Confidential

Climate Aware at UBS-AM

July 2020
The world can no longer ignore climate investing

“ Current policies and commitments suggest average

temperatures will increase 3°C by the end of the
century. Do nothing and that figure rises to 4°C1…

1 Closing the financial gap 2 Carbon emissions 3 Risks of not transitioning to

a low-carbon economy
Current levels of climate finance are too Global GHG emissions must decrease Physical risks, such as increased extreme
low. Over USD 90 trillion needs to be dramatically to effectively address the weather events, and transitional risks like
invested by 2030.2 risks of climate change and global greater regulation, have significant
warming. A coordinated and broad-based implications for investors.
response is required across a range of
sectors.

…the resulting impact, [on] all life on the

planet – including ours – will be catastrophic. ”
Antonio Guterres
Secretary-General of the United Nations

1 Source: https://www.bloomberg.com/news/articles/2019-12-03/global-temperature-headed-toward-5-degree-increase-wmo-says/
2 https://www.local2030.org/story/view/117

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What steps are we taking to address climate change?
If no actions are taken, by 2100 our planet will experience the highest temperature it has ever seen in human history 1

Awareness Regulation
 A global UBS-AM survey of 600 institutional  Major regulatory shifts are underway, such as the
investors showed most asset owners believe that EU taxonomy on sustainable finance, encouraging
environmental factors will matter more than investors to take account of ESG factors in their
traditional financial criteria over the next five investment processes
years2  In 2017, the Task Force on Climate-related
 In the private wealth space, a survey of clients Financial Disclosures (TCFD) explicitly advised
showed that the majority think sustainable investors and companies to undertake climate
investing will become the norm in the next change scenario analysis as a way of
decade 3 understanding their climate risk

Climate Aware framework

 UBS-AM has developed the Climate Aware
framework to help investors align their portfolios
to their chosen climate solution and is developing
a suite of dedicated products across asset classes

1 IPCC, 2018: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related greenhouse gas emissions pathways, in the context of
strengthening the global response to the threat of climate change sustainable development, and efforts to eradicate poverty. Masson-Delmotte, et al.
2 ESG: Do you or Don't you? UBS Asset Management, Responsible Investor, June 2019
3 UBS Investor Watch: Return on values, 2018

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Opportunities have evolved towards a climate smart future

The new normal

Climate investing can no longer be considered
optional
Portfolio benefits  Trending popularity as flows for
climate finance increased 25%
Risk management and strong tailwinds in a single period between
support a climate-aware approach
Evolving opportunity 2015-20183

set  A 2⁰C scenario leads to enhanced

projected returns versus 3⁰C or 4⁰C
Aligning to 2⁰ degree warming for nearly all asset classes, regions
and timeframes2
 Economic opportunities generated by  Investors have a fiduciary duty
the transition to a low-carbon economy to their beneficiaries to ensure
could be as much as USD 26 trn1 they promote and safeguard
their interests
 Carbon adaptation can generate
significant opportunities in
renewable energy

1 Source: https://www.wri.org/blog-series/the-26-trillion-opportunity
2 Source: Mercer “Investing in a time of climate change – the sequel”, 2019
3 Source: https://climatepolicyinitiative.org/publication/global-climate-finance-2019/

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Our commitment starts at the top
Taking a leading role in shaping a positive future—for all of us and the generations to come

“ Climate change is for real. The speed at which the environment is

changing is astonishing, and so needs to be the speed at which we
respond to it.
Axel A. Weber
Chairman of the Board of Directors, UBS AG

UBS is taking action…

…in finance …in philanthropy …in communities …in business

Reshaping the Partnering with Promoting education
landscape of investing clients for good and entrepreneurship Leading by example
 Innovate our platform to  Helping clients to make  Encourage our  Challenge ourselves and
create a positive impact a measurable difference employees to put peers to raise the bar #TOGETHERBAND centers
for society and the with advice from their expertise and and be open about the around the conviction that
environment, while experts and programs knowledge to use impact our actions have none of the goals, including
providing attractive selected through UBS  Provide financial on society and the
returns
SDG #13, Climate Action,
Optimus Foundation support to local environment
can be achieved without
programs
collective, multi-sector action.

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We are actively pursuing our sustainable principles
Our range of capabilities and external commitments

Long commitment to Calling for action to create

environmental finance change
 First environmental certification in 1999  Data focused approach to allocate to
 UN Global Compact since 2000 climate-friendly initiatives
 Founding signatory of the Carbon  Adoption of the Task Force on Climate-
Disclosure Project related Financial Disclosures (TCFD) by
 One of the first signatories of UN companies
Environment Program  Simplification and standardization of
sustainable investment standards

Strong resources Climate Aware strengths

 Dedicated SI Research team with  Firm-wide Climate Engagement strategy
20 employees working with over  Developed award winning Climate
900 investment professionals approach with leading UK pension fund
 USD 37 billion1 in a range of Sustainable  Engagement in coordination with
Investment focused strategies Climate Action 100+, lead on 8 company
 100% of Active Equities and Fixed Income engagements
integrate sustainability

1 Assets under management as of 31 March 2020

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A climate framework for investors
We need a balanced approach to channel capital toward a lower carbon future

Climate mitigation Portfolio adaptation

Lowering investment exposures to Climate Increasing investment exposures to climate-
carbon risks mitigation related innovation and solutions

A balanced Portfolio
approach adaptation

Portfolio
transition

Portfolio transition
Aligning portfolios to your chosen climate
glidepath

Source: UBS Asset Management, Becoming climate aware, Mobilizing capital to help meet climate change goals: an investor’s perspective, WEF paper 2020.

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UBS-AM's Climate product offering
Wide breath of innovative climate solutions in the core of investment portfolios, total AUM USD 3.7bln

Strategy Description Benchmarks available Mitigation Adaptation Transition

Equity Solutions
Climate Aware A concentrated strategy targeting active MSCI All Country World E leaders1 & lower Min 50% climate Alignment
Equity active returns and superior climate characteristics CO2 intensity1 solutions1 2DS scenario1
versus the benchmark
Climate Aware Tilting strategy replicating the risk return FTSE Developed, MSCI world, 50% lower 35% OW 30% tilt
Equity enhanced characteristics of the equity index while MSCI ex-CH, S&P 500 CO2 intensity renewable alignment
indexing significantly improving the climate risk profile In development: Europe, global ex US energies 2DS scenario
Climate Aware Index based strategy that meets the strict In development: PAB aligned 50% lower Green to brown Av. 7% self
Equity passive climate benchmark regulation requirements Climate Aware equity index CO2 intensity ratio* > 4 de-carbonization1
of the EU sustainable finance plan

Fixed Income Strategies

Climate Aware IG A diversified strategy targeting active returns Barclays Euro Corporates (EUR), ESG integration1 & Green to brown Alignment
Corporates active and superior climate characteristics versus Barclays US Corporates (USD) lower ratio > 2 2DS scenario
the benchmark CO2 intensity
Climate Aware Tilting strategy replicating the risk return Barclays Global Corporates (USD) 50% lower 25% OW 25% tilt
Corporate Bonds characteristics of the corp. bond index while CO2 intensity renewable alignment
rules-based significantly improving the climate risk profile energies 2DS scenario
Climate Aware Index based strategy replicating the risk FTSE Climate Risk-Adjusted World 7% improvement N/A 10% tilt
Government return characteristics of the govt. bond Government Bonds to climate risk 1 alignment
Bonds passive index while improving the climate risk profile 2DS scenario

Alternatives
Environmental Innovative long/short equity strategy aimed at benefitting from our proprietary insights of winners and losers across the Energy Transition Economy
Focus Fund (companies and industries that will be affected by or contribute to the global transition to a more sustainable, lower carbon economy)

1 Further clarifications on climate investment terminology can be found in the "Lexicon of climate metrics" in the appendix

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Lexicon of climate metrics
Short non-technical description of key metrics in terms of Mitigation, Adaptation and Transition

Climate metric Category Short description

E-leaders Mitigation Companies that manage to significantly reduce the risk of negative impact of Climate Change on their business model,
especially when compared to peers with similar activities

CO2 intensity Mitigation CO2 intensity measures the amount of CO2 emissions per unit of sales revenues, for a portfolio compared to an index a
lower carbon intensity indicates a better climate profile.

Climate Risk Mitigation In the context of government bonds, climate risks refers to the combined risk of climate change as a result of future
reductions in CO2 emissions needed, risks of damages to physical infrastructure and the ability of the country to deal
with these changes within its governing institutions
Climate Solutions Adaptation Companies that provide products and services that offer solutions to adapt to climate change, either by reducing the
amount of CO2 that is emitted with traditional technologies or by dealing with the consequences of climate change.

Renewable Energies Adaptation Renewable energy sources that are considered here are: Wind, Solar, Biomass, Geothermal, Wave and Tidal and
Hydroelectric power generation

Green to Brown ratio Adaptation This metric expresses the relative weight of green revenues of a portfolio (e.g. renewable energies, green buildings and
water) versus that of brown revenues (e.g. thermal coal, oil and gas exploration) relative to the benchmark. A value
above 2 means that the strategy aims to have a two 2 times better ratio than the benchmark.
Self-decarbonization Transition The rate at which the strategy reduces its CO2 footprint on an annual basis, the target number indicates the reduction
of CO2 emissions as a percentage from its previous years CO2 emissions. If the self de-carbonization target is 7%, the
CO2 emissions of the portfolio one year from now should not exceed 93% (100%-7%) of that of the current portfolio.
Alignment 2DS Transition UBS created a proprietary glidepath methodology to compare the company's carbon footprint trend with the required
scenario emission reduction implied by 2 degree scenario. Allows to estimate the probability that the company will achieve those
glide path targets

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