UBS Group AG current report, Q4 FY2019

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Business Context and Reporting Period

This Form 6-K filing, dated March 5, 2020, presents the UBS Group AG Sustainability Report 2019. The report covers the period ending December 31, 2019, and details the firm's strategy, business model, and environmental, social, and governance (ESG) performance. UBS operates as the largest truly global wealth manager and a leading personal and corporate bank in Switzerland, with focused investment banking and asset management divisions. The report is prepared in accordance with the Global Reporting Initiative (GRI) Standards (Comprehensive option) and includes limited assurance by Ernst & Young.

Key Financial and Sustainability Metrics

Invested Assets and Sustainable Finance:

  • Total Invested Assets: USD 3,607 billion (as of Dec 31, 2019).
  • Core Sustainable Investing (SI) Assets: USD 488.5 billion, representing 13.5% of total invested assets (up from 10.1% in 2018).
  • Climate-Related SI Assets: USD 108 billion (up 23% from 2018).
  • Carbon-Related Assets: USD 1.9 billion, representing 0.8% of total banking exposure (down from 1.6% in 2018).
  • Climate Deal Value: USD 87.2 billion in equity/debt capital market services and financial advisory related to climate change mitigation and adaptation.

Operational Environmental Performance (2019 vs. Baseline):

  • GHG Footprint: Reduced by 71% compared to the 2004 baseline (Target: -75% by 2020).
  • Renewable Electricity: 72% of worldwide electricity consumption sourced from renewables (Target: 100% by mid-2020).
  • Energy Consumption: Reduced by 15.9% compared to the 2016 baseline.
  • Paper Consumption: Reduced by 31.5% per FTE compared to the 2016 baseline.

Workforce and Community:

  • Total Employees (FTE): 68,601 (up 3% from 2018).
  • Volunteering: 38% of the global workforce volunteered (Target: 40% by 2020); 48% of volunteer hours were skills-based.
  • Community Investment: Benefited 280,858 individuals in 2019.

Material Changes vs. Prior Period

  • Sustainable Investing Acceleration: UBS achieved its goal to double the penetration of core SI assets one year ahead of schedule, reaching 13.5% in 2019 versus 5.6% in 2017.
  • Carbon Exposure Reduction: Significant reduction in carbon-related assets on the balance sheet, dropping from USD 3.2 billion in 2018 to USD 1.9 billion in 2019.
  • Organizational Restructuring: In January 2020, the Investment Bank was realigned into "Global Banking" and "Global Markets" to focus on profitable growth and digital transformation. Global Wealth Management also reorganized into regional business units to improve client proximity.
  • Strategic Partnerships: Entered a comprehensive wealth management partnership with Sumitomo Mitsui Trust Holdings in Japan and announced the proposed sale of a 51.2% stake in UBS Fondcenter to Clearstream.

Guidance, Outlook, and Management Commentary

Strategic Priorities (2020-2022):

  • Global Wealth Management: Target 10-15% profit before tax growth.
  • Group Returns: Target 12-15% return on CET1 capital (RoCET1).
  • Cost Efficiency: Target 75-78% cost/income ratio with positive operating leverage.
  • Capital Guidance: Target ~13% CET1 capital ratio and ~3.7% CET1 leverage ratio.

Management Commentary:

Management emphasizes a shift toward "sustainable performance" as a core business driver. The firm has committed to the UN Principles for Responsible Banking (PRB) as a founding signatory. The outlook for 2020 anticipates continued sub-trend global growth, with risks stemming from the novel Coronavirus (Covid-19) outbreak and US-China trade tensions. UBS expects central banks to maintain accommodative monetary policies, with rates unlikely to rise until 2021.

Risks and Contingencies:

  • Climate Risk: UBS continues to refine scenario-based stress testing to assess physical and transition risks, though current assessments indicate no immediate threat to the balance sheet.
  • Regulatory Environment: Ongoing implementation of Basel III and potential adjustments to the Swiss "too-big-to-fail" framework.
  • Financial Crime: Maintains a zero-tolerance stance on corruption and money laundering, with ISO 37001 certification achieved in 2019.

Key Facts for Investor Verification

  • Sustainable Investing Targets: Verify progress toward the 2021 goal of directing USD 5 billion of client assets into SDG-related impact investments (currently at USD 3.9 billion).
  • Environmental Targets: Monitor the achievement of 100% renewable electricity by mid-2020 and the 75% GHG reduction target by 2020.
  • Financial Performance vs. Guidance: Compare Q1 2020 reported results against the new 2020-2022 targets (12-15% RoCET1, 75-78% cost/income ratio).
  • Investment Bank Restructuring: Assess the impact of the January 2020 realignment on revenue generation and cost efficiency in the Investment Bank division.
  • Carbon Exposure: Track the continued reduction of carbon-related assets and exposure to climate-sensitive sectors (currently 15.5% of total banking exposure).