119 Roman Road, London E2 0QN ... faster action by global companies on climate change. SWIP has ..... As companies start
CONTACT US: We would like to hear from you. Please get in touch with any feedback and queries at the following address: Community and Sustainable Business Group Corporate Affairs Lloyds Banking Group 25 Gresham Street London EC2V 7HN You can also send an email to
[email protected]
OUR
environmental action plan: ONE YEAR ON
Lloyds Banking Group is recognised by
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also in this issue:
Developing new business opportunities Business collaboration: solutions for a sustainable future? *********************************
650 colleagues have been trained in our accredited Business & Environment Programme.
Carbon Trust Standard and Carbon Saver Gold Standard achieved for our entire UK operations.
Included in the FTSE4Good Ethical Index, the Carbon Disclosure Leadership Index, the Dow Jones Sustainability Index and are Platinum performers in Business in the Community’s Corporate Responsibility Index.
New sustainability website launched for Small and Medium-sized Enterprises (SMEs) which attracts 1,700 visitors a month.
£2.5 million Launched monthly ‘No Travel Weeks’ which have achieved a significant reduction in business travel.
invested in energy saving and carbon reduction projects in our property portfolio which will reduce carbon emissions by over 4,600 tonnes CO2 every year.
HIGHLIGHTS OF OUR AGENDA IN 2011
Active member of the Corporate Leaders Group on Climate Change, Mayday Network, the Institutional Investors Group on Climate Change, the Business in the Community Leadership Group, ClimateWise, the University of Cambridge’s Programme for Sustainability Leadership (CPSL) and the Banking and Environment Initiative.
Pg. 4 Foreword from Truett Tate
Pg. 6 4
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investor coalition urging faster action by companies on climate change.
Pg. 8 Smart & Responsible update: one year on
Pg. 10
First signatory of the CDP Carbon Action initiative, a
£5 trillion
Resource efficiency
Engaging our colleagues
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Pg. 12 Sustainability as a business opportunity
Pg. 14 Developing new business opportunities
Over 4,200 SME customers attended our 2011 Lloyds TSB Commercial “Success for business” charter events featuring sustainability.
Implemented our new electronic environmental risk screening tool which now assesses 600 business loans each month.
Top UK bank in the FTSE CDP Carbon Strategy Index Series.
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20
Pg. 16 The changing environment of Small & Medium-sized Business
Pg. 18 Understanding and managing environmental risks
Smart & Responsible, our environmental action plan, cited as a market-leading programme.
UK’s most active provider of finance to renewable energy projects with
£413 million lent to 13 projects in 2011.
800 colleagues
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renewed their commitment to our groupwide Sustainability Network, helping to catalyse positive change.
Pg. 20 Business collaboration: solutions for a sustainable future?
Pg. 22 Collaborating with our stakeholders
Pg. 25 Photography: Toby Smith www.shootunit.com
[email protected] 0208 1337588 Address: Shoot Unit, 119 Roman Road, London E2 0QN
Toby Smith is an award-winning photographer and videographer specialising in environmental and energy matters. His clients include National Geographic, BBC, TIME, The Sunday Times, The Guardian and a range of international corporate clients. Working closely with organisations allows Toby to produce projects that succeed as a powerful tool for bespoke communications or in national media to reach public and industry-facing audiences.
Production published: Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
Design: Spiral Communications www.spiralcom.co.uk
Print: Xerox (UK) Ltd, Bridge House, Oxford Road, Uxbridge, Middlesex UB8 1HS
Engaging customers
Pg. 27 Our commitments
ABOUT OUR ENVIRONMENTAL AGENDA Lloyds Banking Group is a leading UK-based financial services group providing a wide range of banking and financial services to personal and corporate customers.
TRUETT TATE
Our vision is to be recognised as the best bank for customers. Our strategy is to create value for shareholders by investing where we can make a real difference for customers, communities and colleagues. Managing our environmental impacts, as well as seizing the opportunities and mitigating the risks of climate change, is directly linked to the successful delivery of our business strategy.
OUR STRATEGY Our environmental strategy has been developed around our framework: ‘REDUCE’. We also use this framework to help our colleagues and business customers gain a better understanding of the many different aspects of sustainability. Resource efficiency – using resources efficiently helps reduce our environmental impact, as well as our costs, benefiting our shareholders. Engaging colleagues – they play a key role in helping us deliver our environmental agenda. Engaging them in our activities brings in new ideas and helps build advocacy for the Group. Developing new business opportunities – seizing opportunities, such as in renewable energy finance, helps to ensure we establish ourselves as a leading player in emerging market opportunities. Understanding and managing environmental risks – effectively identifying and managing the risks helps to protect the Group and our customers from financial and reputational damage. Collaborating with stakeholders – working with our suppliers, other businesses and Government on current and future environmental challenges is fundamental to our objective of being recognised as a leading UK bank on environmental issues. Engaging customers – providing guidance to business customers on the risks and opportunities arising from the emerging ‘green economy’ helps us build deep and lasting customer relationships, and develop a reputation as the banking partner for businesses seeking to address sustainability.
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Climate change is one of the most important environmental issues of our time. Effecting change will require a concerted effort between businesses, governments as well as individuals. Lloyds Banking Group remains firmly committed to the important role it can play in this area, from financing renewable energy to helping our customers transition to a low carbon economy and we will continue to collaborate with expert partners and our wide stakeholder base to lead the banking sector on this global issue.
ENVIRONMENTAL LEADERSHIP We believe the most effective way to achieve environmental change is to lead by example. We have set some bold, longterm targets to significantly reduce our environmental impact by 2020 as part of our Smart & Responsible programme – including a target to reduce our energy consumption by 30 per cent. We have already made good progress. We have reduced our use of energy by around 7 per cent in the last two years and have achieved the Carbon Trust Standard for our entire UK operations – a significant accomplishment for an organisation of our size and complexity. We are also encouraging businesses that bank with us to take action to address climate change. We have trained over 650 Business & Environment Managers across the UK on our Business & Environment programme, to enable them to guide and support our customers in recognising environmental risks and seizing the opportunities. We are the only major UK bank to provide this kind of support to its business customers.
