Approach to climate change
We continue to recognise that climate change is a critical global issue that has significant implications for us and our customers, employees, suppliers and partners. We support the overall objectives of the Paris Climate Agreement and the emission reduction strategies set by the UK and devolved Governments. We have begun taking steps to assess how we will integrate these objectives into our strategy, business model, risk management, operations and processes - including reclassifying climate change as a top risk and starting to integrate climate-related financial risks into our core risk framework. This includes work on scenario-based analysis for both physical and transition risks. In March 2019, RBS joined the Climate Financial Risk Forum, established by the FCA and PRA to develop practical tools to address climate-related financial risks and RBS has also continued to engage with investors, NGOs and other key stakeholders on the actions we are taking to play our part in addressing this important issue.
We demonstrated our commitment to the Financial Stability Board’s (FSB) Taskforce on Climate-related Financial Disclosures (TCFD) by making disclosures in the 2017 and 2018 Annual Report and Accounts. The 2018 TCFD can be downloaded here [PDF 461KB] and we expect to issue further disclosures in due course.
The Board has governance oversight on climate via the Sustainable Banking Committee. From 2019 this will be shared with the Board Risk Committee. A Climate Change Working Group (CCWG) has been established with the accountable executive for climate being the Chief Risk Officer. The CCWG is responsible for addressing climate-related regulation, risks, opportunities, metrics and analysis. Membership includes senior representatives from Risk, Sustainable Banking, Corporate Governance, Regulatory Affairs and Legal. Frontline business representatives will join in 2019. The Sustainable Energy Forum (SEF) also co-ordinates products and services that help business and corporate customers to transition to a low carbon economy.
As part of our developing strategy to address the financial risks of climate change, we are beginning to assess how to integrate climate change into core business decision making. To support this, RBS has commissioned a preliminary indicative climate scenario analysis across some parts of our lending portfolio using a third party specialist. Two scenarios were considered: a ‘Business as Usual’ 3.7°C rise and a ‘Paris Agreement’ 2°C rise. The time frames used for analysis are aligned to RBS Strategy: Short 0-2 years, Medium 3-5 years and Long 6-30 years. Both physical and transitional risks were incorporated. The results of this analysis are being used to support the development of an approach to more in-depth climate scenario analysis over the medium term. This in turn will be used to inform decision making on risk management and strategy.
We believe there is a need to support our customers to reduce their emissions, save energy and manage their costs. Over the last decade, we have become one of the leading lenders to the UK sustainable energy market, with expertise and services designed for customers from small businesses up to large corporations. RBS was recognised by InfraDeals as the leading lender to the UK renewables sector by number of transactions over the past ten years (2008- 2018). Having surpassed our 2015-2017 sustainable energy lending target of £3bn, in 2018 we announced our 2020 ambition:
To empower our customers and colleagues with finance solutions and energy intelligence to accelerate the transition to a low carbon economy.
With this ambition, we have now committed to provide £10bn of funding to the sustainable energy sector by 2020. This will include continued financing of low carbon generation and energy efficiency projects, as well as an increased focus on energy efficiency in real estate and alternative fuelled vehicles. More information on our sustainable energy strategy can be found here.
Climate risk management covers both physical and transitional risks. RBS employs a continuous process for identifying and managing principal and emerging risks including climate-related risks. The nature and timing of the far-reaching commercial, technological and regulatory changes the low carbon transition will bring are currently uncertain for our customers and business. The impact of such changes may be disruptive, especially if such changes do not occur in an orderly or timely manner or are ineffective in reducing emissions sufficiently. Whilst these risks are significant and growing, they are not inconsistent with our strategy to be a leading UK-focussed banking service provider to personal and business customers. To help manage climate related risks around individual lending decisions, we use sector-specific Environmental, Social and Ethical risk policies summarized here. The Power Generation, Mining and Metals, Oil & Gas and Forestry, Fisheries and Agribusiness policies were updated in 2018 in relation to climate-related risks, we joined RE100 committing to purchase 100% global renewable energy by 2020.
As we have refocused our business on the UK, Ireland and Western Europe, we have also substantially reduced our lending to carbon intensive parts of the global economy such as coal mining and oil extraction. As at 31 December 2018, our exposure to the Power and Oil & Gas sectors remains at 1.2% of our total lending exposures.
At our AGM in May we announced new energy lending policies, meaning RBS will not provide project-specific finance to:
- New coal fired power stations
- New thermal coal mines
- Oil sands projects
- Arctic oil projects
- Unsustainable vegetation or peatland clearance projects
RBS will also not provide finance to:
- Mining companies generating more than 40% of their revenues from thermal coal – a reduction from 65%
- Power companies generating more than 40% of their electricity from coal – a reduction from 65%
ShareAction commented these are “the strongest energy sector policies out of the top five UK banks”.
Metrics and Targets
RBS uses a range of metrics and targets to assess our climate-related financial impacts, including operational emissions figures, volumes of sustainable energy sector financing, and proportion of lending associated with high carbon or high climate risk sectors. Our greenhouse gas (GHG) emissions are independently verified each year by an external auditor. The PRA report, ‘Transition in Thinking’, highlighted energy, transport, property (domestic and non-domestic) and agriculture sectors as having particular exposure to climate risks and opportunities and these equated to approximately 44% of total RBS exposures in 2018(*). This was calculated using Exposure at Default (EAD). Between 2014 and 2018 we reduced our operational greenhouse gas emissions (Scopes 1, 2 and 3 – Business Travel) by 49%, exceeding our Science Based Target of 45% by 2020.
Relative to our size, our operational footprint from serving our customers is quite small, but still significant. Our primary emissions impact comes from the energy used to heat, cool and power our buildings and data centers. We have set targets using a science-based method in order to align our efforts to reduce emissions with the climate science that sits behind the Paris Climate Agreement. More information on this can be found on our Direct Environmental Footprint page.
Our overall approach to climate change will evolve and adapt over the coming years as we listen to our customers and stakeholders and refine our approach – it forms a logical part of our plan to become a much simpler, stronger, fairer bank.
If you are interested in finding out how we can help and support business customers please visit the relevant pages: