Supporting our customers, colleagues and communities throughout the UK and Ireland 22
The Strategic Report for the year ended 31 December 2020 set out on pages 4 to 83 was approved by the Board of directors on 19 February 2021.
Climate-related disclosures report Details our progress in 2020 on our climate ambitions including an overview of our approach to climate related strategy, scenario analysis, risk management and metrics.
Pillar 3 report Focuses on our regulatory reporting requirements and provides an explanation of our risk profile, including our capital adequacy, risk appetite and risk management.
Governance and remuneration report A detailed review of our corporate governance and remuneration, including the Report of the directors and annual report on remuneration.
Financial statements Our financial statements and related notes, including the independent auditor's report.
We are closely connected to our 19 million customers across the UK and Ireland; through a comprehensive range of banking and financial services, and a strong local and regional footprint. This connection to customers and communities builds our trust and knowledge; enabling us to support our customers effectively, throughout their lives as their financial needs and priorities evolve.
We champion their potential, by helping to identify and break down the barriers they may be facing. During this period of economic uncertainty and disruption, we have stepped up to support our customers in faster, more personal and digitally-enabled ways. Guided by our purpose and strategy, we have the proven intent and means to deepen our customer relationships, grow our business, balance the needs of all our stakeholders, and drive long-term, sustainable returns for our shareholders.
We will deliver these priorities from a strong balance sheet and capital generative businesses, which give us the necessary flexibility to navigate an uncertain outlook, to support our customers, and deliver sustainable returns to shareholders.
Our Purpose We champion potential, helping people, families and businesses to thrive
ERS DOING THE RIGHT THINGNatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we.
Our Purpose where we can make a meaningful contribution to our customers, colleagues and communities.
Areas of Focus There are three focus areas of Our Purpose where we can make a meaningful contribution to our customers, colleagues and communities.
Total income decreased by £3,457 million, or 24.3%, compared with 2019. Excluding notable items (2020 – £(384) million; 2019 – £2,115 million) income decreased by £958 million, or 7.9%, due to reductions across the retail and commercial businesses, partially offset by higher NatWest Markets income reflecting increased customer activity as the market reacted to the spread of the COVID-19 virus.
Operating expenses excluding litigation and conduct costs, strategic costs and operating lease depreciation (2020 - £1,271 million; 2019 - £2,414 million), decreased by £277 million, ahead of our £250 million target for the year, reflecting the continued transition from physical to digital, the optimisation of our property footprint, lower investment spend and reductions in NatWest Markets.
Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance in a challenging operating environment. The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers. We have today announced our intention to pay a final dividend whilst reaffirming our commitment to regular capital returns for shareholders in the future.
The past year presented some extraordinary challenges for our customers, colleagues and communities. We provided exceptional levels of support to those who needed it, including the approval of over £14 billion of lending under UK Government schemes, demonstrating that we have truly put Our Purpose at the heart of this business. Being purpose-led isn’t just the right thing to do, it has a powerful commercial imperative and is fundamental to building sustainable value in our business.
£277m reduction in operating expenses, against a target of £250 million in 2020.
2019: £310m 2018: £278m 9,000 interactions per week by the end of 2020 compared with less than 100 at the start of the year.
The COVID-19 pandemic has significantly increased the pace of digital adoption, providing the platform for income growth across all channels.
Engaging our colleagues is critical to delivering Our Purpose. By championing the potential of our colleagues we are better placed to help people, families and businesses to thrive.
NatWest and and Royal Bank of Scotland improved, but targets missed by 1 point and 17 points respectively.
£328.8bn of net lending in our retail and commercial businesses, an increase of £20.9 billion.
2019: £307.9bn 2018: £296.7bn £31.5bn gross new mortgage lending in Retail Banking, a flow share of 13.0%, up from 12.4% in 2019.
S tra te g ic R e p o rt 2020 highlights and progress
Effective oversight is especially critical at times like these. At NatWest Group, we quickly established a rhythm of weekly, virtual Board meetings to receive updates from the management team on our response to COVID-19 and how the implementation of Our Purpose was helping to meet the needs of customers.
As a Board, we spent a considerable amount of time working to support Alison and her leadership team in the development of the new purpose for NatWest Group that was set out in February last year. Ultimately, however, we will be judged on our actions, not our words. And all of our leaders have measurable objectives specifically mapped to our three key areas of focus.
By embedding Our Purpose at the core of our business, we have signalled our intent to deliver not only a sustainable financial performance for shareholders but to make a positive contribution to society.
2020 was a year like no other. Politicians, regulators and industry leaders around the globe had to come together and find urgent solutions to a series of rapidly evolving public health and socio-economic challenges.
We have signalled our intent to deliver not only a sustainable financial performance for shareholders but to make a positive contribution to society.
Customers have seen no change to our products and services as a result of our name change and continue to be served through the brands they recognise, including NatWest in England and Wales, Royal Bank of Scotland in Scotland and Ulster Bank in Ireland. And while what we are called is important, it is how we do business that will define us.
These measures were generally welcome and necessary and there has been positive progress in developing and rolling out vaccines. But a return to anything approaching normality will take some time and be very different to what went before.
Financial performance It is always disappointing to report a loss, even if our performance in 2020 was largely a reflection of the impact that COVID-19 had on our customers and the economy and the fact that we took a large provision under IFRS9 to cover potential future loan losses as the full impact of the pandemic becomes clearer. We also saw a significant decline in share prices across the UK banking sector, including our own. Again, this was to be expected given the prevailing economic conditions and there was a degree of positive momentum towards the end of the year as a Brexit deal was reached and a vaccination programme put in place.
In December 2020, the PRA made the welcome announcement that it was lifting the restrictions on capital returns, subject to certain sensible guardrails. Following
The persistently low interest rate environment and ongoing COVID-19 restrictions will continue to challenge financial performance amongst all UK banks for the foreseeable future. However, despite the tough operating environment, the bank is making good progress against its strategy. We continued to grow in key areas of focus and our strong levels of capital and liquidity mean we are well positioned to navigate the ongoing uncertainty.
Improving the quality and frequency of engagement with all our stakeholders, including our shareholders, remains a priority for the Board. During the course of last year we held virtual events for retail shareholders and Board sessions with institutional shareholders. A number of Board members also met colleagues in Colleague Advisory Panel meetings, chaired by Board Member, Lena Wilson, to hear their views directly.
Published in 2019, the Rose Review, led by our CEO Alison Rose, demonstrated that removing these barriers could add £250 billion to the UK economy.
We have over 600 Women in Business Specialists throughout the UK and are committed to using our expertise to support women to start up and grow their businesses. In 2020 we announced £1 billion of Female Entrepreneurship Funding, all of this funding has been allocated and we recently announced a further £1 billion in funding.
Since 2018, 43% of entrepreneurs on our free NatWest Accelerator programme have identified as female, and we have teamed up with Be The Business to pilot the Rose Review Female Entrepreneurs Mentoring Programme, a free mentoring service for female entrepreneurs in Leeds and the West of England, with plans to expand in 2021.
In response to COVID-19 we pivoted Dream Bigger, our fully-funded programme focused on developing transferable entrepreneurial skills in 16-18 year old females across the UK, to digital delivery. In 2020, the programme supported over 15,000 16-18 year old female entrepreneurs, working with Microsoft, Facebook and Young Enterprise Scotland.
In our Experts in Residence partnership with 38 Local Enterprise Partnerships (LEPs), a NatWest expert spends up to 7 hours per week supporting female and diverse business owners. The programme sees us work alongside partners such as Amazon, Facebook, Microsoft and LinkedIn, with activity tailored to the needs of each LEP.
Throughout the course of the year, we responded at pace, providing exceptional levels of support to those who needed it and demonstrating that we have truly put Our Purpose at the heart of this business. In the face of such trying circumstances, I am proud of the resilience, empathy and kindness exhibited by so many of my colleagues across the bank.
We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities up and down the country can rebuild and thrive.
Our attributable loss of £753 million for 2020 reflects an impairment charge of £3.2 billion, a significant proportion of this impairment charge relates to potential future loan losses under IFRS 9. We continue to experience relatively
low levels of actual default in our lending book, which is well diversified with limited exposure to unsecured loans. Before impairments, NatWest Group made an operating profit of £2.9 billion.
We have significant capacity to grow, with activity levels increasing across both our retail and commercial businesses. Net lending grew 7% in 2020, while our gross new mortgage lending represented a share of around 13%, taking our stock share to almost 11%.
Championing potential through COVID-19 Colleagues The safety and wellbeing of our colleagues has been, and remains, a priority for the bank throughout the pandemic. We introduced resources to maintain and enhance the physical and mental health of our colleagues, providing access to virtual GPs, the SilverCloud wellbeing platform and free physiotherapy advice. For almost 10,000 keyworker colleagues who have remained on the frontline, all of our offices and branches were made COVID-secure. Around 50,000 colleagues have been working from home since March last year, supported by the delivery of 37,000 tech bundles and over 25,000 chairs and desks. The timing of a phased return to our offices will be led by UK Government guidance and factors such as the progress of vaccinations.
In total, we approved around £14 billion of loans for business customers under the different government schemes in 2020 and provided 258,000 mortgage holidays. We delivered £5.0 million of cash securely to our customers in vulnerable situations and made almost 480,000 calls to check up on them, whilst also introducing a Companion Card that allowed trusted volunteers to pay for their essential goods.
Thanks to the extraordinary dedication of our colleagues, we have remained on the high street, supporting our customers and consistently keeping more than 95% of our branches open.
As we responded to COVID-19, we also migrated our enterprise support initiatives to be delivered digitally. Our 12 entrepreneur accelerator hubs held over 1,000 virtual events with 45,782 attendees since the start of lockdown.
The bank also raised £10 million by match-funding customer donations to the National Emergencies Trust and established a £5 million fund with the Prince’s Trust to help young entrepreneurs during the crisis. Working with SafeLives, we launched a review into how we can better support customers who have been victims of economic abuse and acquired coercive debt and announced a £1 million fund to support survivors of economic and domestic abuse.
By removing barriers, building financial capability, championing equality and helping to tackle climate change, we are determined to pave the way for a better future.
At the start of last year, we also created a £1 billion fund aligned to our focus on supporting female entrepreneurs. During the course of 2020, all of this fund was allocated, leading us to announce an additional £1 billion in funding to help support female-led businesses recover from the disruption caused by coronavirus.
We also launched Island Saver, the world’s first financial education mobile, console and PC game for children. With more than 2.3 million downloads, it has helped us to engage children from a young age in the importance of managing their money.
There is much more we can do, both to get our own house in order and to help our customers in the transition to a low-carbon economy. We have set ourselves the ambitious goals of at least halving the climate impact of our financing by 2030 and making our own operations climate positive by 2025, having made them net carbon zero in 2020.
As a founding signatory to the UN Principles for Responsible Banking we are committed to aligning our strategy with the 2015 Paris Agreement and UN Sustainable Development Goals.
In 2020, we helped our business customers with £12 billion of new climate and sustainable financing and funding. We also launched our first ever Green Mortgage in October 2020 and are supporting the drive to decarbonise the UK transportation sector through the Future Mobility Group.
Our strategy NatWest Group will be a relationship bank for a digital world. Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through our four strategic priorities.
Powered by innovation and partnerships We invest around £1 billion each year to continuously improve our customers’ experience by harnessing our internal expertise and partnering with some of the most innovative companies from around the world. We have already created a strong culture of innovation with the
Note: (1) Includes instances where customers had existing savings with other banks and transferred them into their NatWest Group account.
Simple to deal with We are becoming much simpler as a bank and much simpler to deal with for our customers. As part of our One Bank operating model, we are creating key Centres of Excellence in areas such as climate change, fraud and financial crime which bring together the expertise of colleagues from across NatWest Group for the benefit of our customers. By reducing complexity and improving efficiency, we continue to take costs out of our operating model, delivering £277 million of cost reductions in 2020, against our £250 million target.
Sharpened capital allocation Our capital is a resource to be used across the bank, to drive growth and optimise returns from a safe and secure base. A crucial element of this plan is refocusing NatWest Markets to serve our corporate and commercial customers better. Risk weighted assets in NatWest Markets reduced by £11 billion to £26.9 billion in 2020, exceeding our target for 2020, with a further reduction to £20 billion planned for the medium term. NatWest Markets is far more closely aligned to the rest of NatWest Group and its market-leading role in providing customers with access to COVID-19 Corporate Financing Facilities and to environmental, social and governance (ESG) finance are further examples of the strength of this franchise.
Ulster Bank RoI In recent years, our strategy for Ulster Bank in the Republic of Ireland has been to improve returns by growing the business, reducing costs and resolving legacy issues. I want to pay tribute to our colleagues who through their commitment and dedication have helped to transform this business. Our priority over the coming months will remain on supporting our customers, communities and colleagues through these difficult times.
Overview Overall, we delivered well against our strategy throughout 2020. Looking ahead, we have set a number of financial targets across a three year plan to 2023; to deliver lending growth above market rate, to reduce costs by around 4% each year and to operate with a CET1 capital ratio of 13% to 14% by 2023. Taken together, our four strategic priorities will drive sustainable, long-term returns to our shareholders and we are targeting a return on tangible equity of 9% to 10% by 2023.
An additional priority throughout the year was to put in place a leadership structure to deliver our strategy. As a result, I made a number of important external appointments including David Lindberg as CEO, Retail Banking, Jen Tippin as Chief Transformation Officer, Nigel Prideaux as Chief Communications Officer and Marg Jobling as Chief Marketing Officer. Each brings considerable experience and expertise to their respective roles and we are already working closely together. Some of my former colleagues, including our CEO of Retail Banking, Les Matheson, left the bank to pursue opportunities elsewhere. I would like to thank them for their invaluable contributions over many years and wish them all the best for the future.
This built on the targets we put in place in 2018 to increase the number of colleagues from Black, Asian and Minority Ethnic backgrounds in our top four UK leadership layers in the bank to 14% by 2025. We currently have 10% Black, Asian and Minority Ethnic representation amongst our UK senior leaders, a 2% increase since the targets were introduced. Under our new commitments, we have launched a separate goal to have 3% Black colleagues in senior UK roles by 2025.
A sustainable future Our robust balance sheet and sector-leading capital strength, underpinned by a resilient business with strong capacity for growth, gives us the flexibility to navigate the uncertain outlook, support our customers and deliver sustainable returns to shareholders.
But we can only deliver these returns through our strong culture and values, with purpose at our core. We have passionate, motivated and engaged colleagues, despite all the challenges of COVID-19 and with most people working from home for a considerable period of time: 95% of colleagues think we’re doing a good job responding to the pandemic and 92% are proud of our contribution to community and society. These numbers mean a lot to me. They give me confidence that we are building a sustainable future for this bank.
And by championing potential and helping people, families and businesses to rebuild and thrive, we will succeed together.
As we emerge from the COVID-19 pandemic and continue to support customers, colleagues and communities to rebuild, our key areas of focus will remain unchanged: removing barriers to enterprise; building financial confidence and playing a leading role in helping to tackle climate change.
We have put a common set of values at the heart of how we conduct ourselves in the delivery of Our Purpose-led strategy and strategic priorities. Our values are not new, but capture what we do when we are at our best: In shaping Our Purpose-led strategy, we worked closely with A Blueprint for Better Business – an independent charity which aims to create a better society through better business.
We know we succeed only when our customers and communities succeed.
Enterprise Removing barriers to enterprise Help create an additional 50,000 new businesses by 2023, inspiring and supporting >500k people female-led
Climate Leading the climate challenge the climate impact of our financial activity by 2030
Halve £20bn + additional funding and financing for climate and sustainable finance by 2021
Cost reduction of: £185-£195bn Risk Weighted Assets: ROTE: CET1 ratio: (medium – long term) (2020)
NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we.
NatWest Group is a relationship bank for a digital world. We will be guided by Our Purpose in all of our customer and colleague interactions and in how we execute our strategy. We believe we can make the most impact for our customers, our communities and our economy by driving forward Our Purpose agenda within our three areas of focus; Climate, Enterprise and Learning.
Through simplification and driving efficiency, we will be much simpler as a bank and much simpler to deal with for our customers, improving both customer experiences and colleague engagement. We will focus on great customer service technology and improving customer journeys.
We continually optimise our regulatory capital. And we manage our portfolios and use synthetic trades to reduce capital consumption, manage risk and drive sustainable returns. This includes refocusing NatWest Markets to support our commercial business better and a phased withdrawal from the Republic of Ireland.
Priorities delivered through: n Sustainable growth with an intelligent approach to risk n Simplification and cost efficiency n Portfolio discipline and effective deployment of capital
We launched our new strategy in 2020 to deliver on Our Purpose and drive sustainable returns to shareholders through our four strategic priorities. In 2021, we will continue to build on these foundations as we drive forward our One Bank transformation agenda.
Whilst our strategy remains unchanged we have updated our targets. These targets will help us assess our progress against our strategic priorities.
Notes: (1) Total expenses excluding litigation and conduct costs, strategic costs, operating lease depreciation and the impact of the phased withdrawal from the Republic of Ireland.
Supporting customers at every stage of their lives 480,000 customers in vulnerable situations contacted to check on their welfare.
£170.3bn Total risk-weighted assets below our 2020 targeted range of £185-£195 billion.
Return on tangible equity. Target of a 9-11% return on tangible equity in the medium-long term.
Sharpened capital allocation The approach to allocating our capital will be refined and standardised. We will decide the markets we want to serve and what products we want to offer, based on how we can best support our customers. The significant reduction of RWAs in NatWest Markets and the decision to make a phased withdrawal from the Republic of Ireland represent two significant examples of this.
Note: (1) Total operating expenses excluding litigation and conduct costs, strategic costs and operating lease depreciation.
Stop lending and underwriting to companies with >15% of activities related to coal (2, 3) and to all major oil and gas producers, unless they have a credible transition plan.(2)
Our Purpose is to champion potential, helping people, families and businesses to thrive. By breaking down barriers, smashing glass ceilings, pushing for equality and fighting for the planet, we are going to pave the way for a better future. We currently have three areas of focus: to remove barriers to enterprise, build financial confidence and help to tackle climate change.
Our areas of focus contribute to UN Sustainable Development Goals (SDGs): Notes: (1) Percentage of aggregate UK and RoI mortgage exposure.
Zero Achieved Net Zero Carbon on our own direct operations and remain committed to making them Climate Positive by 2025.
72% of 60,788 people inspired and supported were based outside London and the South East, slightly below our target of 75%.
98% of frontline colleagues professionally qualified/ accredited within first 18 months in role.
COP26 NatWest Group is principal banking partner for this year’s COP26 summit, a clear demonstration tackling climate change is at the core of Our Purpose.
£23bn NatWest Markets has helped our clients issue 36 green bonds totalling £23 billion to support their environmental activities . (4)
A- We achieved a score of A- in the 2020 CDP Climate Change Survey, one of the strongest scores amongst our peers.
£1bn We supported female entrepreneurs in 2020 by creating a £1 billion fund, which has been fully deployed. We have added a further £1 billion to the fund in 2021.
2.3m downloads of Island Saver, our first ever educational video game teaching children money management skills.
Award NatWest Group became the first UK bank awarded Corporate Chartered status by the Chartered Banker Institute.
760 Over 760 interns, graduates and apprentices hired during 2020 and a commitment made to hire a further 1,000 by the end of 2021.
258,000 mortgage repayment holidays and payment holidays on over 74,000 business customer accounts.
480,000 customers in vulnerable situations, contacted to check on their welfare.
50,000 Home working quickly made available to over 50,000 colleagues, with 37,000 technology bundles delivered to colleagues’ homes.
GP Access to virtual GP and SilverCloud wellbeing platform for all colleagues.
1 million Edinburgh head office turned into a charity distribution hub helping Social Bite, Trussell Trust and Cyrenians to produce over 1 million meals for those in need since the start of March.
There are challenging times ahead as the longer-term impacts of the pandemic become clear. NatWest Group is here to provide help and support to those who need it as we adapt to dramatic changes in the way we live and the way we work.
To support customers of all ages, we held further Facebook Live events with Friends Against Scams talking about the latest coronavirus scams and how customers can protect themselves, together with events to explain ways to bank at home. These events helped our customers bank digitally with confidence and stay safe during lockdown.
COVID-19 has had global ramifications on health, economies, societies and the environment. The pandemic has put Our Purpose-led strategy into action, as we supported individuals, families and businesses to deal with the immediate and longer-term impacts. We responded quickly to the elevated credit risks via active portfolio management including adjustment of risk appetite, proactive customer contact strategies and scenario analysis. Our participation in government initiatives supported customers during the crisis and included the Bounce Back Loan Scheme which could increase conduct, reputational and fraud risks. High uncertainty remains on the ultimate impact of the pandemic and across the economic landscape, and strategy is being adapted in response. ‘Build Back Better’ became the call from the UN and we support a focus on opportunities unlocked by the transition to a low carbon economy, progress on racial inequality, helping communities to thrive, as well as greater alignment with UN Sustainable Development Goals.
Considerations with the potential to influence our ability to serve customers and create value for the long term.
The economic environment in 2020 became and remains unusually uncertain as the COVID-19 crisis delivered an unprecedented shock to the UK and global economy. Support schemes for furloughed workers and government backed loans for businesses supported the economy as priorities were placed on public health, capacity of the NHS, and social distancing restrictions until the roll out of a vaccine. Significant risks remain regarding the extent of the economic contraction and weaker than expected recovery from COVID-19, elevated geopolitical risks and developments in relation to a Scottish independence referendum. In the longer term, demographic change, high levels of debt and inequality could all have financial impacts. As a result, we closely monitor these risks with strategic plans adapted as appropriate.
Unemployment rose to its highest level since 2016 during 2020. Government support schemes were successful in limiting a more material impact on the labour market, while government-backed lending schemes provided liquidity across the SME and corporate sectors. We are the biggest supporter of UK businesses and Enterprise is one of our three areas of focus. We acted to support businesses throughout COVID-19 and continued to address barriers for start-ups in underrepresented groups including supporting female entrepreneurship, Black, Asian and Minority Ethnic businesses, areas outside of London and socially purposeful businesses in the drive toward a low carbon economy.
We operate in markets that are highly competitive raising the threat of a sustained loss of business volumes or sustained margin pressure related to changes in regulation, developments in financial technology (including digital money and competition from digital niche competitors) and major shifts in customer behaviour. We closely monitor the competitive environment and adapt strategy as appropriate to deliver innovative and compelling propositions for customers. The roll out of Tyl and the launch of Payit were significant milestones in the evolution of our competitive offering.
Building and nurturing a healthy culture where colleagues are engaged, and where our working environment is underpinned by robust risk behaviours, is critical to delivering on our purpose and strategy. In 2020 we supported colleagues as they transitioned to new ways of working, focusing on wellbeing while continuing to build an
inclusive bank which is a great place for all colleagues to work. Becoming a learning organisation sits within one of our three areas of focus as we prepare colleagues for the future and embed Our Purpose.
As members of (UNEP FI) United Nations Environment Programme Finance Initiative we were proud to become a founding signatory to the UN Principles for Responsible Banking (PRB) in September 2019. We are committed to an ongoing process to align our strategy with the UN Sustainable Development Goals and the 2015 Paris Agreement and we are embedding the six principles across our business. Our first self-assessment reporting will be available in our ESG supplement expected to be published in March 2021.
This work builds on the progress we have made over the past five years to create a more inclusive and diverse culture, whilst recognising we still have more to do.
Our central economic forecasts, as detailed on pages 173175 in the 2020 Annual Report and Accounts, support our corporate plan, and are in line with the consensus view. The rollout of COVID-19 vaccines enables recovery through 2021, with GDP growth of around 4.5% expected, gradually moderating thereafter. Interest rates are expected to remain low throughout the forecast horizon, with an anticipated reduction in the central bank rate to zero in the second quarter of 2021. The unemployment rate reaches around 7% before beginning to steadily reduce from 2022, supported by the ongoing recovery. A decline in house prices in the low-single digits is forecast for 2021 before improving steadily.
The short and medium term outlook continues to be subject to significant uncertainty and we will continue to actively monitor and react to market conditions and refine our internal forecasts as the economic position evolves.
We expect NatWest Group RWAs, including Ulster Bank RoI, to be in the range of £185-195 billion, when including on a proforma basis the impact of Bank of England’s mortgage risk weight changes and other model changes introduced on 1 January 2022. The impact of the mortgage regulatory changes is expected to be around £12 billion, subject to the timing and quantum of any procyclicality before implementation and based on the current book size and weighting. The £12 billion equates to an anticipated book risk weight of 15% which is subject to change. In 2021 we also expect to achieve the majority of the remaining NatWest Markets RWA reduction towards the medium term target of £20 billion, but expect minimal reduction in RWAs in Ulster Bank RoI in 2021 as a result of the completion of the strategic review announced today. Other changes in RWAs will be driven by the level of procyclical inflation driven by the economic outlook, downgrades in the credit quality and assessments in the commercial book and ongoing demand for lending from our customers.
NatWest Group capital and funding plans focus on issuing £3-5 billion of MREL-compliant instruments, with a continued focus on issuance under our Green, Social and Sustainability Bond Framework, around £1.0 billion of AT1 and around £2.0 billion of Tier 2 instruments. As in prior years, we will continue to target other funding sources to diversify our funding structure.
NatWest Group capital distributions Subject to economic conditions being in line with, or better than, our central economic forecast, NatWest Group intends to maintain ordinary dividends of around 40% of attributable profit and aims to distribute a minimum of £800 million per annum from 2021 to 2023 via a combination of ordinary and special dividends. NatWest Group intends to maintain the required capacity to participate in directed buybacks of the UK Government stake and recognises that any exercise of this authority would be dependent upon HMT’s intentions and is limited to 4.99% of issued share capital in any 12 month period.
Note: (1) The guidance, targets, expectations and trends discussed in this section represent NatWest Group plc management’s current expectations and are subject to change, including as a result of the factors described in the “Risk Factors” section on pages 345 to 362 of the NatWest Group plc 2020 Annual Report and Accounts and on pages 156 to 172 of the NatWest Markets Plc 2020 Annual Report and Accounts These statements constitute forward-looking statements. Refer to Forward-looking statements in this document.
NatWest Group works with SafeLives, the UK-wide charity dedicated to ending domestic abuse, for everyone and for good.
In 2020, NatWest Group launched a review into how it can better support customers who have been victims of economic abuse and acquired coercive debt and announced a £1 million fund to support survivors of economic and domestic abuse, the first bank in the UK to offer this amount of financial support. The review, conducted in conjunction with SafeLives, will look at internal processes, as well as preventive solutions and practical support available for customers affected.
This new NatWest Group fund will be open to victims of economic and domestic abuse across the UK and will increase access to tools, support and financial assistance. SafeLives and NatWest Group will work together with survivors and specialist domestic abuse services to co-create the programme, making sure the lived experience of survivors influences its design, so it meets people’s needs and helps build financial confidence and independence.
Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through four strategic priorities. These are: supporting customers at every stage of their lives; being simple to deal with; powered by innovation and partnerships, and; sharpened capital allocation (refer to pages 4 to 7 for more information).
We support the financial lives of our customers and drive economic growth through our well-known brands. We provide a comprehensive range of banking and financial services to personal, business and commercial customers via our franchises. Examples include current and savings accounts, credit cards, mortgages and investments for our personal customers; to banking, lending, project finance, risk management and trading solutions for our large commercial customers.
We work with a diverse range of partners to help shape our business strategy and deliver positive outcomes for customers and society. This includes our supply chain, communities, academia, regulators, expert advisors, consumer groups and charities, as well as strategic partners. We are also members of, or signatories to, a large number of organisations, trade bodies and frameworks that help us create long-term value and balance the interests of stakeholders.
We make appropriate use of shareholder capital and other forms of financial capital, including £431.7 billion in customer deposits.
Our relationships with all stakeholder groups help to shape and support our strategy and operations. This includes our shareholders and regulators, suppliers, consumer and campaign groups, local communities and more.
Customer infrastructure includes online and mobile banking, video banking, our High Street branches, Post Office branches, intermediary channels, contact centres, telephony, webchat and cash management services, as well as self-service options such as ATMs and Cash Deposit Machines. We also depend on our property and technology infrastructure, and that of our supply chain, to run the bank’s systems and operations.
Since we brought our Entrepreneur Accelerator network in-house in 2018, a minimum of 2,416 jobs have been created by businesses supported through the Accelerator programme. 1,004 of these jobs were created in 2020. (*)
In January 2020 we launched our £1 billion funding for Female Entrepreneurs; as a result we lent over £1 billion to female entrepreneurs, which included support through the government loans schemes.
NatWest Group has been announced as principal banking partner of COP26.
Publication of an interim impact report (Jul-20), detailing that proceeds from the €750 million social bond (Nov-19), created an estimated 6,900 jobs in some of the most deprived parts of the UK.
Malwarebytes, a security tool made available via our Online Banking platform, has been downloaded over 145,000 times.
We have 9.4 million active digital customers. 7.7 million actively use our mobile app and 4.7 million use our online banking platform.
Our colleagues and customers raised £10 million for the National Emergency Trust’s (NET) Coronavirus Appeal.
We supported the DEC Coronavirus Appeal, raising £387,954. Our colleagues volunteered 13,599 hours. Good causes received over £3.2 million through colleague generosity.
