UBS Group AG current report, Q4 FY2021

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UBS Group AG 2021 Sustainability Report Summary (Form 6-K)

Business Context and Reporting Period

This Form 6-K filing, dated March 11, 2022, contains the UBS Sustainability Report for the period ending December 31, 2021. The report details UBS's strategic pivot to place sustainability at the core of its business model, driven by the firm's purpose to "reimagine the power of investing and connect people for a better world." The reporting period covers the full calendar year 2021, with specific environmental metrics reported for the period July 1, 2020, to June 30, 2021.

Key Financial and Sustainability Metrics

Sustainable Investment Assets: Total sustainable investments (sustainability focus and impact investing) reached USD 251.2 billion as of December 31, 2021, representing a 78.4% increase from USD 140.8 billion in 2020. This accounts for 5.5% of total invested assets.

Financing and Lending: UBS supported 103 green, social, sustainability, and sustainability-linked bond transactions with a total deal value of USD 63.3 billion (UBS apportioned value: USD 13.2 billion). Lending exposure to carbon-related assets decreased to 9.9% (USD 45.6 billion) of total customer lending exposure.

Operational Environmental Impact:

  • GHG Emissions: Net greenhouse gas (GHG) footprint for scopes 1 and 2 decreased by 75% compared to 2020, reaching 30,000 metric tons CO2e.
  • Renewable Energy: 100% of electricity consumption was sourced from renewable sources.
  • Energy Consumption: Reduced by 5% compared to 2020 (509 GWh).
  • Waste and Paper: Waste per FTE decreased by 31%; paper consumption per FTE decreased by 24%.

Philanthropy and Community Impact: UBS Optimus Foundation raised USD 161 million in donations (including matching contributions), reaching 4.6 million beneficiaries. The firm's community impact program reached 723,124 individual beneficiaries in 2021.

Workforce Diversity: Female representation at Director level and above increased to 26.7% (target: 30% by 2025). Ethnic minority representation at Director level and above reached 20.1% in the US and 21.3% in the UK.

Material Changes Versus Prior Period

  • Strategic Reorganization: Established the Group Sustainability and Impact organization in 2021, with a dedicated Group Executive Board (GEB) lead for sustainability and impact.
  • Net Zero Commitment: Formally committed to achieving net-zero greenhouse gas emissions across all operations (scopes 1, 2, and 3) by 2050. Set interim targets for 2025, 2030, and 2035.
  • Investment Growth: Significant acceleration in sustainable investment assets, driven by client demand and the conversion of traditional funds to sustainable strategies.
  • Climate Risk Management: Introduced a novel physical risk heatmap and expanded the transition risk heatmap to better quantify climate-related financial risks.
  • Philanthropy Focus: Shifted focus toward education and entrepreneurship to address wealth inequality, surpassing the 2025 target for community impact beneficiaries in just two years (2020-2021).

Guidance, Outlook, and Management Commentary

Management Commentary: Chairman Axel Weber and CEO Ralph Hamers emphasized that sustainability is no longer a niche but a core business driver. They highlighted the need to prepare for future crises like climate change and the growing client demand for sustainable solutions. The firm aims to lead by example in its own transition while expanding its client offerings.

Outlook and Targets:

  • 2025 Targets: Achieve net-zero energy emissions (scopes 1 and 2); reduce energy consumption by 15% (vs. 2020); reach USD 400 billion in sustainable invested assets; achieve 30% female representation at Director level and above.
  • 2030 Targets: Reduce absolute financed emissions for fossil fuels by 71%; reduce emissions intensity for power generation by 49%; reduce emissions intensity for commercial and residential real estate by 44% and 42% respectively.
  • 2050 Target: Achieve net-zero emissions across all business aspects.

Risks and Contingencies:

  • Regulatory Complexity: The firm faces an evolving regulatory landscape with varying taxonomies and standards globally, creating compliance challenges.
  • Greenwashing Concerns: Management acknowledges the risk of greenwashing due to a lack of global standards and is actively working with industry bodies to promote common definitions.
  • Climate Risks: Physical risks (extreme weather) and transition risks (policy changes, technology shifts) pose potential financial and reputational threats, though UBS reports low exposure to high-risk activities.

Key Facts for Investor Verification

  • Net Zero Pathway: Verify the specific interim targets and methodologies used for the 2030 and 2050 net-zero commitments, particularly regarding financed emissions in the fossil fuel and real estate sectors.
  • Sustainable Investment Definitions: Review the specific criteria UBS uses to classify assets as "sustainability focus" or "impact investing" to ensure alignment with investor expectations and regulatory standards (e.g., EU SFDR).
  • Climate Risk Exposure: Examine the detailed breakdown of exposure to climate-sensitive sectors (transition and physical risks) and the effectiveness of the new risk heatmaps in mitigating these exposures.
  • DE&I Progress: Monitor progress toward the 2025 diversity targets, specifically the 30% female representation at senior levels and ethnic minority representation in the US and UK.
  • Philanthropy Impact: Assess the long-term sustainability of the community impact programs and the verification of beneficiary numbers and outcomes.