability and quality of emissions data to improve in the next few years. Improved data may be used to strengthen the robustness of the reporting, which may result in restatements of our net-zero ambitions and total financed emissions over time. In the preliminary assessment of our total financed emissions, we have included PCAF quality scores facilitating data transparency and encouraging improvements to data quality in the medium and long term (see the PCAF data quality scoring scale below).
The inherent one-year time lag between the as-of date of our lending exposure and the as-of date of emissions can be explained by two factors: corporates disclose their emissions in annual reporting only a few months after the end of a financial year; and specialized third-party data providers take up to nine months to collect disclosed data and make it available to data users. Consequently, the baselines for our net-zero ambitions are based on year-end 2020 lending exposure and 2019 emissions data. Our 2021 emissions actuals are based on year-end 2021 lending exposure and 2020 emissions data.
Climate scenarios.
We selected the scenario – IEA NZE by 2050 – in accordance with the NZBA guideline, as one of the most recent and widely accepted models that achieves a temperature increase of 1.5°C by 2050. Over time we will seek to augment our sector pathways, as we gain greater clarity on the validity of key technological and regulatory uncertainties identified within the IEA NZE scenario (e.g., biofuels, carbon capture utilizations or CCUs). Until that point, the possibility of overshoot is factored into certain sector pathways due to the heavy reliance on external factors beyond our steering capabilities.
PCAF data quality scoring from 1 to 5.
Source: PCAF 2020 "The global GHG accounting and reporting standard for the fi nancial industry."
Emissions estimated based on the company’s primary production and emissions factors per unit of production.
Emissions estimated based on average energy consumption per energy label and surface area.
Emissions estimated based on the company’s revenues and emissions factors per unit of revenue.
Emissions estimated based on average energy consumption per location, building type, and surface area.
Emissions estimated based on average emissions per US dollar invested in a sector.
Emissions estimated based on average energy consumption per location, building type, and number of buildings.
Certain.
Uncertain.
Verifi ed emissions disclosed by the company.
Corporate Financing Real Estate Financing.
Emissions estimated based on primary energy consumption data and energy supplier-specifi c emissions factors.
Unverifi ed emissions disclosed by the company or estimated based on the company’s energy consumption and related emissions.
Emissions estimated based on primary energy consumption data and average emissions factors per energy source.
Score 1.
Score 2.
Score 3.
Score 4.
Score 5 112


Sustainability Report 2022 \| Appendix 3 \| Environment 113.
Net-zero-related materiality assessment.
NZBA sectors and targets 2022 2021 NNet zero.
NZBA sectors wwith target.
GGross exposure (USD billion)1.
Covered with target (USD billion)
Gross exposure (USD billion)1.
Covered with target (USD billion) NACE codes in scope of net-zero target.
Carbon emissions scopes Unit 2020 baseline 2021 actuals 2020– 2030 target.
Real estate – Residential real estate 158.9 156.9 155.9 152.9 Private clients with mortgages 1,2 kg CO2e / m2 30 27 (42%) – Commercial real estate 47.1 45.5 44.7 43.6 Real estate financing 1,2 kg CO2e / m2 32 30 (44%)
Fossil fuels (coal, oil and gas)2 1.3 0.5 1.0 0.7 B.05, B.06, C.19 1,2,3 t CO2e, baseline indexed as 100 100 58 (71%)
Power generation 22.2 1.8 1.5 1.2 D.35.11, D.35.13 1,2,3 kg CO2e / MWh 238 210 (49%)
Cement 00.5 0.5 0.5 0.5 C.23.51 1,2 t CO2e / t cementitious 0.62 0.61 (15%) 22022 2021.
NZBA sectors wwithout target.
GGross exposure (USD billion)1.
PACTA scope (USD billion)
Gross exposure (USD billion)1 PACTA scope (USD billion)
NACE codes in scope of PACTA methodology Transportation – Automotive 0.4 0.1 0.4 0.1 C.29 – Air 1.8 0.1 2.5 0.5 H.51 – Shipping 00.4 0.3 0.4 0.3 H.50.
Aluminum 00.0 0.0 0.0 0.0 C.24.42.
Steel 00.1 0.1 0.1 0.1 C.24.1.
Agriculture3 3.0 0.2 4.1 0.2 A 01 1 Gross exposure includes total loans and advances to customers and guarantees as well as irrevocable loan commitments (within the scope of expected credit loss). 2 Commodity Trade Finance excluded. 3 Refer to World Business Council for Sustainable Development publication “An Introductory Guide for Net Zero Target Setting for Farm-Based Agricultural Emissions.”
CO² emissons in world energy outlook scenarios over time, 2000–2050.
Source: IEA.
40.
Announced pledges scenario 1.8 °C updated with COP26 pledges as of 3 November 2021.
Historical 2000 0
2010 2022 2030 2050 2040.
Stated policies scenario 2.6 °C.
Announced pledges scenario 2.1 °C.
In Gt CO²
Net-zero scenario 1.5 °C 113


