In the largest test yet of the effect of a mega-merger on banks’ sustainability obligations, UBS will try to increase lending to the shipping sector and write off certain loans to fossil fuel clients acquired from Credit Suisse, executives told Reuters.

The two largest lenders in Switzerland got married shotgun last year, which set off a convoluted process of integrating their disparate environmental, social, and governance-related goods, commitments, and goals.

Similar to several lenders, they pledged to achieve net-zero carbon emissions by the middle of the century as a means of curbing global warming; yet, their strategies for accomplishing this goal frequently diverged significantly.

Said Chief Sustainability Officer Michael Baldinger, “the process was complex, ranging from fundamental differences in defining’sustainable finance’ to assessing client net-zero plans—unheard of in the big bank mergers of the global financial crisis.”

“It was the first time to align two major sustainability frameworks, methodologies and programmes together, with all the recalibration, re-baselining, re-analysing everything… it was quite an effort for us.”

The group had to make decisions about billions of dollars in legacy loans in addition to updating and broadening the combined organization’s sustainability and climate risk policy framework, which will direct all funding decisions.

Credit Suisse was one of the biggest investment banking lenders to industries that damage the climate, such as steel, energy, and shipping, whereas UBS long ago chose to concentrate on wealth management, a company that doesn’t require a lot of capital.

Regulators have issued warnings about the risk to the nation due to the combined balance sheet of more than $1.6 trillion, which is almost twice the size of the Swiss economy. This has increased scrutiny on UBS’s plans to regulate its lending practices.

“Every single deal” was discussed during the event, according to Baldinger, and loans in industries that don’t fit the bank’s sustainability risk appetite—like oil and gas businesses lacking a transition plan—will be placed in a “non-core” unit and let to mature over time.

Because of this, the bank stated that its goal to reduce emissions from the fossil fuel industry was essentially unaltered, aiming for a reduction of 70% by 2030 instead of a previous target of 71%. However, the bank rebased its emissions-reduction targets from 2021 rather than 2020.

UBS intends to maintain the shipping-related loans it acquired from Credit Suisse and is also counting on shipping becoming cleaner.

“There’s so much innovation going on… do we want to grow over time a clean shipping business? Absolutely,” said Baldinger.

Along with updating the targets for real estate, power generation, and cement, UBS also included a target for iron and steel, which is lower than Credit Suisse’s 32% target, at 27%.

One of the main tasks for this year, according to Christian Leitz, head of corporate responsibility at UBS, is evaluating all of Credit Suisse’s sustainable investment products to make sure they comply with the new framework.

“We have to go through each individual product. Whatever is on the shelf that Credit Suisse may have called sustainable, we go through.”

(Adapted from Reuters.com)