ESE & reputational risk management | RBS

The activities of our customers can have environmental, social and ethical (ESE) impacts – including polluting activities and the potential for human rights infringements. To help us assess and manage these risks, we operate an ESE risk management framework which has been live since 2011. As part of this process, we conduct due diligence on customers, projects and transactions that present heightened ESE risk. We also expect our customers to adhere to local and international environmental, social and human rights standards.

RBS has developed ESE risk acceptance positions on industry sectors where enhanced due diligence is conducted. We also perform assessments on customers or transactions in other sectors where ESE Risk Concerns are identified.

Sector ESE risk acceptance positions define the level of ESE risk the bank is prepared to accept, and our expectations of companies to manage ESE risks in the relevant sectors. They are reviewed and updated regularly to take account of changes in regulation and good international practice for example managing climate change risk.

During 2019, training on ESE risk continued to be delivered to customer-facing businesses and functions, including focused training for specific teams. This training will better equip our staff to identify, assess and escalate issues with heightened ESE risk.

Summary of ESE risk assessments in 2019

The graphs below show the number of corporate customers assessed against our ESE policy in 2019.

The total number of customer ESE assessments undertaken in 2019 (293) decreased by 24% compared to 2018 (386). Customer ESE assessments are represented in the above charts by sector and also by ESE Risk Category.

We also assessed 126 trade related transactions involving defence equipment and a small number of transactions involving goods destined for nuclear power plants. By comparison, in 2018 we assessed 177 defence-related transactions.

Non-personal customers involved in the gambling sector, covered by the ESE policy, have not been included in the above commentary, as a separate review and approval process is followed for them.

We define reputational risk as “the risk to RBS’s public image from a failure to meet stakeholders’ expectations in relation to performance, conduct or business profile.” Stakeholders include customers, investors, employees, suppliers, government, regulators, special interest and consumer groups, media and the general public.

A Reputational Risk policy supports reputational risk management across RBS. The Policy was launched across customer-facing businesses in 2015 to improve the identification, assessment and management of customers and issues that present a reputational risk.

Country Reputational Risk Framework

We continue to use a country reputational risk rating model that assesses the reputational risk of RBS doing business in countries where our customers operate. This rating system takes into account political, bribery and corruption and money laundering risk, as well as the country’s human rights record. The model is used in conjunction with our sector ESE risk acceptance positions to help ensure the risks of customers doing business in higher risk countries are managed. Reputational Risk Committees are established in customer facing businesses with the Group Reputational Risk Committee (GRRC) considering the most material cases. The GRRC, which was established by the Group Chief Risk Officer to help him discharge his reputational risk oversight accountabilities, comprises the Group Chief Risk Officer, the Director of Regulatory Affairs, the NWH Risk Chief Operating Officer and the Chief Marketing Officer. It also acts as a central forum to review sector, country or theme-specific reputational risk appetite positions including ESE. The Board Risk Committee oversees the identification and reporting of reputational risk. The Sustainable Banking Committee has a specific focus on ESE issues. Read more about the ESE framework.

Reputational risk is mitigated through the above policy and governance framework, and with on-going training to ensure early identification, assessment and escalation of material issues. Emerging reputational issues are identified by businesses and functions (including Financial Crime, Sustainable Banking and Strategic Risk teams).