Memorandum submitted by Lloyds Banking Group (UKFI 10)
1. INTRODUCTION
This paper sets out Lloyds Banking Group’s approach to managing environmental risks and opportunities throughout our business operations. In it we describe our approach to managing both our direct impacts on the environment, and the indirect impacts we have through our business activities. We have a longstanding commitment to proactively managing our environmental impact.
1. 1 Highlights include:
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Lloyds TSB was one of the first banks to introduce an Environmental Policy in 1996.
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Lloyds TSB reduced its energy use related CO2 emissions by 31% between 2002 and 2008, four years ahead of its target to reduce emissions by 30%.
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In 2007, Halifax and Bank of Scotland launched a new climate change strategy, including purchasing renewable energy for the entire UK estate and displaying energy performance certificates on buildings.
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Truett Tate our Board member who leads on climate change and sustainability externally and Paul Turner, Head of Sustainable Development, are widely acknowledged as leading voices in the industry on sustainability and climate change.
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In 2009 The Group collaborated with BITC and the Cambridge Programme for Sustainability Leadership to produce a guide for businesses on Carbon Management in the Supply Chain.
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We are a founding member of the UK Small Business Consortium that helps small businesses take advantage of opportunities in the new ‘green economy’.
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Our asset management arm, Scottish Widows Investment Partnership, offers specialist ethical, environmental and socially responsible investment funds totalling £534 million.
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Lloyds Banking Group is one of the leading financers of renewable energy globally and have supported enough renewable energy generation to supply over 3 million homes
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The Group is a signatory to the Equator Principles, to manage social and environmental issues in project financing.
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We are included in the FTSE4Good Ethical Index, the Carbon Disclosure Project’s Leadership Index, the Dow Jones Sustainability Index and we are Platinum performers in Business in the Community’s Corporate Responsibility Index.
2. LLOYDS BANKING GROUP
Lloyds Banking Group was formed on 19 January 2009 following the acquisition of HBOS by Lloyds TSB Group. Our main business activities are retail, commercial and corporate banking, general insurance, life assurance, pensions and investment provision. Lloyds Banking Group is UK’s largest retail bank. We have over 30 million individual and corporate customers. We are the UK’s leading provider of mortgages, including first time buyer and social housing finance, current accounts, savings, personal loans and credit cards.
Our objective is to be recognised as the best financial services company by customers, colleagues and shareholders. We will do this by building deep lasting customer relationships which help our customers achieve what is important to them. We want to be recognised and recommended as a trusted brand by customers, a good employer by colleagues and a valued contributor in the community.
3. OUR CLIMATE CHANGE STRATEGY
Climate change represents a huge global challenge and one that will impact widely on business. We are committed to grasping the opportunities that climate change presents and managing the risks it poses. We proactively manage our direct environmental impacts, as well as our indirect environmental impacts, arising from our commercial activities.
3.1 Cost Reduction
We have a longstanding commitment to managing our environmental impacts, having first introduced an Environmental Policy in 1996. Our starting point is efficient use of resources. Driving down our use of resources, including energy, paper and water, helps keep our costs under control as well as being good for the environment. Last year, we implemented an enhanced Environmental Policy across the new Group. This year, our priority is to embed an integrated environmental management system.
3.2 Colleague Engagement
One of our priorities is getting more of our colleagues involved. Colleagues play a key role in delivering our environmental agenda. They will be central to our success in driving down carbon emissions across the estate. Driving colleague advocacy of the Group’s environmental agenda and increasing their involvement is key to our success.
3.3 Customer Initiatives
Our business strategy is focused on deepening relationships with customers, differentiating ourselves from the competition by the quality of our products and services. We know that climate change is an important issue to our customers. It provides an opportunity to deepen relationships with customers. As pressure grows on businesses to take action to combat climate change, there is increasing demand for knowledge on climate change issues from small and medium sized enterprises as well as corporate customers. We provide advice to customers on how to manage risks and maximise business opportunities around sustainability, and build positive reputation.
