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ESE and reputational risk management

We recognise that 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 have an ESE risk framework comprising policies and processes to give us better insight into our customers’ activities and address issues of concern. The framework forms part of NatWest Group’s overall reputational risk policy and requires enhanced due diligence to be performed for certain customer relationships, transactions, activities, and projects. Risk officers and customer-facing colleagues receive regular training on ESE risks and procedures. Our policies reflect applicable national and international laws and confirm that we expect our customers to adhere to local and international environmental, social and human rights standards. The policies also incorporate a number of voluntary standards such as the Equator Principles (EP) and the UN Global Compact.

ESE sector risk acceptance criteria (RAC)

ESE sector risk acceptance criteria (RAC) apply to all legal entities within NatWest Group and define the level of ESE risk the bank is prepared to accept. This includes having relevant policies and procedures which demonstrate a good understanding of ESE issues and the capacity to manage these risks through good governance and control. As such, NatWest Group has developed RAC on nine sectors which present heightened ESE risk. The ESE risk concerns (PDF 139KB) process seeks to ensure that ESE risk is identified and managed for customers and transactions in sectors which are not covered by a sector RAC. Examples might include major or sustained environmental, human rights, modern slavery or social issue-related campaigns against a company in sectors such as agriculture/food, chemicals, tobacco, pharmaceuticals and waste management, or companies associated with controversial projects.

Our sector risk acceptance criteria can be found below:

Our oil and gas, power, and mining & metals sector RAC encompass the NatWest Group commitment to stop lending and underwriting to companies with >15% of activities related to thermal and lignite coal, and to major oil and gas producers unless they had a credible transition plan aligned with the 2015 Paris Agreement in place by the end of 2021.

Helping to end the most harmful activity

In 2021, we made additional enhancements to our power generation and mining and metals sector RAC which confirm that we will  have no new exposure to thermal and lignite coal (coal). We will plan to phase out of coal for UK and non-UK customers who have UK coal production, coal-fired generation, and coal related infrastructure by 1 October 2024, with a planned full global phase out by 1 January 2030. See our 2021 Climate-related Disclosures Report (PDF 13MB) for full details.

2021 Customer ESE risk assessments undertaken

The total number of customer ESE risk assessments undertaken in 2021 (305) increased by 118% compared to 2020 (140 as per 2021 reporting). The volume of ESE assessments completed in 2020 was lower due to the COVID-19 pandemic impacting the volume of new business customers. The increased volume of ESE risk assessments undertaken in 2021 reflects a gradual return to pre-pandemic levels of new business referrals, combined with an increased volume of existing customers being reassessed for ESE risk in alignment with the NWG ESE risk framework. Customer ESE assessments are represented in the above charts by sector and also by ESE Risk Category. 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 also assessed 108 trade-related transactions in 2021 that involved defence equipment, representing a 20% increase from 2020 (90 defence equipment trade transactions assessed).