Sustainability Report 2022 \| Appendix 3 \| Environment 114.
Based on a UBS-internal analysis (using data supplied by the European Banking Authority), our lending exposure to the most carbon-intensive sectors is already low compared with our peers. This has the advantage of making us well-aligned with the transition to a low-carbon economy. However, it also means that for us, the number of sectors for which our volumes justify setting meaningful net-zero targets is reduced, especially since the bulk of our lending in some NZBA sectors is to parts of the value chain that are not currently in focus of target setting for net zero.
We have set net-zero targets for five sectors that have a material share of our lending activities and carbon emissions. Targets would not be material at present for aluminum, iron and steel because of the limited exposure. For transportation and agriculture, the clear bulk of our exposure is in business activities that are not in the current scope of target-setting standards (e.g., PACTA for Banks). The developments of target-setting standards and/or portfolio exposure to those sectors are being monitored.
Further enhancements.
Like many of our peers, we are at the start of our net-zero journey and have created our methodology based on current industry best practice. As the world’s pathway to net zero is still at a developing stage, we expect continued advances and evolutions to our approach. We see four key factors for change: market practices will continue to evolve, science-based industry pathways may be updated, client data will become more readily available, and new methodologies will continue to emerge.
Specifically, adjustments will be needed, when scope 3 is rolled out to additional sectors beyond the fossil fuel, power generation and automotive industries after 2023, or as new target-setting guidance emerges.
Our selected scenario (IEA NZE by 2050) is currently used by the industry, but other scenarios may emerge that are more specific to our lending portfolio and geographic exposure (e.g., Switzerland). Additionally, IEA NZE is also subject to new updates and new releases over time as the science and projections develop.
Regarding data, we used a combination of data sources to build our emission baseline and targets. However, client information, either directly, or from public sources or third-party vendors, remains limited. As more information becomes available, we will be able to refine our footprint.
We have developed our methodology based on leading practices and reported where possible, despite the limitations we face due to the nascency of the challenge. As more methodologies become available for additional sectors or asset classes where UBS has relevant exposures, we will test and adopt them accordingly. The remaining improvements we can identify are reliant on external factors. We continue to await these and will make refinements wherever necessary.
Carbon sequestration We are dedicated to helping our clients in any way possible to guide them toward net zero. Our engagement plan prioritizes emissions reductions. While we recognize that not all scenarios or frameworks allow for offsetting, we anticipate that carbon removal offsets will be needed to supplement our net-zero targets, and the reduction strategies of some of our clients. For example, certain industrial processes cannot viably achieve absolute zero emissions. Those industries, however, still provide products and services that are important to society and are likely to remain relevant in the future. In these cases, removal offsetting can help to address residual emissions from such sectors. While our selected scenario of IEA NZE does not contemplate offsets, it does include the development of robust carbon sequestration activities.
We strive to support our clients’ transitions through limited use of carbon sequestration, in accordance with the NZBA. Offsets shall be additional, certified, and restricted to carbon removals to balance residual emissions where there are limited technological or financially viable options to eliminate emissions. We plan to evaluate the use of offsets and sequestration on a case-by-case basis and to take a variety of factors into consideration in assessing their applicability in our clients’ net-zero efforts, including the disclosure recommendations of the various frameworks to which we are signatory. However, as technology and methodologies continue to develop, our approach to offsets will continue to evolve.
114


Sustainability Report 2022 \| Appendix 3 \| Environment 115.
Climate-related methodologies – defining net-zero-aligned investment portfolios.

Sustainability Report 2022 | Appendix 3 | Environment 111.

The GHG Protocol further categorizes scope 3 emissions into 15 upstream and downstream categories. For banks such as UBS, emissions financed via lending activities fall under scope 3 downstream emissions, more precisely under Scope 3 category 15.

Financed emissions reported under scope 3 category 15 include apportioned scope 1 and 2 emissions of the counterparties or assets being financed. Scope 3 is included for certain sectors where methodologies and data are widely available. We have included scope 3 emissions in our assessment of the fossil fuel, power generation and automotive sectors.

Absolute financed emissions Financed emissions represent the carbon emissions of our corporate clients attributed to UBS. Following PCAF guidance, the attribution factor is the fraction of UBS’s loan exposure to the client’s enterprise value including cash (EVIC) or the sum of equity and debt for private companies.

In the case of real estate, the attribution is based on the loan-to-value (LTV) of the property. In accordance with PCAF guidance, residential real estate LTV is calculated using the original property value, while for commercial real estate the most recently available property valuation is used.

Physical emissions intensity.