3.4 Commercial Opportunities
There will be many commercial opportunities as we all move to a low carbon economy. Renewable energy finance is one such opportunity. Bank of Scotland and Lloyds TSB are already among the leading financial players in renewables. The market for renewable energy is set to grow significantly and we are seizing the opportunity to become one of the UK’s leading financers of it.
4. LEADERSHIP FROM THE TOP
Our Corporate Responsibility Steering Group, chaired by Group HR Director Angie Risley, comprises senior executives from across the Group. All of our business divisions are represented on the Steering Group, which reports to the Group Chief Executive and the Board. The Steering Group meets regularly to agree and direct corporate responsibility strategy, including environment. Our Board reviews environmental performance as part of its review of corporate responsibility at least annually. Where appropriate, specific elements are reported more frequently.
Most of our corporate responsibility activity takes place in the business divisions. Specific business divisions have responsibility for elements of our environmental management system. For example, Group Property has responsibility for energy efficiency and Group Procurement for business travel.
Truett Tate, Group Executive Director, Wholesale is the board member who leads on climate change and the environment externally. He is a member of the Corporate Leaders Group on Climate Change.
4.1 External Leadership On Climate Change
Lloyds Banking Group is represented by Group Executive Director Truett Tate on the Prince of Wales’s Corporate Leaders Group on Climate Change. This group of leading businesses released the ‘Copenhagen Communiqué’, widely viewed as the progressive voice of business, for the Copenhagen Climate Change talks in December 2009. The Communiqué set out the business case for an ambitious, robust, effective and equitable UN climate framework. Over 950 companies from across the world signed the communiqué which Truett Tate handed to the Prime Minister on behalf of the Group just prior to the Copenhagen conference.
5. OUR DIRECT IMPACT – LBG’S ESTATE
Our direct impacts on the environment arise from our business operations. We are committed to managing and reducing these impacts and have a strong track record.
Over 90% of our business operations are based in the UK. Our carbon footprint is therefore primarily in the UK. Our use of energy across our large UK estate – comprising over 3,000 branches, call and data centres and other office buildings – is the biggest contributor to our footprint. Reducing the amount of energy we use in the first place is just as important as using ‘greener’ electricity. We have launched a range of initiatives designed to reduce the amount of energy we use.
We have moved 5.1 million customers to online statements. Not only does this save paper, but it also reduces cost. We have also introduced low energy light bulbs across the estate, reducing the energy consumption and cost of lighting.
Halifax and Bank of Scotland launched a climate change strategy in 2007 for reducing carbon emissions and giving customers clearer information on performance. This included buying renewable energy for the entire UK estate. By the end of 2008, Lloyds TSB had cut emissions by 31% on its 2002 figure, exceeding its emissions reduction target four years ahead of schedule. More recently, we have taken a step further by beginning to help customers and suppliers manage their own environmental impact.
In 2009, we reviewed our Environmental Policy to ensure it is fit for purpose across the whole of the Group. Following this review we launched a new Environmental Policy and we are currently working to integrate our heritage environmental management systems to develop a harmonised groupwide approach. This will help us to measure our impacts, and inform our policy and objectives to reduce them.
In 2010 we will be subject to new climate change regulation which will help us drive down our direct impacts further. The UK Government is committed to reducing the country's carbon emissions by 80% from 1990 levels by 2050. A central part of its strategy is the introduction of a mandatory climate change and energy savings scheme, the Carbon Reduction Commitment Energy Efficiency Scheme. It starts in April 2010 and requires a collective 22% emissions reduction from participants. We will participate fully in the scheme. We understand our obligations and are committed to driving down CO2 emissions. We are developing a carbon management policy and strategy to deliver a single approach for the new combined Group. We continue to invest in carbon reduction projects across the Group’s estate.
5. 1 Engaging Our Employees
Our challenge this year is to drive colleague advocacy of our environmental agenda. Over the past year integration communications have taken precedence; however a priority in 2010 is to deliver a comprehensive internal communications programme on our environmental agenda to engage colleagues in our activities and improvement plans.
We already have a strong starting point. Over 750 Lloyds Banking Group employees participate in our Sustainability Network. It is also run entirely by members of staff. The goal of the network is to provide a forum that can harness members’ commitment to improving environmental sustainability within the organisation. The network holds events and runs awareness campaigns to encourage colleagues to play their part. It tackles one theme per quarter – in 2009 these were: paper, travel, energy and waste.
The focus on travel reduction in 2009 helped inspire colleagues to take steps to reduce their travel footprints. We achieved a reduction of 143,000 journeys in 2009 compared with 2008. Across the combined Group, the volume of teleconferences increased by over 40% to over 1.1 million. We will continue to promote virtual conferencing technologies to colleagues as an environmentally friendly, cost efficient alternative to travelling.
6. OUR INDIRECT IMPACT: OUR COMMERCIAL ACTIVITIES
6. 1 Engaging Our Customers
There are many ways we can help our customers as we all move to a low carbon economy; from traditional banking products and service to using our expertise to open up market opportunities, for example in renewable energy finance, where both Bank of Scotland and Lloyds TSB are among the leading lenders. Across the Group, green issues are helping us to win more business.
One source of real difference is in our relationships with customers. Lloyds TSB Wholesale’s Sustainability team has put sustainability advice and guidance for relationship managers online, providing a one-stop shop for information on market and sector issues, regulation and policy. In addition, the team works closely with relationship managers to provide information for specific customers and sectors.
We are a founding member of the Small Business Consortium. In 2008 we produced a resource to help small businesses take advantage of opportunities in the new ‘green economy’. We launched it at the Prince of Wales’s 2008 May Day Business Summit on Climate Change, which we also sponsored. In 2010 we are sponsoring the Prince of Wales’s May Day Network on Climate Change for the third year running.
With around 3,000 branches in the UK, our branch staff play a key role in engaging customers in the shift to a low carbon economy. Our Wholesale Division is launching a new Sustainability Business Partner programme to establish a network of colleagues in customer-facing roles to engage with customers on risks and opportunities in a low carbon economy. By creating a network of skilled partners, trained in the science, business risks and opportunities of climate change, each area of the business will have local capability to support their customers on these issues.
6. 2 Leading Through Procurement
We are demonstrating sustainability leadership through our procurement of goods and services. Our procurement policies and procedures include social, ethical and environmental criteria which we expect our suppliers to meet, and colleagues are encouraged to work in collaboration with suppliers to drive continuous improvement. As a financial services company that does not manufacture or sell ‘physical’ goods, our supply chain is not our most significant impact. However, we build environmental issues into our procurement practices to help drive positive change, reduce our exposure to risk and help control costs related to environmental taxes, such as landfill and energy taxes.
In 2009, we launched a dedicated intranet site across the Group which provides colleagues with information, guidance and tools on incorporating social, environmental and ethical criteria in all of our sourcing activities; in the selection of suppliers and as part of supplier audits. This year, we are inviting around 200 of our top suppliers to become May Day companies by joining the Prince of Wales’s May Day Network on Climate Change.
In 2009 we chaired an initiative with Business in the Community and the Cambridge Programme for Sustainability Leadership to create a Guide for Carbon Management in the Supply Chain. The guide has helped inform our approach and, as a freely downloadable resource, we are also encouraging our suppliers and customers to use it to help manage carbon risks in the supply chain.
7. COMPANIES IN WHICH WE INVEST
Lloyds Banking Group’s asset management arm, Scottish Widows Investment Partnership (SWIP) is one of the largest asset management companies in the UK. At the end of 2009, SWIP managed £141 billion worth of funds in total. In addition to specialist ethical, environmental and Socially Responsible Investment (SRI) funds - totalling £ 534 million, as at 31st December 2009 - consideration of a company’s approach to social, ethical and environmental issues forms part of the research process for all funds. In the UK, SWIP manages £160 million in environmental funds.
SWIP is a signatory of the Principles of Responsible Investment, an investor initiative in partnership with the United Nations Environment Programme Finance Initiative and the UN Global Compact to help investors integrate consideration of environmental, social and governance issues into investment decision-making and ownership practices. SWIP is also a member of the Institutional Investors Group on Climate Change.
