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UBS ditches Credit Suisse plan to phase out coal financing

7th March 2024

By: Bloomberg

  

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UBS Group is set to scrap a planned phaseout of coal financing that Credit Suisse had backed, as the global wealth manager prepares to unveil how the merged bank will tackle climate change.

After months of internal debate on how to treat Credit Suisse’s climate strategy, UBS executives now intend to stick with their own policy on coal funding meaning the bank will have no end date for financing the dirtiest fossil fuel, people familiar with the matter said.

The example is just one in a list of climate finance decisions due to be made public later this month, according to the people, who asked not to be named discussing private details. UBS will also retire a string of Credit Suisse green targets, even if that means the combined Swiss bank will have no stance in the areas for which policies have been scratched, the people said.

Given the complexity of merging two separate sustainability strategies, UBS’ position on coal could still change once the integration is complete, one of the people said.

The historic rescue of Credit Suisse by UBS in March 2023 represents the first major bank merger of the net zero era, as climate change forces the sector to grapple with a new layer of risk. And though UBS is primarily focused on serving the ultra-wealthy rather than on traditional lending, it has “one of the weakest fossil fuel policies in Europe,” according to Jeanne Martin, head of the banking program at climate nonprofit ShareAction.

A spokesperson for UBS declined to comment on the details of its planned update on coal. In general, however, the bank’s “ambition remains unchanged; to be a global leader in sustainability.”

“We have a clear plan, which received the full support of our shareholders at our annual general meeting in 2023,” the spokesperson said. “As part of the integration of Credit Suisse, we have undertaken an extensive review of the decarbonization goals considering the profile of the combined organization and inherited client relationships and activities. Our upcoming Sustainability Report will contain details about our climate approach as well as an overview of decarbonization targets for the combined bank.”

UBS’s existing policy allows the bank to finance coal-fired power companies and miners, as long as production isn’t being expanded and no more than a fifth of revenue comes from coal.

Credit Suisse had a coal revenue threshold for lending, as well as for capital markets underwriting for coal extraction and power generation. It had pledged to reduce the threshold from 25% in 2020, to 15% in 2025 and 5% in 2030, by which time it aimed to have no remaining credit exposure to thermal coal.

UBS has said it will reduce the absolute financed emissions associated with loans to fossil fuel companies by 71% by 2030. Credit Suisse had planned a 49% reduction in absolute financed oil, gas and coal emissions in the same time period.

UBS ranks above some of its peers on broad sustainability metrics: Nonprofit CDP gives it an A- score, which recognizes “environmental leadership.” The bank was a founding member of the Net Zero Banking Alliance, in which lenders commit to eliminate financed emissions by 2050 or sooner, and its asset management unit is a signatory of a related group for money managers.

Following the government-backed takeover of Credit Suisse last year, UBS CEO Sergio Ermotti has set about bringing over the businesses that fit with the larger bank’s overall strategy and jettisoning those that don’t. Chairman Colm Kelleher has warned that 2024 will be a critical year for the integration, as many of the more straightforward cost and job cuts have already been made.

SECTOR TARGETS
Another key difference between the former Zurich rivals is the sectors they’ve targeted for emissions cuts. Both banks set interim targets for the most carbon-intensive areas of their balance sheets. Credit Suisse had seven targets for its loan book, from commercial real estate to power generation, while UBS had five covering cement to fossil fuels.

As the integration process has progressed, UBS has emerged with a clearer picture of where the emissions lie, the people said. As such, decarbonization targets for two Credit Suisse portfolios — autos and aluminum — have been paused while the bank reassesses the materiality of its exposures in those sectors, one of the people said.

In several other areas, UBS has been more definitive with its cuts, even going as far as to scrap initiatives for which it doesn’t have anything comparable of its own.

One prominent example is Credit Suisse’s Client Energy Transition Framework, which assesses the transition strategies of customers in the most carbon-intensive sectors, including oil and gas companies and airlines, and ranks them on their level of ambitions and preparedness. Even though UBS did not have an equivalent client transition assessment system of its own, the CETF was retired at the end of last year and the bank is now working on developing its own version.

Meanwhile, Credit Suisse’s pledge to provide 300-billion Swiss francs ($340-billion) of sustainable finance by 2030 has also been retired. UBS has no equivalent commitment for its loan book, though it has said that it plans to allocate $400-billion in sustainable investments by 2025.

UBS’s “targets and reporting around emissions fail to cover the bulk of the financing it provides to the fossil fuel companies that are accelerating the climate crisis,” ShareAction’s Martin said. “For UBS’s new sustainability strategy to be credible, it must address these gaping loopholes and scale up its ambition.”

Edited by Bloomberg

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