Physical emissions intensity is a metric that normalizes a company’s emissions by its output (e.g., the megawatthours or metric tons of cement produced). Through this metric we can monitor whether our clients are becoming increasingly efficient. The physical emissions intensity effectively demonstrates the progress made to transition climate-sensitive sectors in our lending portfolio toward net zero.

For real estate, the physical emissions intensity is calculated by dividing the sum of financed emissions by the sum of financed surfaces.

Corporate fi nanced emissions = ∑ (Corporate emissions × )

Financing to corporate.

EVIC or Equity + Debt.

Real estate fi nanced emissions = ∑(Real estate emissions × LTV)

Corporate physical emis. intensity =∑ ( × )

Financing to corporate.

Total sector fi nancing.

Corporate emissions.

Corp. output (e.g., MWh, tons produced)

Real estate physical emissions intensity = ∑(Real estate emissions × LTV) ∑(Real estate surface × LTV) 111

Sustainability Report 2022 | Appendix 3 | Environment 112.

Quantifying clients’ emissions.

To estimate the emissions from our clients we rely on data available in their own disclosures, data from specialized third-party providers and internal data. Current limitations on the availability of emissions data at company or asset level required us to include approximations in the calculations; for example, by applying a sector-level proxy where company- or asset-level data is not available.

We expect the availability and quality of emissions data to improve in the next few years. Improved data may be used to strengthen the robustness of the reporting, which may result in restatements of our net-zero ambitions and total financed emissions over time. In the preliminary assessment of our total financed emissions, we have included PCAF quality scores facilitating data transparency and encouraging improvements to data quality in the medium and long term (see the PCAF data quality scoring scale below).

The inherent one-year time lag between the as-of date of our lending exposure and the as-of date of emissions can be explained by two factors: corporates disclose their emissions in annual reporting only a few months after the end of a financial year; and specialized third-party data providers take up to nine months to collect disclosed data and make it available to data users. Consequently, the baselines for our net-zero ambitions are based on year-end 2020 lending exposure and 2019 emissions data. Our 2021 emissions actuals are based on year-end 2021 lending exposure and 2020 emissions data.

Climate scenarios.

We selected the scenario – IEA NZE by 2050 – in accordance with the NZBA guideline, as one of the most recent and widely accepted models that achieves a temperature increase of 1.5°C by 2050. Over time we will seek to augment our sector pathways, as we gain greater clarity on the validity of key technological and regulatory uncertainties identified within the IEA NZE scenario (e.g., biofuels, carbon capture utilizations or CCUs). Until that point, the possibility of overshoot is factored into certain sector pathways due to the heavy reliance on external factors beyond our steering capabilities.

PCAF data quality scoring from 1 to 5.

Source: PCAF 2020 "The global GHG accounting and reporting standard for the fi nancial industry."

Emissions estimated based on the company’s primary production and emissions factors per unit of production.

Emissions estimated based on average energy consumption per energy label and surface area.

Emissions estimated based on the company’s revenues and emissions factors per unit of revenue.

Emissions estimated based on average energy consumption per location, building type, and surface area.

Emissions estimated based on average emissions per US dollar invested in a sector.

Emissions estimated based on average energy consumption per location, building type, and number of buildings.

Certain.

Uncertain.

Verifi ed emissions disclosed by the company.

Corporate Financing Real Estate Financing.

Emissions estimated based on primary energy consumption data and energy supplier-specifi c emissions factors.

Unverifi ed emissions disclosed by the company or estimated based on the company’s energy consumption and related emissions.

Emissions estimated based on primary energy consumption data and average emissions factors per energy source.

Score 1.

Score 2.

Score 3.

Score 4.

Score 5 112

Sustainability Report 2022 | Appendix 3 | Environment 113.

Net-zero-related materiality assessment.

NZBA sectors and targets 2022 2021 NNet zero.

NZBA sectors wwith target.

GGross exposure (USD billion)1.

Covered with target (USD billion)

Gross exposure (USD billion)1.

Covered with target (USD billion) NACE codes in scope of net-zero target.

Carbon emissions scopes Unit 2020 baseline 2021 actuals 2020– 2030 target.

Real estate – Residential real estate 158.9 156.9 155.9 152.9 Private clients with mortgages 1,2 kg CO2e / m2 30 27 (42%) – Commercial real estate 47.1 45.5 44.7 43.6 Real estate financing 1,2 kg CO2e / m2 32 30 (44%)

Fossil fuels (coal, oil and gas)2 1.3 0.5 1.0 0.7 B.05, B.06, C.19 1,2,3 t CO2e, baseline indexed as 100 100 58 (71%)

Power generation 22.2 1.8 1.5 1.2 D.35.11, D.35.13 1,2,3 kg CO2e / MWh 238 210 (49%)

Cement 00.5 0.5 0.5 0.5 C.23.51 1,2 t CO2e / t cementitious 0.62 0.61 (15%) 22022 2021.

