(Bloomberg) — UBS Group AG, on the advice of its lawyers, is asking bankers to reconsider how they publicly discuss some sustainable products, according to people familiar with the matter. are.
Most Read Articles on Bloomberg
The development has implications for the kind of language bankers are free to use when presenting a range of topics from clients’ net-zero targets to individual transactions, the people said, speaking on condition of anonymity. The company said it was conducting an internal review. Certain products, such as natural debt swaps, are among those affected by heightened legal uncertainty, one of the people said.
A UBS spokesperson declined to comment.
The decision to curb the use of certain ESG (environmental, social and governance) product labels and claims at UBS comes as European regulators enact a slew of stricter rules and an increasing number of activist lawsuits. This is consistent with broader changes within the financial industry. Meanwhile, in the US, ESG labels risk drawing the ire of Republican lawmakers who want to ban the financial strategy entirely.
UBS’s guidance is designed to protect the bank from being accused of greenwashing or being seen as not complying with new regulations, one of the people familiar with the matter said.
The alternative language lawyers are coming up with is an alternative to the concise explanations that are the norm in the marketplace. For example, in the case of the Natural Debt Exchange, which was designed to help governments refinance their debt and channel savings into conservation, UBS lawyers told bankers that the product could be used for “country-specific debt related to the Sustainable Development Goals”. I’m calling for it to be called a “transformation.” The funding was provided, according to a person familiar with the matter.
“If you want to fully convey what you’re saying, you have to speak in longer sentences,” says Co-founder of advisory firm Transition Value Partners and former partner in global sustainability at law firm Ashurst. says one Anna Marie Slott. “It doesn’t look very good in a marketing brochure, but the reality is that regulated financial companies need to be able to explain and defend what they do.”
The natural bond swap market was dominated by Credit Suisse until it was acquired by UBS last year. The change in nomenclature guidance has not affected UBS’s plans to move forward with such deals, one of the people said.
story continues
Although accepted in common market parlance, lawyers advising UBS expressed concern that the natural exchange of debt representation was inaccurate and could expose the bank to legal risk. said the official. Documenting the sustainability impact of this financial product can be difficult, the person said. The label also implies that such products function like derivatives such as interest rate swaps, the people said.
Typically, banks in the early-stage market for such transactions tend to refer to them as debt conversions in their customer documentation. Prior to its acquisition by UBS, Credit Suisse called its 2022 deal with Barbados a debt conversion for marine conservation, and used the same label in its subsequent 2023 deal with Ecuador.
Credit Suisse also issued guidance to stop referring to bonds used in transactions aimed at marine conservation as “blue” to make clear that the product does not follow the same use of proceeds structure as green bonds. Adapted.
Separately from “net zero,” UBS is reviewing its use of the term, largely due to the passage of the European Union’s Corporate Sustainability Due Diligence Directive, one of the people said. CSDDD’s flagship plan calls for large companies to implement transition plans in line with limiting global warming to 1.5°C above pre-industrial levels, but many in the financial industry are currently We are concerned that this goal is unrealistic.
UBS Chairman Colm Kelleher said in April that the bank would prefer its own sustainability framework to Credit Suisse’s, given the bank’s “wider application across sectors and generally stronger risk mitigation measures”. He said he was prioritizing a sustainability framework. In connection with the Credit Suisse acquisition, UBS has appointed Beatrice Martin to oversee sustainability, which will be combined with her existing role as head of non-core and legacy businesses.
The way financial companies talk about sustainability has changed from a common phrase on social media to a statement about what they are trying to do and what their dependencies are in achieving it. “It’s coming,” Slott said.
–With assistance from Natasha White and Jeff Black.
(Adds reference to JP Morgan transaction.)
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP
