Our discussion started off looking at NatWest’s financed emissions, as many banks do not disclose fully their exposure to high emitting greenhouse gas sectors.
NatWest highlighted their Scope 3 financed emission calculations in their last climate-related disclosures.
They mentioned that oil & gas lending makes up 0.7% of the bank’s overall lending. NatWest also analyse oil & gas companies to assess whether they have a credible transition plan in line with the Paris Agreement. We were told this would further limit their lending to the sector by £500mm.
As can be seen from the table above, mortgages make up the majority of NatWest’s lending. The targets on this part of the book are that 50% of the mortgage book should have an EPC rating of C or higher by 2030. This is currently at 38%.
In August 2021, NatWest launched their green re-mortgage product to complement the existing green mortgage purchase product, which went live in October 2020. Retail banking green mortgage products offer a lower interest rate for customers purchasing, porting or re-mortgaging a property with an EPC rating of A or B, rewarding them for choosing an energy efficient home. Retail banking completed green mortgages with a value of £728 million during 2021.
Sustainable Financing: In October 2021, NatWest Group announced a target to provide an additional £100 billion of climate and sustainable funding and financing between 1 July 2021 and the end of 2025. We highlighted in our engagement that as an overall part of their lending exposure this was relatively small:
NatWest pointed out the initial targets had been much lower i.e. £10bn rising to £20bn in 2020 and that in response to the success and demand seen by this initiative they had the confidence to increase the total amount of climate and sustainable lending over 4.5 years to £100bn. It will be interesting to see how the take-up of loans here has continued in our next meeting.
As a follow up we asked for case studies on their green and social bonds, which are provided here: gss-bonds-allocation-and-impact-report-2021.pdf (natwestgroup.com)
NatWest talked about their Enterprise Hub targets already met:
NatWest Group supported c.54,500 businesses through enterprise programmes with c.200,000 customer interactions focused on supporting businesses to start, run and grow. Support was distributed: 79% to UK regions outside London and the Southeast; 60% to females; 26% to Black, Asian and Minority Ethnic individuals; and 52% to people intending to create purpose-led businesses.
Coutts, part of the NatWest Group, collaborated with BGF Group (BGF) to launch the UK Enterprise Fund in 2021 and provide additional growth funding and support to SMEs across the UK. The fund is co-investing equity growth capital alongside BGF, taking minority stakes in businesses looking to scale in the UK, with initiatives to support female entrepreneurship and promote the diversity of management teams. In 2021, over 100 clients invested a combined £42 million and Coutts and BGF intend to launch a further fund in 2022.
NatWest noted the carbon tracking feature, developed in collaboration with CoGo to enable personal customers to track their estimated carbon footprint as they spend within their mobile app. This went live in November 2021 and means they are now providing to customers the estimated carbon footprint of their monthly spend. As a result, eight million customers now have the option to see their carbon footprint within their NatWest, Royal Bank of Scotland or Ulster Bank Northern Ireland banking apps. NatWest claim that they are the first bank in Europe to introduce features that will help customers analyse their spend and associated carbon footprint, and understand the impacts of their spending on the environment and ultimately help them spend in a way which reduces their carbon footprint.
Diversity: NatWest acknowledged they were not where they wanted to be on gender pay gap. The 2021 mean gender pay gap for NatWest Bank is 30.1% (median: 34.2%) and the mean gender bonus gap is 26.0% (median: 12.5%). They mentioned they had set targets which are as follows: a target to have full gender balance in their CEO-3 and above global roles by 2030. At 31 December 2021, they had, on aggregate, 38% women in their top three layers, a decline of 1% since 31 December 2020. While representing an increase of 9% since targets were introduced in 2015, they know they have more to do and they continue to focus on the recruitment, retention and advancement of women to meet their 2030 target.
Introduced in 2018, their ethnicity target is to have 14% Black, Asian and Minority Ethnic colleagues in their top four layers (CEO-4 and above) in the UK by 2025. At 31 December 2021, of 86% of colleagues who disclosed their ethnicity in the top four layers in the UK, they have on aggregate 11% Black, Asian and Minority Ethnic colleagues. This represents a 3% increase since targets were introduced.
We asked if executive pay was linked to ESG metrics and the proposed structure voted on in the 2022 AGM is as follows:
Annual bonus assessed based on a weighted scorecard of strategic measures, as set out below. A risk modifier will also apply, enabling risk performance to be assessed and awards reduced, potentially to zero.
Purpose, Culture and People
Enterprise and Capability
As regards reporting, NatWest do not yet report EU Taxonomy alignment and were waiting on further clarity on the UK Taxonomy reporting requirements. TCFD reporting was included in their Climate Related Disclosures report and provided a good summary of the risks they foresee, both physical and financial, from accelerating climate change.
Employees: As regards educating and enabling their employees, training was provided for 494 leaders across 2020 and 2021 through the Cambridge Institute of Sustainable Leadership (CISL) with an average module completion rate of 74%. The programme aims to enhance leaders’ knowledge and skills to help realise NatWest Group’s climate ambition, the financial service industry, and the wider economy.
Customers: We asked what social payback NatWest does via community outreach/charitable giving and we were given the following examples: “In 2021, we continued to work with organisations such as ‘GamCare’ and the ‘Money Advice Trust’ to improve the support available to customers in vulnerable situations, connecting them to expert advice where appropriate. We also significantly expanded our referral programme with Citizens Advice, connecting customers to their advisers where we identify additional advice or vulnerability needs. In February 2021, with the domestic abuse charity SafeLives, we launched The Circle Fund. The Circle Fund, available for three years, supports SafeLives to provide small grants to help economic abuse victims and survivors to regain financial confidence and control. This follows from our announcement to donate £1 million for the fund in 2020.”
We came away impressed with the progress that NatWest has already made on climate change. As part of her introduction in the ARA 2021, Alison Rose CEO is quoted as saying:
“One key area where our bank has a critical role to play is in helping to tackle climate change. It is the biggest challenge we face as a society, requiring collaboration and co-operation on a global scale, and NatWest Group was proud to sponsor the COP26 global climate conference which took place in Glasgow in October/November 2021.
Our industry has a responsibility to drive and influence positive change. As such, NatWest Group is committed to getting its own house in order, bringing to an end the most harmful activity and providing the support, advice and products our customers need in order to accelerate the transition to a net-zero economy.
Close to 40% of our accelerator hubs are dedicated to supporting sustainable businesses to help our most innovative start-ups to take advantage of this opportunity. There is a clear societal responsibility here, but also an obvious commercial imperative in helping our customers to thrive as we transition to net zero.”
Follow ups for us will be
- Progress on narrowing their gender pay gap and promoting/hiring more senior women as well as meeting their ethnicity targets.
- Progress on meeting (and exceeding) the £100bn earmarked for climate and sustainable lending.
- The reduction in Scope 3 emissions and improvement in data quality reported across all 15 Scope 3 categories.
- Implementing UK taxonomy reporting and improvements in their TCFD reporting.
- Tracking their progress on charitable and educational programmes for the societies in which they operate, particularly Use of Proceeds on their social bonds and developments in their affordable housing projects.
Emerging market CoCos: Keep calm
US and EU ‘IRA’: made in China?
Outlook 2023: Environmental solutions are crossing a watershed
Rethinking fixed income: two top bond managers debate the path ahead
Webcast: The death of the inflation cycle may be exaggerated
The value of active minds: independent thinking