Helped 258,000 customers with mortgage payment holidays during the coronavirus pandemic.
Our new Green Mortgage helps customers purchase more energy efficient homes by lowering their interest rate costs, rewarding them for playing their part in the fight against climate change and supporting 50% of our mortgage book to become Energy Performance Certificate (EPC) C or above by 2030.
Taking action on the risks and opportunities climate change presents to us and our customers
(1) For more information about Blueprint for Better Business refer to page 17. (2) Includes instances where customers had existing savings with other banks and transferred them in to their NatWest Group account. (3) As at 31 December 2020, includes all global permanent employees. (4) Comprises £113 million corporate tax, £498 million irrecoverable VAT, £177 million bank levies, £269 million employer payroll taxes and £87 million other taxes. (*) Within the scope of EY assurance. Refer to page 66.
We are a relationship bank for an increasingly digital world. We champion potential so the people, families and businesses we serve can thrive. We will break down barriers, build financial confidence, and help to tackle climate change.
Our Purpose-led strategy has been developed using the five principles of the Blueprint for Better Business (1), considering the needs of all stakeholders in the way we operate. In addition, we are members of the UN Global Compact and founding signatories of the UN Principles for Responsible Banking, committing to an ongoing process to align our strategy with the 2015 Paris Agreement and the UN Sustainable Development Goals. Examples of how we create value include: Supporting enterprise
Our areas of focus For more information refer to pages 20 and 21.
We are one of the largest banks operating in the local and institutional banking sectors in the Channel Islands, Isle of Man and Gibraltar. We serve international customers with a UK connection through our International Banking proposition. It also has wholesale branches and fund depositary services businesses in the UK and Luxembourg to further serve our institutional clients and protect investors.
We help NatWest Group’s corporate and institutional customers manage their financial risks safely and achieve their short-term and long-term sustainable financial goals. We think and act as one bank for our customers, collaborating with teams across the NatWest Group to be the partner of choice for our customers and their financial markets needs. By focusing on the things we do best and that matter most to our customers, we help champion potential.
Supporting our areas of focus: • Learning: Our Community Bankers led financial education online during the pandemic, offering free weekly Facebook events including; ‘MoneySense Mondays’ for young people, and ‘Ways to Bank Wednesdays’ to help promote digital banking.
We conducted over 945,000 Financial Health Checks to improve customers’ financial capability. Additionally, our Know My Credit Score tool in the mobile app, helped 3.1 million customers understand their credit score and how they can improve it. This practical support enabled 600,000(2) customers to start saving with us this year.
• Climate: Our Purpose-led response to climate change remains a priority and we have committed to ensuring 50% of our UK and RoI customers’ homes are at or above EPC or equivalent rating C by 2030. We launched an online ‘Go Green’ Hub in July 2020 to help customers reduce their environmental impact and we announced a ground breaking agreement with innovative technology and sustainability company CoGo, to help customers track and reduce their carbon footprint, a UK first.
We’re focused on offering customers the best digital experience combined with seamless access to our highly professional and engaged colleagues. We’ve invested in our digital capability, extending our video banking service and introducing a range of new features on our mobile app to help customers improve their financial capability. We’ve progressed on our climate commitments and put in place a comprehensive package of measures to support customers in financial difficulty.
(1) Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on full year 2019 operating profit would have been to decrease total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.
Despite challenging operating conditions including impairment losses of £792 million, we delivered an operating profit of £849 million, down 0.7% compared to 2019. Other expenses of £2,295 million were 4.5% lower than in 2019. Gross new mortgage lending was £31.5 billion in 2020, providing a new business share of 13% supporting overall net lending growth of 8.4% and mortgage stock share of 10.9%.
More of our customers are accessing our services digitally – which is now more important than ever.
Throughout 2020 we have demonstrated the depth of our commitment to customers, colleagues and communities affected by COVID-19. This support included putting in place mortgage payment breaks for over 12,400 customers, dedicated phonelines and branch opening hours for frontline workers and elderly customers, increased payment and ATM limits and a new companion card for our customers in a vulnerable situation due to COVID-19 and their trusted carers.
We continued to re-shape our business and adapt to shifts in our operating environment. During 2020 we accelerated our digital capabilities to support increased customer demand for digital services. This included launching our new Video Banker service for personal customers and a new end-to-end digital onboarding and lending platform for business customers, including end-to-end digital lending up to €50,000 and the ability to apply online up to €500,000.
Supporting our areas of focus: • Learning: We enhanced our focus on protecting customers from frauds and scams, raising awareness through a nationwide radio and social media campaign, supported by a series of virtual Friends against Scams events and free anti-malware software for customers. We also continued to support the financial capability of our customers through the launch of our new Home Saver regular savings account, helping savers on their journey to home ownership, and education initiatives such as MoneySense.
We also recognise our role in helping local communities and have adapted our annual staff fundraising campaigns, including ‘Do Good Feel Good’ and other community support initiatives, for the unique challenges of 2020, raising over €70,000 for a wide range of charities across the Republic of Ireland.
This year it took place virtually, with an overwhelming energy and commitment from participants across the world. 50 hackers tuned in from Ireland, the UK, the US and from as far away as India, and took part in 11 teams along with 17 mentors, five industry Pitch Judges, and five Technical Judges. Teams accelerated their ideas with additional resources including Ulster Bank’s API Sandbox and Microsoft’s Power Platform, plus had first-hand access to a global network of mentors from a range of talented entrepreneurs and business people.
The Ulster Bank Hackathon has a reputation for creating an exciting, disruptive, safe space for some of the best minds to come together and test their ideas using technology they wouldn’t otherwise have access to. The teams focused on financial confidence, climate and smart data, all with the same end goal in mind – how can we change things for our customers for the better?
Our Entrepreneur Accelerators pivoted to a digital model, delivering over 10,000 bespoke coaching sessions as well as hosting 1,016 digital events reaching 45,782 attendees. In September 2020 we were endorsed by the Scale Up Institute and named as the ‘UK’s leading accelerator’ by Beauhurst.
Since the beginning of the pandemic we have run 1,016 virtual events, with 45,782 attendees. By moving our Accelerator Programme from face-to-face to digital delivery, we continued to support our entrepreneurs at a time when they need us most.
To support SMEs and entrepreneurs nationwide, we launched the ‘In Conversation With’ series. Available to both customers and non-customers alike, the series gives the UK’s six million SMEs an opportunity to hear directly from some of the most influential voices in industry. We hope the inspiration provided by these experts, alongside our full range of support, will help SMEs and entrepreneurs to survive, thrive and prosper in the wake of the unique challenges of 2020.
Note: (1) By total number of attendances, Beauhurst – September 2020.
We reacted quickly in the early stages of the COVID-19 crisis, supporting our most affected clients through the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and by approving over £0.3 billion in UK Government scheme lending in 2020. Targeted training ensured appropriate steps were taken to meet regulatory standards whilst enabling us to continue to meet client needs.
Operating profit of £208 million was 37.5% lower than in 2019, primarily reflecting the low interest rate environment and impairment losses of £100 million. Net loans to customers increased by £1.5 billion, or 9.7%, and customer deposits increased by £3.8 billion, or 13.3%, compared to 2019. AUMAs increased by £1.7 billion, or 5.6%, reflecting positive investment performance of £0.9 billion and net new money inflows of £0.8 billion, which were impacted by EEA resident client outflows following the UK’s exit from the EU.
(2) Comparisons with prior periods are impacted by the transfer of the Private Client Advice business from Retail Banking from 1 January 2020. The net impact on full year 2019 operating profit would have been to increase total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to increase customer deposits by £0.2 billion. Variances in the financial commentary have been adjusted for the impact of this transfer.
29%(3) average reduction in the carbon intensity of equity in our Asset Management business.
A sustainable and responsible approach to investing is important because it can build a better world – and who doesn’t want that?
In our first annual sustainability report Coutts show how we invest with purpose and integrity, and with a keen focus on sustainability. Coutts do it a little differently to many other investment houses. Others tackle it by providing one ethical investment product, but Coutts embed this thinking across our entire investment process and offering for all our clients. So those who invest with Coutts choose to fight against climate change, promote diversity and establish good working conditions for all. And crucially, it doesn’t cost our clients a penny.
Coutts either improved or sustained our scores across all categories relative to 2019. Our Strategy and Governance score of A+ is the highest rating possible, higher than the industry median rating of A. This category rates an organisation's overarching approach to responsible investment and incorporation of ESG issues into its asset allocation, recognising the action Coutts are taking to create a better future.
Operating profit of £99 million was 71.2% lower than 2019 primarily due to the impact of interest rate reductions on deposit income, lower fee income and increased impairment losses reflecting the economic response to COVID-19. Net loans to customers decreased by £0.8 billion, or 5.7%, as Institutional Banking customers repaid facilities to position themselves in the uncertain environment.
68% Local Banking customers now registered with digital banking, +8 percentage points on 2019.
By supporting the expansion of accessible and affordable housing on the island, we are demonstrating our commitment to championing the potential of Jersey residents. We know that increasing residents’ opportunities to have a place of their own to call home will help to build an even stronger and more empowered island community.
Significant progress has been made in reshaping the business for the future and advancing our transformation to deliver the refocused business announced in February 2020. By accelerating this transformation we’re becoming a more integrated and sustainable part of NatWest Group, focusing on what we do best and what matters to our customers. RWAs have reduced and the business is ahead of its plan to achieve the medium-term reduction to £20 billion.
We simplified our product offering and in the second quarter of 2020 we entered into an agreement with BNP Paribas for the provision of ‘house’ Futures and associated back office services. We have consolidated certain customer coverage, services and functional teams with their counterparts in NatWest Group, enhancing our collaborative approach to customers.
In support of our Climate focus area we have continued to play a leading role in the development of the sustainable finance market through 2020. We supported Cadent Gas on the UK’s first ever transition bond as bookrunners for the deal, supporting the UK’s transition towards a low carbon economy.
