In June 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael R. Bloomberg, released its recommendations, calling on companies to disclose the impacts of climate change on their businesses. The key rationale behind the recommendations? For investors and financial institutions to gain the transparency necessary in order to make better investment decisions by utilizing a common set of data to assess the climate-related risks and opportunities of specific companies.
The release followed a process initiated by Bank of England governor Mark Carney (viz his “Breaking the tragedy of the horizon” speech at Lloyd’s of London in September 2015) and officially commenced with the announcement of the TCFD’s establishment in December 2015. Between its establishment and the release of the recommendations, the TCFD undertook substantive work, notably in terms of research, analysis and stakeholder consultations. They addressed key topics in terms of both climate change as well as how they might translate into financial disclosure. In view of the guidance the TCFD arrived at, the authors of this briefing have no hesitation in arguing that the Task Force’s work is transforming the way material climate-related matters are integrated into financial disclosure.
At UBS, we support the TCFD, both in its development and because of our long-standing climate actions.
Our firm has had a climate strategy in place since 2006 and has disclosed on its implementation ever since. Since reporting year 2008, we have been using the GRI (Global Reporting Initiative) sustainability reporting framework for UBS’s sustainability disclosure – with climate disclosure included therein. Moreover, UBS has been involved with the formerly named Carbon Disclosure Project (today’s CDP) since its outset.
In view of such long-standing disclosure activities on climate – combined with our conviction about the critical role of the TCFD’s work – it was a logical next step for UBS to welcome and support the TCFD voluntary recommendations. In our Annual Report 2016 (published in March 2017), we announced that we would “fully evaluate the TCFD’s recommendations for our 2017 disclosure.” Additionally, we reflected upon the four key thematic areas covered by the TCFD and commented that our climate strategy already encompasses these, namely “governance, strategy, risk management, and metrics and targets.”
Our announcement came fully aligned with public commitments made by UBS senior management in support of international, collaborative action against climate change – UBS Chairman Axel Weber signed the European Financial Services Round Table’s statement in support of a strong, ambitious response to climate change and our Group CEO Sergio Ermotti became a member of the Alliance of CEO Climate Leaders, an informal network of CEOs convened by the World Economic Forum and committed to climate Action.
These commitments are a reflection of our governance. The direction and implementation of our climate strategy, and how to disclose on it, is considered at the highest level of our firm. The Corporate Culture and Responsibility Committee (CCRC) of the Board of Directors of UBS Group AG, chaired by our firm’s Chairman, oversees our climate strategy. Climate-related opportunities are overseen by the UBS and Society Operating Committee, chaired by the Head UBS and Society. And the Global Environmental & Social Risk Committee, chaired by the Group Chief Risk Officer, sets the risk appetite. It is the CCRC that discusses and decides on the progressive alignment of our climate disclosure pathway with TCFD’s recommendations.
Presented with a gap analysis and a strategy on how to undertake the alignment, the CCRC and the Global ESR Committee agreed for UBS to start the disclosure with reporting year 2017 – and that our firm would work toward fuller alignment along the five-year pathway outlined by the TCFD.
An important component of our decision was to employ the structure recommended by the TCFD, i.e., the four thematic areas, for our firm’s climate disclosure. Regarding UBS’s governance, this proved to be straightforward as it was already well in place. Our main challenges emerged around scenario analyses and how these would inform business strategy and risk management decisions, and around metrics and targets. For some areas (e.g., CO2 emissions from our own operations) we found our firm to be in full alignment already. Others we were able to address as the relevant data are readily available (e.g., carbon-related assets on our balance sheet). However, a third area (e.g., weighted carbon intensity for investment strategies) will need to be developed over time, involving various teams across the firm. It is therefore important to be aware that in building capacity for this new type of disclosure, new metrics are being developed and may change over time. With the inclusion in our 2017 disclosure of climate-related metrics (see below), we firmly believe that we have taken an important step in the right direction.
Climate-related metrics 2017
1 As of 31 December 2017. Total net credit exposure across Personal & Corporate Banking and the Investment Bank, includes traded and banking products, net of allowances, provisions and hedges. As recommended by the TCFD, carbon-related assets are defined as assets tied to the energy and utilities sectors Global Industry Classification Standard. Non-carbon-related assets, such as renewables, water utilities and nuclear power, are excluded. For grid utilities, the national grid mix is applied. 2 Invested assets of products such as sustainably managed properties and infrastructure, and renewable energy companies. 3 Of the proposals we supported, all were voted against the recommendation provided by the issuer. 4 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and GHG offsets (gross GHG emissions include: direct GHG emissions by UBS; indirect GHG emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam and other indirect GHG emissions associated with business travel, paper consumption and waste disposal). A breakdown of our GHG emissions (scope 1, 2, 3) is available in our GRI Document.
Legend: CO2e = equivalent CO2 emissions
From the outset, it was clear to us that our firm’s climate disclosure would follow TCFD guidance, not only in terms of its structure but also by being embedded in our Annual Report. Moreover, in view of the wealth of climate actions at our firm, we also decided to extend the climate section that appears in the Annual Report and include this extended version in the UBS GRI Document 2017, our core sustainability reporting document (both available here).
So what’s next for UBS in regard to climate disclosure? First and foremost, we plan to further align our firm’s disclosure within the five-year pathway outlined by the TCFD. For that we are building on the solid foundations that we have created with our 2017 reporting. At the same time, we are taking joint action with 15 other banks and the UN Environment Programme Finance Initiative (UNEP FI) to collaboratively develop analytical tools that will help banks disclose their exposures to climate-related risks and opportunities, as envisioned by the TCFD. And of course, our governance bodies will continue to critically review and decide on all the steps, including on disclosure, that our firm is taking on its climate strategy.
About the authors
Dr Christian Leitz, Managing Director at UBS, heads Corporate Responsibility Management, a function within the bank's UBS and Society organization. He coordinates UBS's sustainability reporting and has particular responsibilities in the area of stakeholder management. Christian is also head of the UBS Long-Term Archive and the firm's corporate historian. Prior to joining UBS in 2003, he taught history at universities in the UK and New Zealand.
Dr Rahel Wendelspiess, Executive Director at UBS, enjoys working for Environmental and Social Risk at UBS. She is interested in environmental and societal issues and believes that, in this job, she can contribute to relevant ethical considerations when doing business. She joined UBS in 2011 and has worked in Zurich and New York. Her educational background is in International Affairs and Governance.