SWIP has commissioned PwC to undertake a sustainability audit of its operations and funds under management. The purpose of this audit is to understand where SWIP currently stands on managing sustainability issues within the business; to benchmark SWIP against competitors and to undertake a gap analysis with recommendations on how to improve SWIP’s position with respect to sustainability. The audit has been commissioned by the Executive and its recommendations are likely to impact all areas of the business. Outcomes of the sustainability audit are due in April 2010.
8. MANAGING ENVIRONMENTAL RISK IN LENDING
We aim to reduce environmental impacts of our lending activities through effective risk management. In 2009 we implemented an enhanced Environmental Risk Policy across the new Group which requires transactions to be assessed for material risks as part of the credit sanctioning process.
This policy is supported by a robust process which ensures that there is a consistent approach to the identification, assessment, mitigation and reporting of material environmental risk. Lending officers are responsible for ensuring that environmental risk has been adequately assessed and that appropriate mitigating action is taken if a material risk is identified. They are supported by our in-house environmental risk team who review proposed transactions and advise on methods to mitigate material environmental and reputational risk exposure. Where appropriate, the team also seeks professional input from external environmental consultants who work across a range of sectors and global locations.
8. 1 Training Colleagues On Environmental Risk Management
We provide training for our lending managers on environmental risk management. In 2009, 72 delegates attended our three-day credit risk training course, which includes a module on environmental risk management. This highly interactive module, incorporating case studies and videos, examines how a customer’s activities may impact the environment, and the associated credit risks. During the module, delegates are introduced to a range of resources including the Group’s Environmental Risk Handbook, which provides in-depth information on assessing environmental risk in lending transactions.
8. 2 Equator Principles: Managing Social And Environmental Issues In Project Finance
Lloyds Banking Group is a signatory to the Equator Principles. The Equator Principles are voluntary guidelines for the financial industry to manage social and environmental issues in project financing. The principles apply to all new Project Finance transactions above US$10m.
During 2009 we implemented a harmonised groupwide approach to monitoring and reporting Equator Principles transactions, and training colleagues on the Equator Principles. An Equator Principles Review Group, comprising experts from both Risk and Project Finance teams, is responsible for reviewing all new Equator Principle transactions, to ensure that each transaction is compliant and is consistent with the Group Environmental Risk Policy.
All Equator Principles projects are reviewed as part of an annual review process. In 2008, 25 Projects were reviewed. Of these, 11 were completed with a total value of nearly US$1 billion. Ten of the projects took place in Europe and the US and one in the Middle East. The majority of these projects were in renewables, energy and utilities.
9. RENEWABLE ENERGY FINANCE
We have a very strong track record in supporting the renewable energy sector. Lloyds Banking Group is a leading renewables bank (by debt underwriting capability) globally. Over the past five years we have arranged or underwritten finance for 40 deals, with £2.4 billion committed. This equates to over 6,000MW of renewable generation, which is enough to supply over 3 million homes. In 2009, we won the "Deal of the Year" award for a UK offshore wind transaction.
Renewable energy finance is a key area for the Group. Our current renewable portfolio stands at around £1 billion. Given our focus on the UK market, much of this finance is directed towards wind power; however we also have strong experience in the solar power sector.
10. CLIMATE CHANGE RISKS IN INSURANCE
Lloyds TSB and HBOS were launch signatories to ClimateWise, a global initiative launched by the insurance industry to enhance members’ approach to climate change risks in insurance. This approach has been continued in Lloyds Banking Group.
11. ENGAGING WITH INVESTORS
We have regular meetings with investors to discuss our corporate responsibility strategy, including our environmental strategy. Wherever possible, we conduct these meetings with our Investor Relations team, to demonstrate the link between our business strategy and our corporate responsibility agenda. Every year, we provide investors with information on our greenhouse gas emissions and climate change strategy through our participation in the Carbon Disclosure Project, the world’s largest database of corporate climate change information. We are in their Carbon Disclosure Leadership Index.
4 March 2010
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