LONDON (Reuters) - UBS will look to increase lending to the shipping sector and run off some loans to fossil fuel clients inherited from Credit Suisse, executives told Reuters, in the biggest test yet of the impact of a mega-merger on banks' sustainability commitments.

The shotgun marriage of Switzerland's two biggest lenders last year kick-started a complex integration process including weaving together the pair's variety of environmental, social and governance-related products, pledges and targets.

Like many lenders, both had committed to reaching net-zero carbon emissions by mid-century as part of efforts to cap global warming, yet their plans for getting there were often quite different.

From basic differences in defining 'sustainable finance' to assessing client net-zero plans - unheard of in the big bank mergers of the global financial crisis - the process was complex, said Chief Sustainability Officer Michael Baldinger.

"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."

As well as revising and expanding the combined group's sustainability and climate risk policy framework, which will govern all financing decisions, the group had to decide what to do with billions of dollars in legacy loans.

While UBS long ago decided to focus on wealth management, a business that doesn't tie up a lot of capital, Credit Suisse was a major investment banking lender to climate-damaging sectors including energy, shipping and steel.

The combined balance sheet of more than $1.6 trillion, nearly twice the size of the Swiss economy, has drawn warnings from regulators about the risk to the country, adding to scrutiny over how UBS plans to manage its lending practices.

In the event, "every single deal" was discussed, Baldinger said, and loans in sectors that do not align with the bank's sustainability risk appetite, such as oil and gas companies with no transition plan, will be housed in a "non-core" unit and allowed to run off over time.

As a result, and despite re-basing its emissions-reduction targets from 2021 rather than 2020, the bank said its plan to reduce fossil fuel sector emissions was broadly unchanged, aiming for a cut of 72% by 2030, from a previous target of 70%.

UBS is also betting on shipping becoming cleaner and it plans to keep shipping-linked loans inherited from Credit Suisse.

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

UBS also updated emissions reduction targets for real estate, power generation and cement and added a target for iron and steel for the first time, at 27%, below the 32% set by Credit Suisse.

Christian Leitz, UBS' head of corporate responsibility, said one major task this year will involve assessing all of Credit Suisse's sustainable investing products to ensure they are in keeping 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."