Managing ESE risk
The activities of our customers can have environmental, social and ethical (ESE) impacts including the potential for human rights infringements. To help us assess and manage these risks, we operate an ESE risk management framework. As part of this process, we conduct due diligence on relevant customers and transactions, considering their impacts as well as expecting our customers to adhere to environmental, social and human rights standards.
RBS has developed ESE risk policy positions for eight industry sectors which present higher ESE risk. Where a customer operates outside of these sectors and there are concerns around ESE risks, we complete an assessment on them.
Sector ESE risk policy positions define the level of 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.
During 2016, we developed and delivered Reputational and ESE risk training to our commercial, private and business banking franchises. This training will better equip our staff to identify, assess and escalate customers and transactions with heightened reputational and ESE risk. Further training is planned for 2017.
Country Reputational Risk Framework
We have developed a country reputational risk rating model that assesses the reputational risk of RBS doing business in over 200 countries where our customers operate. The rating system takes into account political, bribery, corruption and money laundering risk, and the country’s human rights record.
The model is used in conjunction with our sector ESE risk policy positions, to help ensure risks of customers doing business in higher risk countries are managed.
Summary of ESE risk assessments in 2016
The graphs below show the number of corporate customers assessed against our ESE Policy in 2016.
The total number of customer ESE assessments undertaken in 2016 (212) remained broadly similar to 2015 (203). The 212 customer ESE assessments are represented in the above charts by sector and also by ESE risk category.
We also assessed 144 transactions involving defence goods, and 10 transactions involving goods destined for nuclear power plants (not shown in the above charts). By comparison, in 2015 we assessed 182 transactions involving defence goods hence there has been a 26% decrease.
98% of the customers and (defence and nuclear) transactions assessed in 2016 were from our European (primarily UK) and Middle Eastern offices compared to 71% in 2015, and 63% in 2014. This reflects the banks shift to a geographical focus on the UK and Western Europe.
In 2016, a total of 17 online gambling customers were also assessed under the ESE Policy. They have not been included in the above charts or commentary, as they follow a different internal review and approval process.