FOREWORD By leading the way in seizing the opportunities, and managing the risks, we stand to gain a significant competitive advantage. Over the last year we have been the UK’s most active provider of finance to renewable energy projects, having lent over £413 million across 13 renewable energy projects in the UK, Germany and the US. Our strong expertise in the renewable energy sector is also helping us to win new business from customers who are looking for a bank with an intrinsic understanding of this growing sector. Peter Lacy, Managing Director of Accenture’s Sustainability Services, talks more about the opportunities on page 12 and Stephen Howard, Chief Executive of Business in the Community, raises concerns about the risks for business failing to adapt on page 16.
OUR INFLUENCE We recognise that our influence extends well beyond the size of our organisation. We collaborate with the Government, other leading businesses, key stakeholders and leadership groups to drive forward the environmental agenda and achieve real change, both in the UK and globally. Our asset management business, Scottish Widows Investment Partnership (SWIP), has over £136 billion invested around the world and is committed to using its influence to encourage best practice in corporate governance and management of sustainability risks. SWIP was the first investor to sign up to the new CDP Carbon Action initiative, a major investor coalition focused on encouraging faster action by global companies on climate change. SWIP has also launched a new sustainability strategy across its entire £8 billion property portfolio, including a target to reduce its energy consumption by 10 per cent by 2012 compared with 2009. As the Group’s representative on the Prince of Wales’s Corporate Leaders Group on Climate Change, I work closely with a group of leading businesses to lobby governments on climate change.
We released the ‘2°C Challenge Communiqué’ ahead of the UN 2011 Climate Change talks in Durban. Signed by 175 companies from 29 countries, it calls on governments to break the deadlock in the international negotiations and take the necessary action to ensure a successful transition to green growth and a climate resilient economy; warning that the window of opportunity to stabilise warming to 2°C has almost closed. Polly Courtice, Director of the University of Cambridge Programme for Sustainability Leadership, reflects on the need for more collaboration on page 20. We also work hard to engage colleagues in our environmental agenda. Colleagues play a key role in ensuring its success, and, by engaging them in our agenda, we can also try to influence their attitudes towards responsible use of resources at home and in the way they travel. Around 800 colleagues are part of our groupwide Sustainability Network and are proactively involved in helping to deliver our Smart & Responsible projects and campaigns.
THIS REPORT This is our second annual standalone report on our environmental strategy, covering our progress in 2011. We have also invited thought leaders from Accenture, the University of Cambridge and Business in the Community to make contributions to this publication based on their areas of expertise. I hope you find the report helpful and informative and would welcome any comments.
Truett Tate Vice Chairman, Lloyds Banking Group
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he starting point for our environmental agenda is to reduce our use of resources. Efficient use of office space, energy, paper, water and other resources helps minimise our impact on the environment and keep our costs under control. In 2010, we launched Smart & Responsible, our new targeted environmental action plan. It consists of seven key pillars which ensure that the environmental impacts of all our business operations are managed and minimised to realise significant environmental and cost savings. Smart & Responsible has since been cited by Carbon Saver Limited as a market-leading programme. As part of the programme, we have introduced a set of challenging long-term targets. We aim to reduce our use of paper and water by 20 per cent; reduce business travel and waste to landfill by 20 per cent; and reduce our use of energy by 30 per cent by 2020. We have also set a number of interim targets against which we are making good progress. Our Environmental Steering Group, comprising senior managers from across the business, has responsibility for driving our environmental strategy and delivering against our targets. Our achievements in 2011 are detailed on page 8.
MANAGING OUR USE OF ENERGY The Group has a large property estate comprising around 3,000 offices, call centres and branches across the UK. Our use of energy across the estate – electricity, gas and oil – constitutes our most significant environmental impact.
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Over the past two years we have invested £8 million in dedicated energy saving and efficiency measures. In addition, we have introduced energy consumption as a key performance target for our engineering and facilities managers, incentivising staff to deliver on energy efficiency. Our mechanical and engineering maintenance suppliers are contractually obliged to maintain and identify opportunities to improve energy efficiency. We made some initial progress in 2010, reducing energy use (excluding data centres) by over 4 per cent, exceeding our 3 per cent target. We are on track to achieve a further reduction of 3 per cent by the end of 2011 and we are building capacity to increase the rate of reduction from 2012.
REDUCING OUR CARBON EMISSIONS The introduction of the Carbon Reduction Commitment Energy Efficiency Scheme in 2010 has provided further financial and reputational incentives for the Group to reduce its use of energy and improve energy efficiency. As a participant in the Scheme, we are required to report our energy use to the Environment Agency on an annual basis and, significantly, purchase allowances for each tonne of energy-related CO2 we emit. The Scheme forms a central part of the Government’s commitment to reducing the UK’s carbon emissions by 80 per cent by 2050 compared with 1990. In 2011, we met our target to achieve the Carbon Trust Standard for our entire UK operations. The Carbon Trust Standard recognises our robust approach to measuring, managing and reducing our carbon emissions. We have also been awarded the Carbon Saver Gold Standard on account of our strong track record. Over the past 4 years, we have reduced our total emissions by 8 per cent.
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SMART & RESPONSIBLE UPDATE: ONE YEAR ON PILLAR
AIM
2020 TARGETS
2011 ACHIEVEMENTS
BUILDwise
• To embed sustainability and environmental standards into the construction processes for all new building and refurbishment projects.
• Reduce construction waste sent to landfill to less than 20 per cent.
• Launched our Sustainable Construction Manual – now used for all new-build, refurbishment and fit-out projects.
• Achieve environmental accreditations for 20 per cent of our buildings.
• Installed loft insulation in 597 bank branches which will save 11 tonnes CO2 a year.
• To reduce the energy consumption of our property estate.
• Reduce our energy consumption by 30 per cent.
• On track to reduce our energy use by 6 per cent by year end.
ENERGYwise
PILLAR
AIM
2020 TARGETS
2011 ACHIEVEMENTS
TRAVELwise
• To reduce growth in business travel by improving travel efficiency, providing alternatives to travel and promoting improved worklife balance.
• Reduce our total business travel by 20 per cent.
• Since June, our monthly ‘No Travel Weeks’ initiative has reduced the number of businessrelated trips undertaken by 60 per cent, resulting in a corresponding reduction in mileage and CO2 of 55 per cent. This is based upon centrally booked travel (which accounts for approx 70% of all travel undertaken) in the same months in 2010.
WASTEwise
• To reduce the amount of waste sent to landfill and increase the amount recycled and reused.
• Reduce our waste sent to landfill to less than 20 per cent.
• On track to reduce waste sent to landfill to no more than 35 per cent by the year end.
• Glass containers are no longer sold in our canteens.
• Achieved the Carbon Trust Standard for our entire UK operations. • Achieved the Carbon Saver Gold Standard with a 5-star rating.
WATERwise
• Installed solar panels at our Solihull Training Centre and currently investigating other opportunities across our estate. PAPERwise
• To reduce overall paper use across the Group, reduce the amount of paper stored by the Group, and introduce new printing efficiencies.
• Reduce our paper consumption by 20 per cent.
• Reduced paper usage across Lex Autolease by 38 per cent. • Piloted ‘secureprint’ – this has reduced paper waste from forgotten printouts.
Baselines • Energy and Water: 2009 • Paper, Travel and Waste: 2010 • Build: 2011
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• Food waste collection now operating in all sites with canteens, feeding into anaerobic digestion.
WORKwise
• To reduce water use across the Group.
• Reduce our water consumption by 20 per cent.
• Reduced water consumption by 9 per cent.
• To reduce our property footprint by introducing new workplace practices to ensure that office space is used efficiently and offers employees greater flexibility.
• Increase number of mobile or home workers to 20 per cent of eligible colleagues.
• On track to deliver 10,000 WORKwise desks by year end – these are flexible, shared desks.
• Completed water audits on four key sites – three have consumption levels that are already below the Environment Agency’s Best Practice benchmark.
• In 20 per cent of our office estate, we now use five desks for every six colleagues.
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VOLUNTEER SUSTAINABILITY NETWORK
ENGAGING OUR COLLEAGUES Our colleagues continue to play a key role in delivering our environmental agenda. Our people are central to driving down environmental impacts across the Group. We strive to engage colleagues and enable them to make a contribution.
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We have a Sustainability Network of more than 800 volunteers from across the Group. The Network was established in 2008 and is run by colleagues, with sponsorship from the Group’s Executives. Many of its members are actively involved in delivering the Group’s Smart & Responsible projects and campaigns. In 2011, the Network also undertook a number of additional projects, including developing a set of best-practice environmental guidelines for the Group’s events and conferences. We are encouraging the Network’s active supporters to include an objective within their Balanced Scorecards for performance management.
COLLEAGUE CAMPAIGNS In 2011, we delivered a Smart & Responsible roadshow, ‘Globe on the Road’, in 3 of the Group’s major Retail employment sites. The roadshow aimed to raise awareness of the Smart & Responsible programme and engage colleagues locally. As part of this, we helped around 2,000 colleagues in our Mortgage business gain a better understanding of the environmental impact of running our business. 99 per cent of colleagues strongly agreed or agreed that they understood how to make a difference as a result. Colleagues have since introduced a number of new, less resource-intensive business processes; including replacing paper work logs with an electronic spreadsheet, and using laminated paper as a mini reusable whiteboard to jot down notes.
We also seized the opportunity during the UK-wide Energy Saving Week in October to run a groupwide campaign encouraging colleagues to cut their energy use at home, at work and in the way they travel. We delivered interactive road shows at eight of our main employment sites to demonstrate how the Group is reducing its use of energy through power optimisation tools and building energy management systems. We also delivered a range of internal communications and information packs for colleagues, including tips on how to improve the energy efficiency of their homes.
BUSINESS TRAVEL Business travel is one of the main areas where colleagues can make a significant contribution in helping to reduce our carbon footprint. We have set a target to reduce our total business travel by 20 per cent by 2020, and, in the interim, cut business flights by 20 per cent by 2015 as part of WWF-UK’s One in Five Challenge. We are investing in virtual conferencing technologies to provide colleagues with viable alternatives to travel and have introduced monthly ‘No Travel Weeks’, during which only business-critical travel is permitted. We have now installed video conferencing facilities at all of our major office sites. In addition, early next year, we will be piloting laptop video conferencing for 1,000 colleagues. Through our regular programme of TRAVELwise forums we also provide ongoing opportunities for colleagues to learn more about alternatives to travel. ‘No Travel Weeks’ have achieved an average reduction of 60 per cent in the number of journeys travelled by colleagues compared with the same timeframe, June – October in previous years. We have also seen an increase of 47 per cent in the use of tele-conferencing in 2011 compared with 2010.
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thought LEADERSHIP
Sustainability as a business opportunity Forces in the global economy such as resource scarcity, climate change, stakeholder pressure, as well as the urgent need for social and economic development, is placing sustainability centre stage and reshaping demand, supply and policy in key industries, not least in financial services.
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his is something that we clearly see from our client work and through our recent study conducted with the United Nations Global Compact – A New Era of Sustainability1. Through conversations with 766 CEOs worldwide including 35 UK CEOs, we uncovered a picture of corporate sustainability much changed since the last study in 2007. Sustainability, CEOs told us, was more important than ever to the future success of their business, and we heard how the world’s leading companies are integrating environmental, social and governance issues into core business. One of the clearest insights from our research is that CEOs are beginning to see sustainability as a top-line opportunity. As CEOs move away from a risk-based approach and start viewing sustainability as a lens for value creation, two key themes have emerged from our conversations – growth and trust. These are now the two greatest factors driving CEOs to embed sustainability throughout their business, with 72 and 44 per cent respectively selecting them in their top 3 motivating factors. This is even stronger in the UK, with 74 per cent selecting trust and 50 per cent selecting growth. It has moved from being simply a moral obligation and is now considered as an opportunity for revenue growth, innovation, brand value and product differentiation.
Growth As companies start viewing sustainability as an engine for value creation and turn their sights to new waves of growth, it is becoming a key element of their strategies to grow revenues and broaden their footprints into the new markets. Leading companies see sustainability driving demand in a number of ways. In the consumer-facing industries, the sustainability imperative is becoming clearer. Most immediately, consumer goods companies see an increasingly important role for sustainability in shaping the preferences and buying behaviours of consumers. 79 per cent of CEOs in the sector believe the consumer to be one of the key stakeholders in driving their action on sustainability, and a similar number report that enhanced ‘brand, trust and reputation’ is among the most important motivating factors. However, whilst consumers claim that they care about sustainability it is not yet certain to what extent it affects their purchasing decisions. Companies in parallel industries, from consumer electronics to infrastructure and transportation, see rising demand for products and services that help their business-to-business customers and the end consumer to reduce their own environmental impact. Philips’ EcoVision, for example, generated 31 per cent of total revenues in 2009, with revenues of nearly €7.2 billion (US$8.7 billion), and the company aims to reach 50 per cent
by 2015. Similarly, Siemens report that their Environmental portfolio was their strongest growing product segment throughout the downturn, generating revenues of €23 billion (US$28 billion), an 11 per cent increase from 2008 and nearly one-third of Siemen’s total annual revenues. The banking industry, too, is starting to quantify the opportunities presented by the transition towards a low-carbon economy. Recent Accenture research concludes that, in the UK alone, over the coming decade €250-300 billion will be required to finance the development and roll-out of new technologies for wind farms, smart meters and energy efficient buildings.
Trust The other key theme emerging from our discussions was a dramatic increase in business leaders’ perceptions of the importance of trust and how sustainability is critical to it. CEOs across the world believe that trust in business has been profoundly impacted by the financial crisis and subsequent economic downturn. Shaken by the volume and vigour of public and governmental challenges to business, CEOs see that rebuilding trust with stakeholders is one of the most pressing issues they face: just 62 per cent of CEOs in North America, and 69 per cent in Europe, believe that their industry is trusted by the public. And this figure is even lower in the UK, with only 47 per cent of CEOs believing that their industry is trusted. Alongside this collapse in trust runs a longer-term phenomenon: as one business leader told us, “There is a growing sense that consumers demand more than a good product at a good price.” In addressing this demand for businesses to contribute positively to the societies in which they operate, companies are beginning to actively seek ways of enhancing and building new
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relationships with stakeholders based on re-establishing the notion that business can be a force for good. This is certainly a long-term goal and not just a quick fix. Our conversations suggest that business action on environmental,, social and governance issues will play a critical role in building these new relationships. This recognition is particularly apparent in the banking industry: not only do CEOs in the sector report the lowest levels of trust in their industry, Oss with just 66 per cent of global CEOs ed believing that the industry is trusted by the public, but 63 per cent – the highest of any industry – report that they are integrating environmental, social and governance factors into core business ‘much more’ than five years ago. Whilst the banking industry may not historically have been the sector most preoccupied with the business impact of sustainability, there is a growing recognition amongst CEOs that, as one global banking CEO told us, “This crisis has been the perfect storm for the industry.” The collapse in public trust is beginning to shape a new reality for banks, and growing opportunities, both in new markets and in financing the transition to a low-carbon economy, are creating new waves of growth for the industry.
The business imperative of sustainability As CEOs are looking to sustainability as a source for revenue growth, innovation and brand value, it is positive to see banks such as Lloyd Banking Group picking up the mantle through initiatives such as REDUCE, which helps UK businesses to improve their environmental impacts.
It is apparent that companies are starting to see sustainability as a business opportunity and leading companies are now effectively integrating environmental, social and governance issue into core business to deliver real value creation. It is also clear that sustainability is becoming the new battle ground for competition – and collaboration – in the banking sector and other industries. But whilst it might appear that we are on the verge of a new era of sustainability, it is far from guaranteed and will require both leadership and urgency. As Idar Kreutzer, Group CEO of financial services company Storebrand ASA, warned in the UNGC study: “The risk of inaction is the greatest risk facing business.” The one critical imperative is the need to act – and act now – in shaping the future of the financial services industry to help with the transition towards a global sustainable economy.
Peter Lacy Managing Director Accenture Sustainability Services Europe, Africa & Latin America
For further detail and references on the case studies included in this introduction, see A New Era of Sustainability (UNGC-Accenture CEO Study 2010), and individual industry focus reports at www.accenture.com/sustainability
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GOOD ENERGY
DEVELOPING NEW BUSINESS OPPORTUNITIES
When it came to re-banking, the UK’s only dedicated 100 per cent renewable electricity supplier was keen to find a bank that mirrored its values. Good Energy has ambitious plans to make the UK 100 per cent renewable by 2050. To achieve that ambition, it was important for the business to have the right kind of specialist banking in place. “We did a lot of due diligence about changing banks; it’s not something we took lightly at all,” asserts Juliet Davenport, CEO and Founder of Good Energy. “Lloyds Bank are very comfortable around the financial instruments in the renewable sector. They’re professionals in this area, which makes our life so much easier.”
Climate change is one of the most important environmental issues of our time. It presents all businesses – including Lloyds Banking Group – with significant risks and opportunities.
HELIUS BIOMASS
CASE STUDY
We have provided finance for an innovative biomass project in Scotland that uses the by-products of malt whiskey manufacturing to generate up to 7.2MW of electricity. This is enough to power 9,000 homes and saves 46,642 tonnes of CO2 emissions each year. The project won the ‘Renewable Energy Transaction of the Year’ at the Renewable Energy Infrastructure Awards 2011. Our involvement in this project has put us in a prime position to finance a far larger follow-up project: a 300MW biomass plant in the West Country.
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e believe that banks have an important role to play in financing the UK’s transition to a low-carbon, resource-efficient economy. In fact, at Lloyds Banking Group we believe that by leading the way in seizing emerging market opportunities we can gain a significant competitive advantage.
RENEWABLE ENERGY FINANCE The UK Government’s CO2 reduction targets will provide significant investment opportunities for the private sector. We are proactively seizing opportunities to provide low carbon finance both in the UK and abroad. Indeed, we are firmly establishing the Group as a leading player globally in renewable energy finance.
Over the last year we have been the UK’s most active provider of finance to renewable energy projects. In total, we have lent over £413 million across 13 renewable energy projects in the UK, Germany and the US. These are capable of generating 2,210MW which will provide enough electricity to supply around 3 million homes.
SWIP is a signatory of the UN Principles for Responsible Investment. As part of this, it has made a public commitment to integrating Environmental, Social and Governance (ESG) issues into all investment decision-making processes, and to proactively engage with companies on these issues.
We are currently working to deliver transactions for the development of an additional 180MW of wind power for the UK and for solar energy within the social housing market – enough to power a further 240,000 homes.
SWIP sees climate change as a central topic for its engagement with companies. SWIP is one of the biggest shareholders in several of the world’s largest energy companies, and regularly holds discussions with them about their approach to climate change. In 2011, SWIP worked with the Carbon Disclosure Project to launch the CDP Carbon Action Initiative, a coalition of 35 global investors with over £5 trillion of assets. This year, the Initiative has engaged with the 80 largest global companies with high carbon emissions but no target to reduce them. SWIP was the first investor to sign up to the initiative, using its influence to discuss with companies their adoption of
SUSTAINABLE INVESTMENTS Lloyds Banking Group’s asset management arm, Scottish Widows Investment Partnership (SWIP), is one of the largest asset management companies in the UK. SWIP manages a series of specialist ethical and environmental funds worth £470 million.
CASE STUDY
carbon reduction targets and cost-effective emissions reduction programmes. SWIP has also helped drive an Institutional Investors Group on Climate Change initiative to build a global investor consensus on the actions investors should look for from companies on climate change. These new principles will lay the foundations for future global investor engagement in this area.
In an innovative, fast-paced, technology-driven industry, the Bank’s intrinsic understanding of the sector can play a major role in the delivery of appropriate and timely funding solutions. “That’s vital for a business like ours,” concludes Juliet. “The next two or three years are going to be about innovation and how fast we can bring new products to market. Our relationship with Lloyds Bank is absolutely key to the future development of Good Energy.”
SWIP has also launched a new sustainability strategy across its entire £8 billion property portfolio. This includes a target to reduce landlord-controlled energy use by 10 per cent by 2012, against a 2009 baseline. In the future, SWIP sees a substantial opportunity to increase its focus on the companies that are driving the technological solutions to global sustainability challenges – renewable energy, energy efficiency, water supply and food supply.
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thought LEADERSHIP
sized Businesses Small and Medium-sized Businesses are the bedrock of the UK economy, employing 59 per cent of the UK workforce. And yet, this bedrock is under threat from the global environmental challenges that we all face.
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he recession has understandably pushed environmental issues lower down the agenda for many businesses, and recent changes to the Feed in Tariff for Solar Energy have put off others who were trying to invest in order to reduce their energy costs. But there is some ‘green’ light at the end of the tunnel. A survey by the Lloyds Banking Group has shown that, despite difficult trading conditions, 91 per cent of Small and Medium-sized Enterprises (SMEs) surveyed said they had taken steps towards becoming more sustainable. The same survey found that 45 per cent said they are worried that there will be risks to their business if they do not become more sustainable and most were particularly concerned about higher operational costs, as well as extra fees and taxes. But it’s not all about risk – 33 per cent have seen clear evidence of increased contract and customer retention rates as a result of their work.
So, this shows a mixed picture, some focusing on the risks, others on the opportunities – and hopefully many on both. But, there is a different issue that I am becoming increasingly concerned about that I believe is often overlooked, and that is the need for businesses to adapt to the changing climate. We hope to put in place global agreements to avoid dangerous climate change, but many forget that climate change is already a reality and is likely to be with us for many years to come until greenhouse gas levels stabilise. Whilst no one weather event can be attributed to climate change, we are seeing an increase in weather-related natural disasters globally. Closer to home we have seen the devastation caused by severe weather events such as last winter’s floods, which seriously affected many SMEs, and some of us have experienced the disruption to supply chains caused by unseasonal weather. The UK is likely to see more unpredictable weather patterns and if the climate modellers are correct, our winters could become much wetter.
So it is essential that all companies assess their own resilience potential, and begin to implement high-level adaptation strategies. These could include measures such as introducing flexible working patterns if weather makes travel difficult, contingency plans if an office can’t be used as a result of flooding or storm damage, or securing alternative methods of transportation and storage if supply chains are disrupted. It may be as simple as putting a computer on a desk instead of under it to avoid damage in the event of water entering a premises. Simple contingency plans can help business avoid cost and disruption and could make the difference between survival and closure. And through Business in the Community’s Business Emergency Recovery Group we are coordinating and mobilising assistance from BITC members and the wider business community to help businesses get back on their feet after an emergency, to provide access to a pool of expert business advice and available resources, and support businesses in planning for emergencies to ensure business continuity.
Small businesses have the flexibility to shift their business models quickly,, and we have noticed that increasing numbers of innovative, green SMEs – many of them social enterprises – are joining the Mayday Network which was founded in 2007 initially to support all businesses in understanding and acting on climate change. The Mayday programme now supports more than 3,600 businesses. They all have free access to the Mayday he e Journey online tool, which clarifies the ss risks and opportunities in the business response to environmental issues. The free-to-join network aims to help them reduce their environmental impacts, and to prepare for a future where our behaviours and the way in which we use natural resources will need to be very different. At Business in the Community we stand for responsible business. Since the 1980s we have been working with member companies to help them recognise the proven business benefits of responsible
business practice. As the business and natural environment continues to change we are committed to helping business across the UK adapt and thrive in a sustainable and responsible way.
Stephen Howard CEO Business in the Community
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UNDERSTANDING AND MANAGING ENVIRONMENTAL RISKS
Divisional Credit Policies
Business Unit Processes
Initial Transaction Screening Relationship teams
Detailed Review InIIn-house n team, retained consultancy
Environmental Due Diligence Panel consultants
Environmental Risk Approval (including any conditions)
Sector Briefings
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Group Credit Policy – Environmental Risk
Legislation Briefings
system each month.
OUR ENVIRONMENTAL RISK MANAGEMENT APPROACH:
Supporting tools
We identify and assess environmental risks in business lending, project j finance and insurance to ensure that we manage the e We provided face-to-face environmental impact of training for more than 500 lending officers to our commercial activities. use the system, in addition to computer-based This helps us manage learning and a range of supporting materials. risks to our customers Around 600 transactions are screened by the and our business.
MANAGING ENVIRONMENTAL LENDING RISKS IN LEN Our groupwide credi credit risk policy requires all business loans to b be assessed for material environment environmental risks as part of the credit sanctioning pr process. Our credit policy is supported b by a robust process which ensures that w we take a consistent approach to identifying, identifyi assessing, mitigating and repor reporting environmental risks. Lending officers are rresponsible for identifying risks and a are trained in environmental risk m management as part of our standard 3-day ccredit risk training course. In 2011, we launch launched an electronic environmental risk screening system, which is the p primary mechanism assess for assessing environmental risk W in the Wholesale bank. This provid real-time provides scree screening of locationspec and sector-based specific risks that may be present in tra a transaction. Where a risk ide is identified, the tran transaction is referred to our expert in-house Envi Environmental Risk team f for further review and asse assessment, as outlined left.
PROJECT FINANCE: EQUATOR PRINCIPLES Lloyds Banking Group is a signatory to the Equator Principles. These support our approach to assessing and managing environmental and social issues in project finance. Project finance is often used to fund the development and construction of major infrastructure and industrial projects. The Equator Principles are applicable to project finance transactions above USD 10 million and provide a framework to support responsible decision-making. We have a robust, groupwide approach to assess, monitor and report Equator Principle transactions. We also provide ongoing training for lending officers – over the past year we have trained 30 employees in our Equator Principle procedures. In 2011, we participated in the Equator Principles Strategic Review process which examined the scope of application, transparency, implementation and governance of the Principles. It is the first step of a longer term process to determine the future direction of the Principles and ensure they are fit for purpose. We believe that the collective effort of financial institutions will ensure that the Equator Principles continue to play an industryleading role and will continue to engage in the update process.
INSURING CUSTOMERS AGAINST THE RISK OF CLIMATE CHANGE We were a founding signatory to ClimateWise, a global initiative launched by the insurance industry to inform its members’ approach to climate change risks in insurance. We work with partners in the insurance industry via ClimateWise, the Association of British Insurers (ABI) and the Lighthill Risk Network to enhance our understanding of the risks we face and develop methodologies for addressing these. The vast majority of our customers are based in the UK, where climate change is increasing the frequency and intensity of floods. Through our home insurance products we are working to address flood risk. We also engage with Government and the ABI on a regular basis to inform flood protection policy, contributing our data and insights. We provide cover for solar panels, wind turbines and generators as a standard part of our insurance policies, and offer customers with energy-efficient homes better value insurance. We inform customers about climate change issues through our regular communications with them. When we receive a flood claim we will pay for flood-resilient repairs – where the cost is similar to like-for-like repairs – on their homes to help defend against future flood damage.
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thought LEADERSHIP
Business collaboration: solutions for a sustainable future? An environmentally and socially sustainable future is a possible, affordable and exciting prospect, but we urgently need new forms of business collaboration if we are going to tackle some of the most significant economic and social challenges that we face.
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T
he truth is that our current market economy, our financial and political structures, the rules which govern our corporations, and many of the values which shape our ‘take-make-waste‘ society, represent some of the greatest obstacles driving us in the opposite direction and undermining the best of intentions. Our population, now over 7 billion, is placing unprecedented demands on natural capital and new scientific evidence that all is not well with our planet confronts us almost daily. Business as usual is not an option if we are to secure the future of the human species. A recent report by Mercer suggests that the economic cost of climate policy for the market to absorb is estimated to amount to as much as $8 trillion cumulatively by 2030, but that in the same period opportunities for low-carbon technology investment could be as high as $5 trillion. What would it take to build an economic system that had the preservation of natural capital at its heart, and that incentivised the flow of capital into projects that had positive economic, environmental and social benefits? The elusive triple bottom line! What would it take, for example, for institutional investors to allocate capital to large-scale microfinance initiatives in sustainable agriculture and clean energy; for banks to incentivise green performance among their clients; or for insurers to withdraw cover from ecologically damaging practices? Each example stands up as a form of responsible intervention that is economically sound for society as a whole. But at what point will they also make business sense and what mechanisms do we need to put in place to drive them forward? There is clearly no substitute for effective public policy interventions or international agreements to address environmental
and social risk, but in the absence of these a growing number of businesses now recognise the need to take a lead themselves. This is being driven by an assessment of the risk but also by considerable opportunities. Whilst action by individual companies should be applauded, there are an increasing number of examples of the power of collective action which is really what is required if change is going to be achieved on the scale that is needed. In recent years, new and innovative collaborations between companies have begun to emerge that offer some real prospect for change and that seek to find greater convergence between the interests of financial capital and natural capital.
Initiative is a group of globally recognised banks seeking to move capital towards environmentally beneficial investments in a way that will better support the sustainability ambitions of their clients; and the Cambridge Natural Capital Leaders Platform, a group of 20 multinational companies exploring the impact on business of natural capital degradation and exploring game-changing solutions.
Our population, now over 7 billion, is placing unprecedented demands on natural capital and new scientific evidence that all is not well with our planet confronts us almost daily.
The Cambridge Programme for Sustainability Leadership has supported the emergence of a number of these business-led groups that have in common a sense of urgency, a solutions orientation, and a determination to identify material risks and opportunities for open collaboration and innovation based on the best available evidence and advice. The Prince of Wales’s Corporate Leaders Group on Climate Change, the P8 and ClimateWise are good examples of this, where businesses have come together to call bold intergovernmental action and to develop initiatives that alone they would have been unable to do. More recently two more groups have emerged. The Banking Environment
These groups are increasingly being seen by many policy makers and international organisations as an attractive means to explore options for stimulating green growth and economic development by working with the private sector and seeking to mobilise private capital behind their policy goals.
Is business collaboration one of the keys to a sustainable future? I believe that there is no possibility of achieving the step change that is needed without rethinking some of our current business models and adopting innovative approaches and ambitious cross-sector collaboration. Despite our short-term economic challenges, the opportunities are there and the risks will only get larger the longer we delay.
Polly Courtice Director University of Cambridge Programme for Sustainability Leadership
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COLLABORATING with our STAKEHOLDERS We collaborate with expert partners, competitors and our wide stakeholder base to drive thought leadership and action on current and future environmental issues.
W
e proactively identify opportunities to collaborate with external partners to drive positive environmental change. We aim to promote greater understanding and capability amongst organisations and businesses in dealing with climate change, natural resource depletion and the loss of biodiversity in natural ecosystems. Truett Tate, Vice Chairman, and Board Champion for climate change and environmental sustainability issues, represents Lloyds Banking Group on the Prince of Wales’s Corporate Leaders Group on Climate Change. This brings together business leaders from major UK, EU and international companies who campaign for new and longer-term policies for tackling climate change. The Corporate Leaders Group released the 2˚C Challenge Communiqué ahead of the UN Climate Change talks in Durban, South Africa. Signed by 175 companies from 29 countries around the world, it urged governments to agree a ‘robust, equitable and effective agreement’ on climate change at the United Nations’ meeting. Lloyds Bank Corporate Markets is a launch signatory to an industry-led
consortium that will develop a business plan for a not-for-profit organisation, the Green Deal Finance Company. The Green Deal is a Government-sponsored framework to allow private firms to offer UK consumers energy efficiency improvements to their buildings. Consumers will pay back the cost of such improvements through the resulting savings in their energy bills – with the rule being that savings must exceed the cost of improvements. Future Green Deal providers – the companies that will install the improvements – will be able to access the cheapest possible finance from the Green Deal Finance Company to maximise the value they can bring to customers. Early in 2011, our CEO of Corporate Banking, Diana Brightmore-Armour, joined the Board of the Confederation of British Industry Climate Change Group. The Board comprises 17 business leaders from a cross section of industries who have committed to tackling climate change. The group proactively engage with the Government on behalf of UK business on climate change strategy and policy. Susan Rice, Managing Director of Lloyds Banking Group in Scotland, is a member of the 2020 Climate Group, which is working to achieve Scotland’s target of cutting its carbon emissions by 42 per
cent by 2020. She also chairs the Finance sub-group which examines issues and barriers to financing low carbon economy and how finance can be used to achieve the greatest impact. We are a strategic partner of the Cambridge Programme for Sustainability Leadership (CPSL) and work closely with them on a range of environmental initiatives and programmes, such as Sustainable Cities and Rio + 20. Truett Tate is a member of CPSL’s Advisory Board and Paul Turner, Director of Community and Sustainable Business, is a tutor on their Post Graduate Certificate in Sustainable Business. Through our membership of the newly launched Banking and Environment Initiative, we are also working in partnership with the Prince of Wales and other leaders in the banking sector to stimulate the movement of financial capital towards environmentally beneficial activity. For the third year running, in 2011 we were the national sponsor of the Mayday Network, which is Britain’s largest collection of businesses working together to tackle the challenges posed by environmental sustainability. We are also represented on the Business in the Community Environmental Leadership Team that governs the Network’s activities.
CASE STUDY
UNIVERSITY OF EXETER ONE PLANET MBA Lloyds Banking Group is a chosen corporate partner for University of Exeter Business School’s ‘One Planet’ MBA programme, launched in September this year. Delivered in partnership with the WWF, the One Planet programme is a new type of MBA which aims to develop sustainability-minded business leaders of the future.
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The University of Exeter is ranked within the top 1 per cent of universities in the world and is 2nd in the UK in the Aspen Institute Global MBA Rankings. The University selected Lloyds Banking Group as its finance sector partner due to our leadership on sustainability issues. We continue to strengthen our links with the University. We support student research and project skills through work placements with the Group to help them develop and are currently exploring opportunities to embed modules of the
Programme in our Executive Leadership programmes. We are also working with the University’s new Environment and Sustainability Institute in Cornwall. The Institute aims to engage with 450 SMEs in the area over the next three years. We hope to play a major role in helping to identify local businesses that would benefit from the Institute’s cutting-edge research and expertise in responding to the challenges of environmental change.
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TOWARDS ZERO CARBON CATERING
WASTE MANAGEMENT
COLLABORATING WITH OUR SUPPLIERS We consider our suppliers’ social, ethical and environmental performance as a standard part of our approach to managing the Group’s key suppliers – from the sourcing and selection of suppliers to incorporating sustainability into our ongoing relationships with them. We actively encourage our employees to build strong working relationships with our suppliers to help drive continuous improvement and innovation in our supply chain. In collaboration with Business in the Community and the Cambridge Programme for Sustainability Leadership we published a Guide for Carbon Management in the Supply Chain. The Guide has helped inform our own approach and, as a freely downloadable resource from www.cpsl.cam.ac.uk, we are also encouraging our suppliers and customers to use it to help manage carbon risks in their supply chains.
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We are working with our catering supplier to reduce the amount of food waste we send to landfill. During 2011 we introduced a new process for food waste collections at all our office locations that have canteens. Instead of being sent to landfill, food waste is now diverted into anaerobic digestion. Anaerobic digestion is a form of composting which produces biogas – a renewable energy. Our food waste now creates approximately 5,800 KwH of renewable energy every month which is enough to boil almost 36,000 kettles. By diverting food waste from landfill we are also reducing the emission of landfill gas (methane and carbon dioxide) into the atmosphere from our waste by up to 100 tonnes of CO2 equivalent a year, according to Defra. In addition, we have introduced a process to recycle and convert cooking oil used by the Group into bio-diesel. Over the past year 25,459 litres of used cooking oil have been recycled, equating to an estimated 48 tonnes of CO2 saved. We recognise, however, that there is much more we can do to reduce carbon in our supply chain. In 2011, we signed up to the ‘Towards Zero Carbon Catering’ Compact, launched by the Prince of Wales’s UK Corporate Leaders Group on Climate Change.
CASE STUDY
Lloyds Banking Group is a founding member and signatory of the ‘Towards Zero Carbon Catering’ Compact, launched by the Prince of Wales’s UK Corporate Leaders Group on Climate Change in 2011. As a signatory, we have committed to achieving a step change reduction in the carbon emissions resulting from our catering activities over the next five years. The aim of the Compact is to demonstrate to the supply chain that there is a credible market demand among both private and public sector customers for zero carbon catering goods and services. Public procurement drives almost one third of the economy and we believe, therefore, that it could and should be used to generate new markets for low-carbon products, goods and services. The launch of the Compact will be followed by a market consultation early in 2012 which will invite the supply chain to propose how zero carbon catering can be achieved. It will provide a framework for dialogue with the supply chain and a mechanism to establish how best customers, suppliers and Government can work together to bring lower carbon catering goods and services to the market.
ENGAGING CUSTOMERS As pressure grows on businesses to take action to address climate change, our business customers are increasingly seeking knowledge and advice on these issues.
Our aim is to be the bank that is best placed and equipped to support its customers in the business of sustainability.
took advantage of the contracts available. A third of contracts awarded were won by our customers.
SUPPORTING BUSINESSES
BUSINESS AND ENVIRONMENT MANAGERS
We provide guidance to business customers on the risks and opportunities arising from the emerging ‘green economy’ – through this we can build deep and lasting customer relationships and develop a reputation as the banking partner for businesses seeking to address sustainability. In 2011, as part of our nationwide programme of seminars for business customers, we ran 79 events for more than 4,200 customers focusing on Sustainability. These events focused on the environmental risks and opportunities facing small businesses in the UK, and, in particular, the business opportunities associated with the London 2012 Olympic and Paralympic Games. As the Official Banking and Insurance Partner of the Games we lead the way in ensuring that our SME customers
We have trained over 650 Business & Environment Managers across the UK on our Business & Environment programme, developed in association with the Cambridge University Programme for Sustainability Leadership. This equips colleagues with an in-depth understanding of the relevance of sustainability issues to business, enabling them to guide and support our customers in recognising environmental risks and seizing the opportunities. The training programme has achieved accreditation by the Chartered Banker Institute. We are the only major UK bank to provide this type of support to its business customers. We have also launched a sustainability website for businesses, which offers a tool
for customers to set their environmental goals and create their own sustainability statement. It has, so far, been accessed by 1,800 businesses keen to improve their credentials. Access the website at www.supportingbusinesses.co.uk/lloyds/ sustainability Lloyds TSB was voted Bank of the Year for the seventh year running at the Real FD/CBI FDs’ Excellence Awards 2011 in recognition of the support it offers its business customers.
THE GREEN Lex Autolease, part of the Group’s Asset Finance division, is the UK’s largest and most experienced fleet management company. Earlier this year, Lex Autolease launched ‘The Green’, a website that highlights why sustainability issues are important when developing a fleet. It provides a wealth of practical information for fleet managers to reduce vehicles’ carbon emissions and maximise cost savings. Access the site at www.lexautolease.co.uk/thegreen
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SUPPORTING ECO-FRIENDLY BUSINESS
CASE STUDY
An Exeter-based eco-friendly paint supplier is set to double its turnover in the next 12 months with the support of working capital facilities from Lloyds TSB Commercial. Nutshell Paints specialises in producing paints that contain no volatile organic compounds. These are potentially harmful chemicals, the inclusion of which in paint products is controlled by EU legislation. The business also produces thermal paint products, which in colder climates help reflect heat back into the room and in warmer countries can be used externally to deflect heat from buildings. Mike Back, Managing Director, said: “The working capital facilities provided by Lloyds TSB Commercial give us an important safety net for our cash flow while we look to expand the business, and this, coupled with the day-today support the bank offers, forms an important part of our success.” David Clark, relationship manager for Lloyds TSB Commercial, said: “With consumers becoming more concerned with their impact on the environment, the eco-friendly paint market looks set to increase in value over the coming years. Nutshell’s thermal paints could help consumers cut down on their heating costs by up to 15 per cent.”
OUR COMMITMENTS We are committed to managing and reducing our environmental impact. We also recognise that our influence extends well beyond the size of our organisation. We will continue to work with other businesses, Government, key stakeholders and leadership groups to drive forward the environmental agenda and achieve real change, both in the UK and globally. Here, we set out our environmental targets for next year.
REDUCING OUR USE OF RESOURCES We have introduced a set of challenging long-term targets for 2020 under our Smart & Responsible programme aiming to reduce our use of paper and water by 20 per cent; reduce business travel and waste to landfill by 20 per cent; and reduce our use of energy by 30 per cent. We have also set a number of interim targets:
■ We have set an interim target to
reduce energy consumption by 8 per cent by the end of 2012, compared with 2009.* ■ We have set an interim target to
reduce water use by 9 per cent by the end of 2012, compared with 2009. ■ Early in 2012, we will pilot laptop video
■ We have set an interim target to
recycle or compost 80 per cent of the Group’s waste by the end of 2012.
CASE STUDY
conferencing for 1,000 colleagues to help drive down our travel footprint.
SUPPORTING UK AGRICULTURE Lloyds Banking Group is the largest provider of finance to UK agriculture. We have an unrivalled position in understanding food and farming issues and recognise the role we can play driving sustainability through the food supply chain. Indeed, maintaining food security, and biodiversity, in a world of diminishing resources is fundamental to the future of the industry. We believe that working together is a route to profitability and sustainability and that is what we seek to promote. In 2011, Adam Henson, a well-known TV presenter and bank customer, was appointed as the Group’s new farming ambassador – a role he is using to share his experiences of the industry and promote sustainability to the Group’s Commercial customers. Adam has hosted a number of events for leaders and influencers in the food and farming sector at his 1,600-acre farm in the Cotswolds, focusing on the sustainability challenges facing the sector and best practice techniques. Agriculture is a complicated business and modern farms need extraordinary business skills and specialist support to be successful. We are strengthening ties with farmers by demonstrating our willingness to understand the sector and have around 300 trained specialist colleagues who are dedicated to the industry.
ENGAGING SMALL BUSINESSES ■ We are encouraging our
Business & Environment Managers to set targets as part of their formal performance measures around engaging their SME customers on sustainability. This would result in around 2,400 SME customers receiving in-depth guidance on tackling the risks and opportunities arising from climate change every year.
SUSTAINABLE INVE INVESTMENT ESTMENT RENEWABLE ENERGY FINANCE ■ We will work closely with
industry leaders and the Department for Energy and Climate Change in 2012 to assist in the development of financial products that will facilitate transition to the low carbon economy.
■ Scottish Widows Investment Partnership, the Group’s P
asset management business, has set a target to reduce the energy consumption of its property portfolio by 10 per cent by 2012 compared with 2009.
SUPPLY CHAIN ■ As a founding member and launch signatory to the ‘Towards Zero Carbon
Catering’ Compact, driven by the Corporate Leaders Group on Climate Change, we will commit to achieve a step change reduction in the carbon emissions resulting from our catering activities over the next 5 years.
*This target excludes data centres – we are separately investing in initiatives to improve the energy efficiency and operational effectiveness of our data centres to minimise their environmental impact.
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CONTACT US: We would like to hear from you. Please get in touch with any feedback and queries at the following address: Community and Sustainable Business Group Corporate Affairs Lloyds Banking Group 25 Gresham Street London EC2V 7HN You can also send an email to
[email protected]
OUR
environmental action plan: ONE YEAR ON
Lloyds Banking Group is recognised by
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also in this issue:
Developing new business opportunities Business collaboration: solutions for a sustainable future? *********************************
