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UBS CEO Ermotti warns of ‘collateral damage’ in transition away from fossil fuels

Remarks were made at inaugural Swiss sustainable finance week

Sergio Ermotti, Chief Executive of Swiss banking and wealth titan UBS, has said that a sudden shift away from fossil fuels could worsen social inequality during a discussion on the speed at which the carbon transition is to take place.

In response to a question from RI at an event during the inaugural Swiss sustainable finance week, Ermotti said: “When you decouple energy production from high CO2 intensity sectors you may remove essential services from communities emerging out of poverty or accessing medical care.

“This is what I mean when I refer to collateral damage. We don’t come to this conclusion on our own, instead we rely on expert advice from to support our evaluations.

“Believe me, these days reputational damages can go both ways. On one hand this can come from the financing of CO2 emissions and on the other it could be from worsening some of these inequalities.”

When asked to explain UBS’s billion-dollar stake in the fossil fuel industry, valued by BankTrack at approximately $26.5bn, Ermotti said: “Of course we want to move companies from riskier sectors of the economy. As a bank we definitely don’t want to expose our balance sheet to the risk of a collapse. We are doing a lot to encourage the transition through the adoption of new technology and pushing our portfolio companies to do the right thing.

“We are also getting a lot of accolades from NGOs on the work that we are doing. I reject the notion that banks are not doing enough and we are happy to take on any superficial criticism in the course of action.”The remarks were made following the morning panel session at the Building Bridges Summit, the marquee event of the week of events.

During the discussion, WWF Switzerland CEO Thomas Vellacott, a former Citi banker and McKinsey consultant, challenged asset managers to no longer invest in fossil fuel companies across their entire portfolios instead of just within ESG-badged products, drawing a round of applause from an audience of Swiss banking heavyweights.

“I reject the notion that banks are not doing enough”

During the panel session, the chief of a Swiss supervisory authority revealed that the state was looking into the feasibility of incorporating climate considerations within macro-prudential regulations.

Daniela Stoffel, Secretary of the State Secretariat for International Finance (SIF) which implements the policies of the Swiss government, said: ““There are a number of ways that risks to the financial system can be expanded to include physical, liability and transitions risks for example. This will have a huge impact at portfolio level. This is a discussion we need to have.

“We are working on this topic and we will seek a mandate from the government which will have to be done before we can talk about this any further but this will help us support the transition.”