NZBA sectors wwithout target.

GGross exposure (USD billion)1.

PACTA scope (USD billion)

Gross exposure (USD billion)1 PACTA scope (USD billion)

NACE codes in scope of PACTA methodology Transportation – Automotive 0.4 0.1 0.4 0.1 C.29 – Air 1.8 0.1 2.5 0.5 H.51 – Shipping 00.4 0.3 0.4 0.3 H.50.

Aluminum 00.0 0.0 0.0 0.0 C.24.42.

Steel 00.1 0.1 0.1 0.1 C.24.1.

Agriculture3 3.0 0.2 4.1 0.2 A 01 1 Gross exposure includes total loans and advances to customers and guarantees as well as irrevocable loan commitments (within the scope of expected credit loss). 2 Commodity Trade Finance excluded. 3 Refer to World Business Council for Sustainable Development publication “An Introductory Guide for Net Zero Target Setting for Farm-Based Agricultural Emissions.”

CO² emissons in world energy outlook scenarios over time, 2000–2050.

Source: IEA.

40.

Announced pledges scenario 1.8 °C updated with COP26 pledges as of 3 November 2021.

Historical 2000 0

2010 2022 2030 2050 2040.

Stated policies scenario 2.6 °C.

Announced pledges scenario 2.1 °C.

In Gt CO²

Net-zero scenario 1.5 °C 113

Sustainability Report 2022 | Appendix 3 | Environment 114.

Based on a UBS-internal analysis (using data supplied by the European Banking Authority), our lending exposure to the most carbon-intensive sectors is already low compared with our peers. This has the advantage of making us well-aligned with the transition to a low-carbon economy. However, it also means that for us, the number of sectors for which our volumes justify setting meaningful net-zero targets is reduced, especially since the bulk of our lending in some NZBA sectors is to parts of the value chain that are not currently in focus of target setting for net zero.

We have set net-zero targets for five sectors that have a material share of our lending activities and carbon emissions. Targets would not be material at present for aluminum, iron and steel because of the limited exposure. For transportation and agriculture, the clear bulk of our exposure is in business activities that are not in the current scope of target-setting standards (e.g., PACTA for Banks). The developments of target-setting standards and/or portfolio exposure to those sectors are being monitored.

Further enhancements.

Like many of our peers, we are at the start of our net-zero journey and have created our methodology based on current industry best practice. As the world’s pathway to net zero is still at a developing stage, we expect continued advances and evolutions to our approach. We see four key factors for change: market practices will continue to evolve, science-based industry pathways may be updated, client data will become more readily available, and new methodologies will continue to emerge.

Specifically, adjustments will be needed, when scope 3 is rolled out to additional sectors beyond the fossil fuel, power generation and automotive industries after 2023, or as new target-setting guidance emerges.

Our selected scenario (IEA NZE by 2050) is currently used by the industry, but other scenarios may emerge that are more specific to our lending portfolio and geographic exposure (e.g., Switzerland). Additionally, IEA NZE is also subject to new updates and new releases over time as the science and projections develop.

Regarding data, we used a combination of data sources to build our emission baseline and targets. However, client information, either directly, or from public sources or third-party vendors, remains limited. As more information becomes available, we will be able to refine our footprint.

We have developed our methodology based on leading practices and reported where possible, despite the limitations we face due to the nascency of the challenge. As more methodologies become available for additional sectors or asset classes where UBS has relevant exposures, we will test and adopt them accordingly. The remaining improvements we can identify are reliant on external factors. We continue to await these and will make refinements wherever necessary.

Carbon sequestration We are dedicated to helping our clients in any way possible to guide them toward net zero. Our engagement plan prioritizes emissions reductions. While we recognize that not all scenarios or frameworks allow for offsetting, we anticipate that carbon removal offsets will be needed to supplement our net-zero targets, and the reduction strategies of some of our clients. For example, certain industrial processes cannot viably achieve absolute zero emissions. Those industries, however, still provide products and services that are important to society and are likely to remain relevant in the future. In these cases, removal offsetting can help to address residual emissions from such sectors. While our selected scenario of IEA NZE does not contemplate offsets, it does include the development of robust carbon sequestration activities.

We strive to support our clients’ transitions through limited use of carbon sequestration, in accordance with the NZBA. Offsets shall be additional, certified, and restricted to carbon removals to balance residual emissions where there are limited technological or financially viable options to eliminate emissions. We plan to evaluate the use of offsets and sequestration on a case-by-case basis and to take a variety of factors into consideration in assessing their applicability in our clients’ net-zero efforts, including the disclosure recommendations of the various frameworks to which we are signatory. However, as technology and methodologies continue to develop, our approach to offsets will continue to evolve.

114

Sustainability Report 2022 | Appendix 3 | Environment 115.

Climate-related methodologies – defining net-zero-aligned investment portfolios.