ZURICH: UBS Group AG is asking its bankers to rethink the way they discuss some sustainable products in public following advice from its lawyers, according to sources.

The development affects the kind of language bankers are free to use when presenting a whole array of topics spanning net-zero goals to individual transactions for clients. Specific products such as debt-for-nature swaps are among those affected by the heightened level of legal anxiety, a source said.

The decision to rein in the use of certain environmental, social and governance (ESG) product labels and claims at UBS coincides with a wider shift inside the finance industry, as regulators in Europe churn out stricter rules and the number of activist lawsuits increases.

In the United States, meanwhile, ESG labels risk triggering the ire of Republican lawmakers intent on banning the financial strategy outright.

The guidance at UBS is designed to ensure the bank isn’t accused of greenwashing or seen to be non-compliant with emerging regulations.

The alternative language that lawyers are coming up with is replacing shorthand descriptions that have become the norm in the market. For example, in the case of debt-for-nature swaps – which are intended to help governments refinance debt and then put savings toward conservation –lawyers at UBS are asking bankers to instead refer to the products as Country Debt Conversion With Associated Sustainable Development Goal Funding.

“You have to speak in longer sentences if you want to fully convey what you’re talking about,” said Anna-Marie Slot, co-founder of advisory firm Transition Value Partners and a former partner for global sustainability at law firm Ashurst.

“It doesn’t look as nice in your marketing brochure, but it’s the reality of regulated financial firms that they need to be able to explain and defend what they’re doing.”

The market for debt-for-nature swaps was dominated by Credit Suisse before the bank’s takeover by UBS last year.

The change in guidance around nomenclature hasn’t affected UBS’s plans to pursue such deals.

Though accepted in general market parlance, lawyers advising UBS expressed concern that the debt-for-nature-swap label is imprecise and could expose the bank to legal risk. The sustainability impact of the instruments can be difficult to document, the person said. Also, the label implies that such products function like derivatives such as interest-rate swaps.

Typically, banks in the nascent market for such deals have tended to refer to them as debt conversions in client-facing documents. Before its takeover by UBS, Credit Suisse referred to a 2022 deal with Barbados as a debt-conversion-for-marine-conservation, a label it used again for a subsequent 2023 deal for Ecuador.

Credit Suisse also adapted to guidance to stop referring to the bonds used in transactions targeting marine conservation as “blue” to make clear that the instruments don’t follow the same use-of-proceeds structure as green bonds.

On the separate matter of “net zero,” UBS is reviewing the bank’s use of the term, in large part due to the passage of the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD).

A key plank of CSDDD requires large firms to introduce transition plans that are aligned with limiting global warming to 1.5C from pre-industrial levels, a goal that many in the finance industry now fear is unrealistic. 

 - Bloomberg