• #1 lead manager for sustainability-labelled debt for UK corporates (2) (Dealogic, full year 2020)
• Most Accurate UK Economy Forecaster of 2019 – Ross Walker (Consensus Economics, awarded May 2020)
An operating loss of £227 million compared with a £25 million operating loss in 2019, mainly reflecting the £444 million Alawwal bank merger gain in 2019 and £48 million higher disposal losses in 2020, partially offset by stronger business performance in the current year from increased customer activity as the market reacted to the spread of the COVID-19 virus. RWAs decreased by £11.0 billion to £26.9 billion as the business exceeded its target for RWA reductions over the course of 2020.
(1) The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment.
We are committed to tackling climate change, which is a core part of Our Purpose-led strategy and seek opportunities to demonstrate our leadership and contribution to a cleaner energy future.
In 2020, NatWest Group acted as a lead arranger for the financing of the first two phases of Dogger Bank Wind Farm. Upon completion of all three phases in 2026, Dogger Bank Wind Farm will be the largest offshore windfarm in the world. The project is being developed by SSE, a leading developer, owner and operator of renewable energy across the UK and Ireland together with Norwegian firm Equinor, a leading energy provider, with each holding a 50% stake.
Located over 130km off the north east coast of England, by 2026 Dogger Bank Wind Farm will support 320 new skilled jobs and produce enough electricity to supply 5% of the UK's demand - equivalent to powering six million UK homes each year. NatWest Group acted as a lead arranger of the transaction for the financing of the first two phases, comprising 29 banks and three export credit agencies providing £5.5 billion of financing facilities, making this the largest offshore wind project financing to date, globally.
(1) Source: Inframation Deals (Acuris). Based on the aggregated totals for the United Kingdom for the 10 year period 03/12/2010-03/12/2020.
Listening, engaging and partnering with stakeholders helps us to address our business impacts and improve outcomes for customers, society and the environment.
We pivoted our operations at pace in response to COVID-19, reacting quickly to support our customers’ financial health.
We engaged with our customers face-to-face through our branch network, mobile branches, community bankers and business growth enablers. We also engaged digitally through webchats, Bankline, video banking, secure messaging and social media, in addition to telephony. We have prioritised providing a personal service to customers through these challenging times and ensured that customers were able to tell us about their experience by providing feedback through our customer surveys, including our Net Promoter Score survey framework, as well as syndicated surveys and customer listening focus groups for senior leadership. Our closed loop feedback and complaints system allowed us to identify and resolve issues quickly.
Colleagues Our colleagues, who create and deliver products and services and are the face of our brands.
We placed colleague wellbeing firmly at the centre of our COVID-19 response.
The Our View opinion survey provided colleagues an opportunity to have their say on how it feels to work at NatWest Group and to shape the actions we take to champion potential. During the pandemic we ran additional COVID-19 pulse surveys to understand how colleagues were feeling and what more we could do to support them. Amidst the global events of 2020, we conducted our first survey on race, diversity and inclusion, to inform our approach in creating a truly inclusive organisation. The Colleague Advisory Panel allowed the Board to hear directly from colleagues on key issues, while Employee Led Networks continued to influence how NatWest Group is becoming more inclusive and accessible. Important conversations continued with our employee representatives, such as trade unions and work councils.
We worked with community partners and charities to support our local communities, helping the most vulnerable in society.
Our investors take an interest in our success and sustainability, and we updated them regularly on business performance.
We engaged with our retail shareholders through our Annual General Meeting, virtual shareholder events, and our Annual and Strategic Report communications. We interacted with institutional investors through quarterly results presentations, 1:1 and group meetings, including sessions with the Board, regular engagement with UK Government Investments and presentations at sector conferences. We engaged with socially responsible investors through an active programme of meetings with ESG analysts from institutional investors, presentations at ESG-focused conferences and enhanced engagement with sustainability rating agencies.
Regulators Our regulators, who oversee our activities and undertake consultations and policy reform.
We continued to prioritise an open and continuous dialogue with our regulators.
We organised regular review meetings with key suppliers and regularly conducted supplier policy compliance reviews.
Our approach to stakeholder engagement in 2020 was significantly influenced by the COVID-19 pandemic. The table below sets out our key stakeholder groups, together with illustrative examples of how we engaged with them (both formally and informally), what we discussed and related outcomes, including where further information can be found. On our website we publish an extended version of this table which includes more details on our engagement activity with consumer groups, journalists, social media influencers, politicians, governments and other agencies, NGOs, academics and think tanks. Our 2020 ESG supplement, which is expected to be published in March 2021, includes a selection of stakeholder engagement case studies. Our section 172(1) statement on pages 48 to 52 sets out how stakeholder interests have influenced Board discussions and decision-making.
• Set up dedicated telephone lines for over-70s and NHS workers. • Helped 258,000 customers secure a mortgage repayment holiday. • Implemented Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme and waived fees. • Removed the minimum monthly fee on our business accounts.
• Support for colleagues and their families through COVID-19. • Wellbeing of customers, colleagues and communities. • Becoming an inclusive organisation. • Living Our Purpose.
• Our Edinburgh head office was turned into a charity distribution hub. • Over £3.2 million was raised for charity and 13,599 hours volunteered during worktime. • Facilitated customer donations of £2.1 million through our Reward Account. • Over £10 million was raised for the National Emergency Trust’s (NET) Coronavirus Appeal through colleagues and customer donations and matching from the bank.
Further information: • How We Create Value, pages 30 and 31.
• Supporting our customers, colleagues and communities, page 22. • Climate-related financial disclosures, pages 69 to 83. • 2020 ESG supplement expected to be published in March 2021.
• Due to COVID-19, the 2020 AGM was attended by only the shareholders required to form a quorum. Shareholders were able to vote and submit questions in advance of the AGM. Positive feedback was received on three virtual shareholder events held in 2020.
• Mainstream investors received strategic and financial updates to enable them to make their investment decisions. The Board received feedback from investors on performance and strategy.
• Brexit. • ESG issues. • Operational resilience. • Access to cash. • Consumer credit.
• Engaged with regulators during the policy proposal phase on a number of occasions to help inform priorities – examples included climate change and operational resilience, both of which are being considered in new ways.
• Innovation. • Prompt payment. • Being simpler to do business with.
• Embedded a new supplier management system, simplifying how we engage with our supply chain.
This section of the Strategic Report describes how the directors have had regard to the matters set out in section 172(1) (a) to (f), and forms the directors’ statement required under section 414CZA, of the Companies Act 2006.
Various steps were taken during the year to embed our purpose in Board discussions and decision-making, helping the Board to ensure different stakeholder needs were considered. The roles and responsibilities of the Board and its Committees were enhanced to ensure a strong focus on our purpose was built into their respective Terms of Reference. Board and Board Committee papers now include a dedicated section which explains how the proposal or update aligns to our purpose, which is complemented by a section detailing stakeholder impacts. These features, embedded within our Board paper format, help to ensure that our purpose and stakeholders remain firmly at the centre of Board discussions, and underpin the Board’s oversight of NatWest Group’s progress and performance as a purpose-led organisation. During the 2020 Board evaluation, directors commented positively on how our purpose guided Board discussions and decisionmaking during the pandemic.
Customers During the year, the Board received regular updates on customer issues through reports from the Group CEO and business CEOs. Customer lifecycles were a key area of focus during Board and Group Executive Committee (ExCo) strategy discussions. Directors also received targeted management information on progress against customer service metrics including customer advocacy measures and complaints data. A dedicated Board session on customer experience helped to enhance directors’ customer insights further. This session covered NatWest Group's Net Promoter and CMA scores and directors provided input and feedback on management's plans to enhance customer experience outcomes. Directors were also regularly updated on the nature and extent of COVID-19 support provided to customers.
NatWest Group plc recognises the importance of engaging with stakeholders and understanding their views, to help inform its strategy and Board discussions and decision-making.
Relevant stakeholder interests, including those of colleagues, customers, suppliers and others are considered by the Board during its discussions and when it takes decisions. We define principal decisions as those that are material, or of strategic importance to the company, and also those that are significant to NatWest Group’s key stakeholder groups as set out on pages 46 to 47.
In making its decisions, the Board considers the outcomes of relevant stakeholder engagement, as well as the need to maintain a reputation for high standards of business conduct, the need to act fairly between the members of the company and the long-term consequences of its decisions.
The case studies included in this statement (refer to pages 51 and 52) provide examples of how stakeholder interests and the factors set out in section 172(1) of the Companies Act 2006 have been considered in Board discussions and principal decision-making during 2020.
Our stakeholders members unconnected with existing groups. It continues to provide a valuable mechanism for colleagues to gain a greater understanding of the Board’s role and provide feedback to directors. Two-way communication is crucial for both colleagues and directors and embodies our open and inclusive culture. The CAP met four times in 2020 and all meetings were virtual. In addition to two scheduled sessions, there were two ad-hoc sessions which supported additional listening and discussion with directors in light of the challenges related to COVID-19.
Topics discussed in 2020 in addition to COVID-19 colleague and customer support included embedding purpose, diversity and inclusion, innovation, executive pay and sustainable banking.
Our culture The Board assesses and monitors NatWest Group’s culture in several ways. In February 2020, representatives from the Banking Standards Board (BSB) joined a Board meeting to present the results of their 2019 industry-wide survey and thematic reports, together with their 2019 Assessment report on NatWest Group. The Board also discussed an internal review of the BSB’s thematic reports on “Technology & Culture” and “Decision-Making” from a NatWest Group perspective, including impacts for customers and employees.
In December 2020, as part of a spotlight on colleagues, the Board received an update on future ways of working and how this might evolve in a way that is consistent with our purpose and strategy; continues to support colleagues; drives greater collaboration; and supports the long-term sustainability of NatWest Group.
July Board CAP Chair presented a formal written report to the Board and Directors discussed the Panel's views.
Directors welcomed CAP feedback on COVID-19 colleague support and said CAP views on colleagues' return to the office would be useful in future.
Future CAP meetings: CAP views on returning to the office to be considered in future agenda planning.
Topic discussion: Alison Rose facilitated a broad-ranging discussion to check in on COVID-19 colleague support. Panel members expressed positive feedback on provision of working from home support and pace of its delivery; and highlighted particular challenges for front-line staff with caring responsibilities.
remuneration policy and updated the Board on those discussions. Further details on remuneration engagement can be found in the Directors’ remuneration report on pages 119 to 146.
We also continued to hold online retail shareholder events, where shareholders could ask questions submitted in advance or live on the day of a panel of executives and non-executive directors and learn more about the business, our progress to date and our plans for the future. In addition to the virtual event held following the AGM we held two more online events during 2020. The first took place in July 2020, hosted by the Group CEO and covered our response to the COVID-19 pandemic and the launch of our purpose.
Throughout the year, the Chairman provided regular updates to the Board on shareholder engagement and the Board also received regular updates on investor feedback from the Group CEO, Group CFO and Investor Relations at Board meetings and strategy sessions.
Combined, these activities helped to ensure that the Board as a whole maintained a clear understanding of the views of all shareholders, and that directors continued to have regard to the need to act fairly as between members of the company in performing their duties, as required by section 172(1).
The Chairman and executive directors have regular meetings with the PRA and FCA. In addition, individual non-executive directors engage with our regulators through Continuous Assessment and Proactive Engagement meetings. The Board also receives reports on regulatory matters from the Chief Legal Officer and General Counsel.
In advance of the announcement, the Board considered both the rationale for changing the name as well as the potential impact of the name change for key stakeholder groups, particularly colleagues, customers and investors.
The Board noted that changing the parent company name and brand would help remove the negative impact the RBS brand has had on the performance of our customer brands following the financial crisis of 2008. The Board acknowledged the potential long-term commercial benefits from doing this and, in particular, that it would allow us to move on from our legacy issues and focus on our customers and continuing to improve the products and services we offer them.
The Board also considered the costs of changing the name and introducing the new NatWest Group brand as well as the impact on technology and systems, property, legal documents and agreements and company documentation.
After careful consideration and taking into account their duties under section 172(1), the Board approved the change of name in principle and the communication and engagement plans were put into action. A number of directors, including the Chairman and Group CEO, were directly involved in engaging with stakeholders following the announcement and the Board was subsequently updated on the response to the announcement including media coverage and colleague reaction. The project team then undertook an extensive programme of work to prepare for the legal change of name which was formally approved by the Board in July 2020 and subsequently implemented.
Our stakeholders noted the actions taken to support suppliers’ cashflow during 2020 (which consisted of moving all UK and Ireland supplier payments to immediate release).
The Board considered and approved NatWest Group’s 2019 Modern Slavery Act Statement, which sets out the steps that we are taking to tackle modern slavery and human trafficking within our business, supply chain and sphere of influence.
As set out in the Group Sustainable Banking Committee report on pages 116 and 117, the Committee has spent time focussed on climate and NatWest Group's climate ambition. As part of these discussions, the Committee also received external insights from the Green Finance Institute which provided an overview of the relevant science, climate modelling and the case to de-carbonise.
The launch of the Taskforce was reported to the Board, which was keen to be kept informed of the Taskforce’s progress. The Board received regular updates from the Group CEO covering various aspects of the Taskforce’s work including the allcolleague listening survey, colleague communications and executive management’s engagement with the Taskforce as it worked to finalise its recommendations. The Group CEO also facilitated a discussion at the June 2020 meeting of the CAP on NatWest Group’s response to Black Lives Matter and the work of the Taskforce, the outputs of which were reported back to the Board in July 2020.
Refer to page 27 for further information on the Taskforce’s report.
We are a relationship bank for a digital world. Our customers come to us to support their dayto -day banking needs and to help them plan for bigger financial moments.
At NatWest Group, championing the potential of the people, families and businesses we support is at the heart of everything we do. Through our branch network and digital channels, we support the financial health and capability of 19 million customers in every nation and region of the UK and Ireland. And as a champion of UK business, we support 1 in 4 UK businesses. From start-ups to multi-nationals, we have the knowledge, skills and capabilities to support business customers at every stage of their journey.
Feedback from our customers played an invaluable role in shaping our response to COVID-19 in 2020: • We introduced a Companion Card and set up dedicated telephony lines for over-70s and NHS workers.
• We also introduced Financial Health Checks targeted at helping customers through the coronavirus crisis.
Active listening and research is helping us to bring forward the right propositions to support our customers at every stage of their lives. For example, because we know that more of our customers than ever before are renting, in 2020 we developed the Housemate app to help people in rented accommodation manage shared bills, build their credit score and build tenancy trust.
Simplifying the customer experience We know that we can do even more to deepen the relationships we have with our customers. This starts with us being as simple as possible for our customers to deal with. Under the leadership of Jen Tippin, who joined NatWest Group in 2020 as Chief Transformation Officer, we are putting the simplification of customer journeys at the heart of our transformation agenda.
Through data-led decision making, we are prioritising the journeys that will have the greatest impact on customer experience across the bank. As part of this work, we have put in place a robust measurement system to allow us to track progress against key goals; this includes improvements in customers’ feedback. Having listened to how customers feel about our core journeys, we have been working to: • Migrate our account onboarding system to one that allows a much faster time between application and the customer being able to use their account.
We are committed to finding innovative solutions that keep our customers safe and able to pay for the things they need, when they need them.
In 2020, we launched 'Banking My Way', a free service that allows customers who need additional support or adjustments to request bespoke assistance to make banking easier.
We share the information on our internal systems, so our customers don’t need to repeat requirements every time they interact with us. Since ‘Banking My Way’ was launched we have received instructions from over 40,000 customers.
We were the first UK bank to offer customers in vulnerable situations and those in extended isolation a fee-free cash delivery service to their door, with £5.0 million delivered to customers across the UK in 2020. Additionally, customers can request a ‘Get Cash’ code that enables a trusted third-party to make ATM withdrawals up to £100 on someone’s behalf from any NatWest, Royal Bank of Scotland or Ulster Bank ATM.
These innovations have been introduced in response to the coronavirus crisis to help our customers and enhance their ability to pay for essentials whilst protecting themselves.
Note: (1) Targets run Q3-Q3. NatWest Q3’20 = 67, against target of 68. Royal Bank Q3’20 = 40 against target of 57.
Sources: Retail Banking: Strategic NPS 12 month rolling data. Question: “How likely are you to recommend [main bank] to a relative, friend or colleague in the next 12 months?”. Latest base sizes: NatWest: 9,633; Royal Bank: 2,263. Coyne Research 12 month rolling data. Question: “Please indicate to what extent you would be likely to recommend (brand) to you friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely”. Latest base sizes: 456 Northern Ireland; 998 Republic of Ireland.
Commercial Banking: Savanta MarketVue Business Banking, YE Q4 2020. Based on interviews with businesses with an annual turnover over £2 million. Latest base sizes: 554 for NatWest (England & Wales), 92 for Royal Bank of Scotland (Scotland). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.
Our improved NPS scores in Retail Banking reflect the commitment we have shown to our customers during the COVID-19 pandemic and the positive feedback we have received from customers, especially those supported from our frontline during this difficult period. Our Business Banking customers have told us they have felt well supported during 2020 and have appreciated our regular communication, the availability of financial support and, importantly, keeping our day-to-day operations going. In Commercial Banking, both NatWest and Royal Bank of Scotland are the highest rated banks by NPS score in their respective markets.
Source: Operational NPS. Question: “Thinking about your recent experiences with [relationship manager name], how likely are you to recommend your relationship manager to a friend, family member or business associate?”. Latest base size: 573.
Source: Strategic NPS. Question: “Thinking about your recent experiences with NatWest’s Mobile App, how likely are you to recommend their Mobile App to a relative, friend or colleague in the next 12 months?”. Latest base size: 4,415.
As we accelerate our focus on delivering digital services for our customers, it is essential that we bring everyone with us on the journey. For example, maintaining Mobile NPS through a period of unprecedented adoption of our digital channels shows that we have successfully managed to keep new adopters comfortable with the channel by prioritising ease of use in our mobile app.
Just under 50,000 (78%) of our colleagues completed our most recent opinion survey. The results showed a further improvement in colleague sentiment and NatWest Group is now at or above the global financial services norms (GFSN) and global high performing norms (GHPN) across all comparable survey categories. This is our strongest position to date and reflects our purpose and values coming to life in our response to the pandemic. We deepened our dialogue with colleagues in 2020, running 'COVID-19' pulse surveys in May and July as well as increasing our dialogue with colleagues relating to equality and inclusion through our 'Supporting Black, Asian and Minority Ethnic' survey in June.
Speak-Up Colleagues can report concerns relating to wrong-doing or misconduct through Speak Up, our whistleblowing service. The service facilitates confidential and anonymous reporting, as well as monitoring of potential whistleblower detriment. When colleagues were asked if they feel safe to speak up 88% responded favourably, reflecting continued improvement in results for this question. In 2020, 441 cases were raised compared to 458 in 2019.
This clarity and certainty on how we pay is also helping to improve our colleague’s financial wellbeing, which is a core priority in our wellbeing plans. In the UK, our rates of pay continue to exceed the Living Wage foundation benchmarks and we ensure employees performing the same roles are paid fairly. We ensure colleagues have an awareness of the financial and economic factors affecting our performance through quarterly 'Results Explained' communications and Workplace Live events with our Group Chief Executive Officer and Group Chief Financial Officer. More information on our remuneration policies and employee share plans can be found in the 2020 Directors’ remuneration report.
We are focused on helping our colleagues develop the right skills, mindsets and behaviours for the future and in 2019 we were the first UK bank to launch a Data Academy, to nurture and grow data expertise, innovation and collaboration. In 2020, it was recognised externally as Best Development Programme at the Data IQ awards. With over 7,220 individuals enrolled and 188 colleagues having completed and graduated from their c.16 -week programmes.
Professional standards are important to us and we offer a wide range of learning to support professional development. We work closely with a wide range of professional bodies, government agencies and our peers to maintain and grow professional standards across the industry. We became the first bank to be awarded Corporate Chartered status by the Chartered Banker Institute in recognition of our continuing investment in professional development and our commitment to professional values and advocacy. Professional Career Development Programmes (PCDP) are funded by the apprenticeship levy and give our colleagues a great opportunity to learn practical skills that they can use in their current job and gain a professional qualification at the same time. Over 680 colleagues have completed or are currently undertaking a PCDP programme.
To keep NatWest Group safe and secure, everyone who works for us must complete mandatory learning on different parts of our policies – including anti-bribery and corruption, health and safety, and inclusion. Some colleagues also complete additional mandatory learning that’s related to either where they work or the job they do.
In early August 2020, we launched the NatWest Group Mobility Hub. The Hub is a key tool to support with redeploying colleagues and reskilling them for the future of work. The Hub offers support to build different skills, develop career plans and help colleagues move around internally or into opportunities outside the organisation.
e p o rt potential and manage their careers effectively. These initiatives support our commitment to building a more inclusive bank. In June 2020, we launched our first ever bankwide Junior Management Team designed to provide disruptive challenge and reverse mentoring to our Group Executive Committee. We identified a diverse group of twelve representatives through a robust assessment process and they attended their first Executive Committee session in early September 2020.
In October 2020 we welcomed 60 individuals into our Social Mobility Apprenticeship Programme, as part of our overall goal to deliver c.400 additional apprentice hires over three years. Candidates applied for apprentice positions in digital, data, technology or customer service in London, Manchester and Edinburgh.
Some of the practical tools we provided include; 24/7 access to a virtual GP, launching a range of new emotional wellbeing support programmes and a new mandatory online module to help colleagues understand and improve their resilience. Several campaigns during the year also allowed us to focus on physical health (menopause, reproductive health and male mental health) and a focus on wellbeing throughout the seasons as we approached winter for our colleagues in the northern hemisphere.
We continued to monitor the wellbeing of our colleagues throughout and our pulse surveys helped us understand the specific points of wellbeing impacting our colleagues. 90% of colleagues felt their line manager cared about their physical and mental health, and 45% of colleagues felt COVID-19 impacted their mental health. Our internal wellbeing index shows that we are 3% above other high performing companies and 9% above GFSN.
Note: References to “colleagues” in this Strategic Report, mean all members of our workforce (for example, contractors, agency workers).
• The mean gender pay gap for NatWest Bank is 30.2% (median: 34.3%) and the mean gender bonus gap is 26.9% (median: 16.7%). The statutory bonus gap calculated in line with regulation is the number including recognition vouchers (mean 50.2%; median 92.8%). This means that even colleagues who received a small recognition award – for example £10 – are included in the calculations. Most colleagues in our more junior jobs only receive fixed pay – a change made to provide more certainty over earnings; and this means that many colleagues included in the statutory bonus gap calculations only received a recognition award. We currently have a higher proportion of women in these roles. We therefore believe the figures excluding recognition vouchers 26.9% (median: 16.7%) are the most accurate reflection of our gender bonus gap today.
• Our targets are supported by our positive action approach, which is benchmarked externally, helping to ensure that our people policies and processes are inclusive and accessible – from how we attract and recruit, to how we reward and engage colleagues. We are confident this approach is the right one and through time, it will help us achieve a better balance of diversity throughout the organisation.
• We responded to the restrictions of the pandemic and provided development sessions online to continue to support the development and career progression of colleagues with disabilities by addressing common barriers they can face.
• We continue to demonstrate our social purpose, including being founding signatories to the Valuable 500 Pledge, the global movement putting disability on the business leadership agenda and we are ranked as Leader level in the UK Government’s Disability Confident Scheme.
• In 2018 we introduced a formal UK target to improve the representation of Black, Asian and Minority Ethnic colleagues in our top four UK leadership layers to at least 14% (in line with the working age UK Black, Asian and Minority Ethnic population identified by the Office for National Statistics) by 2025. In addition to this, as Black colleagues are under-represented in senior roles across the UK, in 2020 we introduced a new target to have 3% Black colleagues in our UK senior roles by 2025.
• We were confirmed as a Top Ten Outstanding Employer in Investing in Ethnicity & Race Awards and continued to report our progress to the UK Government's Race at Work Charter.
• Our LGBT+ agenda continues to deliver a better experience for our LGBT+ colleagues and customers, reflected within our policies and ways of working, across our locations globally. While reflecting local legislation and jurisdictional requirements, we are clear that LGBT+ colleagues and customers are welcome at NatWest Group and will be supported.
• We have standardised our policies globally, placing us ahead of industry norms in some countries where we operate.
• In 2020, we had to reimagine the way we show support for Pride. Many of our events moved online; this included a panel discussion on 'Pride is still a protest', attending digital prides around the country and running a social media campaign across our digital channels. We also lit up our offices in Pride colours and raised money for LGBT+ charities.
• We were confirmed as a Stonewall Global Top Employer in the 2020 Global Stonewall Index and we are a Founding Partner of the 2020 LGBT Awards.
• At NatWest Group, we are committed to ensuring that all colleagues are given full and fair consideration for employment and subsequent training, career development and promotion based on merit.
• We continue to support our strong Employee Led Networks that have c.23,000 members.
NatWest Group faces a range of financial and non-financial risks from both external and internal factors. To address these, it operates an enterprise-wide risk management framework centred around the embedding of a strong risk culture. The framework ensures tools are in place to identify and manage both internal and external threats. It is organised around the Group’s principal risks: Principal financial risks Principal non-financial risks
Risk appetite defines the levels of risk the Group is willing to take as part of its business activities. Risk appetite is set in line with the Group’s overall strategy and approved by the Board. This ensures that effective risk management is integrated into the day-to-day course of business activities including strategic planning.
There was also volatility in the financial markets and, at times, varying degrees of illiquidity as the effects of the pandemic began to emerge. This highlighted the importance of the Group’s prudent approach to market risk management, which is described in further detail on pages 229 to 239 of the 2020 Annual Report and Accounts. Overall, the traded market risk profile remained broadly unchanged in comparison with 2019, given ongoing derisking activities as part of the Group’s overall strategy. The non-traded market risk profile, however, remains heightened. Volatility across all asset classes during periods of the crisis affected credit spreads and as a result the liquidity portfolios held by Treasury.
The impact of the pandemic intensified the threat of disruption to the Group’s business model, particularly in accelerating trends in new technology and customer behaviour. While the Group’s digital channels continue to evolve, anticipating developments in this area and seeking to mitigate related risks remain central to the Group’s risk management practices.
Risk culture As part of its multi-year programme to enhance risk management capability at every level of the organisation, the Group continued to work towards embedding a generative risk culture across all three lines of defence. This supports intelligent risk-taking, better customer outcomes, stronger and more sustainable business as well as an improved cost base. While risk culture continued to improve in 2020, due to a number of factors – including the impact of COVID-19 – one area of the Group did not attain the desired “systematic” rating. As a result, the Group did not meet its risk culture target. Work will continue in 2021.
Climate risk During most of 2020, climate-related financial risk was classified as a top risk. However, during Q4, in recognition of its importance to core risk management, climate risk was elevated to a principal risk. For further information, refer to pages 242 and 243 of the Risk and Capital Management section of the 2020 Annual Report and Accounts.
LIBOR transition The Group is continuing its preparations for the transition from LIBOR to other interest-rate benchmarks by the end of 2021 and continues to work closely with regulators and industry bodies to manage the impact. Oversight of the Group-wide programme to prepare for the transition remains a priority along with activities across all three lines of defence to minimise risk and disruption to customers.
Risk-weighted assets (RWAs) RWAs reduced by £8.9 billion at 31 December 2020, ending the year at £170.3 billion (from £179.2 billion in 2019). This reduction mainly reflected de-risking activity in NatWest Markets together with a £1.9 billion decrease resulting from the COVID-19 amendment to the Capital Requirements Regulation and asset de-recognitions in Ulster Bank. The total also included a £1.2 billion increase relating to the acquisition of mortgages from Metro Bank plc.
Leverage ratios The CRR leverage ratio increased to 5.2% (2019 – 5.1%). The UK leverage ratio increased to 6.4% (2019 – 5.8%) due to a £3.3 billion increase in Tier 1 capital.
Liquidity and funding The liquidity portfolio increased by £63 billion to £262 billion. Primary liquidity increased by £45 billion to £170 billion. The increase in primary liquidity resulted mainly from increased customer surplus in NatWest Holdings together with smaller increases in other subsidiaries.
A continuous process is used to identify and manage the Group’s top and emerging risks. These are risks that could have a significant negative impact on the ability to operate or meet strategic objectives.
COVID-19 The COVID-19 pandemic has had a material adverse impact on NatWest Group and its customers. The Group responded quickly to the elevated credit risks through active portfolio management including adjustment of risk appetite, proactive customer contact strategies and scenario analysis. NatWest Group has participated in government initiatives to support customers during the crisis including the Bounce-Back Loan Scheme which could increase conduct, reputational and fraud risks. High uncertainty remains on the future evolution of the virus and the ultimate impact of the pandemic. While the strategy is being adapted in response, the COVID-19 crisis could impede the Group’s ability to meet its targets and deliver its purpose-led strategy.
NatWest Group expects to face significant risks in connection with climate change and the transition to a low carbon economy. These risks are subject to rapidly increasing prudential and regulatory, political and societal focus, both in the UK and internationally. Embedding climate risk into the Group’s risk framework and adapting NatWest Group’s operations and business strategy to address the risks is in line with the Purpose-led strategy.
NatWest Group operates in a highly regulated market. Regulations are constantly evolving and could adversely impact the Group including capital, liquidity and funding requirements, enhanced data privacy requirements and the management of financial crime. This includes the possibility of dividend suspensions or restrictions. The Group implements new regulatory requirements, where applicable, and incorporates the implications of related changes in its strategic and financial plans. This includes the transition from the use of interbank offer rates (IBORs), including LIBOR, to alternative risk-free rates. While a programme to manage the transition is underway, uncertainties around the transition represent a number of risks including elevated legal and conduct risks.
Operational risks arise from NatWest Group’s reliance on third party suppliers to provide a range of services including IT. The Group is diligent in its screening of suppliers to mitigate these risks with strict contractual obligations governing supplier relationships and activity.
NatWest Group continues to invest in IT infrastructure to prevent customer service disruption, which could result in reputational and regulatory damage. To mitigate these risks, a major investment programme has significantly improved the resilience of the systems and further progress is expected.
The Board has eleven directors comprising the Chairman, two executive directors and eight nonexecutive directors, one of whom is the Senior Independent Director. Biographies of the directors can be found on pages 97 and 98.
The Board is collectively responsible for promoting the long-term success of NatWest Group plc, driving both shareholder value and contribution to wider society. Its role is to provide leadership of NatWest Group plc within a framework of prudent and effective controls which enables risk to be assessed and managed.
In 2020, the Board and committee evaluation process was conducted by the Company Secretary.
Group Audit Committee Assists the Board in discharging its responsibilities for monitoring the quality of the financial disclosures of NatWest Group. Reviews the accounting policies, financial reporting and regulatory compliance practices of NatWest Group and its systems and standards of internal controls, as well as monitoring the work of internal audit and the external auditor.
Group Sustainable Banking Committee Supports the Board in overseeing, supporting and challenging actions being taken by management to run NatWest Group as a sustainable business, capable of generating long term value for its stakeholders.
Group Nominations and Governance Committee Assists the Board in the formal selection and appointment of directors. Reviews the structure, size and composition of the Board, and membership and chairmanship of Board committees. Also has responsibility for monitoring NatWest Group's governance arrangements in order to ensure best corporate governance standards and practices are upheld.
Group Executive Committee Supports the Group Chief Executive Officer (Group CEO) in managing NatWest Group's businesses. Considers strategic, financial, capital, risk and operational issues affecting NatWest Group.
Further information on non-financial and ESG matters can be found in the following places within our reporting suite
Assurance approach The scope of work performed by NatWest Group’s independent auditor Ernst & Young LLP (EY) as part of their review of other information included in the 2020 Annual Report and Accounts is described in the Independent auditor’s report to the members of NatWest Group plc on pages 249 to 258. In addition, NatWest Group plc appointed EY to provide limited independent assurance over selected ESG (including climate-related disclosures) content marked with (*) as at and for the year ended 31 December 2020.The assurance engagement was planned and performed in accordance with the International Standard for Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. A limited assurance opinion was issued and is available on NatWestGroup.com. This opinion includes details of the scope, respective responsibilities, work performed, limitations and conclusion.
Environment • Climate-related disclosures • Risk overview and Top and emerging risks • Climate-related risks • Risk factors
Governance • Section 172 (1) statement • Boardroom Inclusion Policy • Corporate Governance • Directors remuneration report • Report of the directors
Social matters • Our operating environment • Supporting our customer, colleagues and communities throughout the UK and Ireland through COVID-19 • Tax • Suppliers
We are actively monitoring developments inlcuding in relation to metrics. In 2020 our focus included the Sustainability Accounting Standards Board (SASB) standards, the Global Reporting Initiative (GRI) standards, the Task Force on Climaterelated Financial Disclosures (TCFD) and the World Economic Forum (WEF) International Business Council (IBC) metrics.
The Board also considered the impact of the COVID-19 pandemic in its assessment of the Group’s viability. This included a range of potential implications intensifying in severity across a number of internally-developed macroeconomic scenarios. Among these was the downside scenario used for expected credit loss modelling in H1 (published in the Group’s Interim Results on 30 July 2020. As a result of COVID-19, the regulatory stress tests normally carried out annually (for the Bank of England) and biennially (for the European Banking Authority) were suspended in 2020. However, the Group continuously refined and reviewed its internal scenarios as the impact of the pandemic evolved, including actual and potential effects on economic fundamentals. These scenarios were benchmarked against the Bank of England’s illustrative scenario.
Taking into account its current position, and the principal risks it faces, this statement must explain the Board’s assessment of the Group’s prospects over an appropriate period of time. It must also set out the Board’s conclusion on whether or not there is a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over that time horizon.
Applying the macro-scenarios to the Group’s earnings, capital, liquidity and funding positions did not result in a breach of any regulatory thresholds.
In particular, across the time-frame of the assessment and beyond, the consequences of the UK’s exit from the European Union remain difficult to predict. In an adverse scenario, any significant deterioration of the UK economic environment – combined with the already severe observable impacts of the pandemic – could amplify existing risks and adversely affect the Group’s profitability. The assessment also considered the effects of an intensifying competitive environment particularly in the context of the unprecedented disruption to underlying economic cycles due to COVID-19. The Group maintains a robust capital position and a strong balance sheet position. The suspension of dividends following discussions with the Bank of England and the Group’s principal shareholder, together with extended transitional relief under IFRS 9 and increased customer deposits, has resulted in the Group holding capital in excess of its forecasted position. Liquidity has also remained strong, providing additional stability as the Group faces into the uncertainties posed by the unprecedented events in the external environment.
Throughout the year, consideration was given to the likelihood of a catastrophic cyber-attack within the period of the assessment. While the Group operates a multilayered system of defences, there is a possibility that a successful cyber-attack could have a severe impact on operations. However, the evolving threat is continually monitored. The Group remains well-prepared and continues to invest in this area to ensure that it remains robustly protected.
• The Group’s strong liquidity position (LCR of 165% at 31 December 2020, liquidity headroom of £72.1 billion),
• Deposit growth during the year of £62.5 billion, and • The Group’s ECL reserve build in 2020 of £2.5 billion against future predicted default risk.
Based on the factors above, the current financial forecasts, the management of the Group’s principal risks, including mitigating actions, and the strength of its capital and liquidity positions, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities over the three-year period of the assessment.
NatWest Group publicly committed to support the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure (TCFD) recommendations in 2017. We are making progress on assessing climate-related risks and opportunities, establishing governance and risk management processes, as well as developing metrics and targets. This section includes a summary of our climate-related disclosures. Refer to the 2020 Climate-related disclosures report for disclosures intended to align with the TCFD recommendations.
We recognise that climate change is a global issue which has significant implications for our customers, employees, suppliers, partners, investors and therefore NatWest Group itself. In February 2020, we announced our ambition to be a leading bank in the UK and RoI helping to address the climate challenge; by making our own operations Climate Positive by 2025, and by driving material reductions in the climate impact of our financing activity.
This section includes progress made during 2020 on each key area within our climate ambition. Refer to the 2020 Climate-related disclosures report for further details on our climate ambition.
1. Accelerating the speed of transition to a low carbon economy
We have identified several potential climate-related opportunities over the short, medium and long term relating to the transition to a low carbon economy. The table below includes examples of the initiatives we worked on in 2020, to test and explore the potential of these opportunities to support our customers.
Since launch, we have received 1,229 mortgage applications with the value of £315 million.
Go Green Hub All customers Launched in July 2020, the Go Green Hub aims to motivate customers to make behavioural changes – through providing educational and thought leadership content as well as simple and accessible tools and resources to help customers better understand their own environmental impact. In addition, it signposts solutions, products and services to help customers manage and reduce their environmental impact.
Coutts Asset Management – Target to reduce the level of carbon intensity for the equity component of their funds and portfolios by 25% by end of 2021
In addition, Coutts Asset Management has divested from high-impact fossil fuels in its Coutts funds managed by BlackRock. The Coutts funds exclude any companies that derive more than 5% revenue from thermal coal extraction, Arctic oil and gas exploration and tar sands, and more than 25% of revenue from thermal coal energy generation.
e p o rt 1. Accelerating the speed of transition to a low carbon economy continued
In February 2021, NatWest Group launched a partnership with Octopus Energy, the UK's fastest growing energy technology company, to help make it simple for customers and colleagues to move to electric vehicles (EVs).
The partnership promotes infrastructure delivery by providing a single managed solution covering preferential pricing and encompassing full range of solutions from simple consumer installation to multi-site with solar panels, battery storage and green energy provision. The combination of NatWest Group's financing and Octopus’ energy innovation will help all our customers decarbonise their transport.
Benefits of electric transition were highlighted as part of NatWest Group’s colleague company car scheme resulting in 66% of new vehicles being wholly powered by battery; considerably ahead of the wider market.
Corporate From January 2021, new minimum standards have been introduced in commercial real estate lending appetite for residential new build lending, which requires properties to achieve a minimum EPC rating of B.
In addition, standard lending terms for commercial real estate now include our preference for green leases to be used by commercial landlords. Green leases are a mechanism for landlords and tenants to agree to work together to improve the sustainability of a building. Green leases will encourage better alignment of key stakeholders involved in the commercial real estate sector, which we see as an important step in moving towards net zero buildings.
NatWest Markets shared insights with customers and market participants, including rating agencies, regulators, corporates, investors and industry experts to address specific challenges in respect of climate change and related financing.
We plan to stop lending and underwriting to companies with more than 15% of activities related to thermal and lignite coal; unless they have a credible transition plan in line with the 2015 Paris Agreement in place by end of 2021. We plan a full phase-out from coal by 2030.
Also, to stop lending and underwriting to major oil and gas producers unless they have a credible transition plan aligned with the 2015 Paris Agreement in place by the end of 2021.
Oil and gas gross lending exposure has reduced by £0.8 billion during 2020 (December 2020 £4.1 billion; December 2019 £4.9 billion). Large corporate customers with gross lending exposure of £2 billion at December 2020 have been identified as requiring Paris aligned and Credible Transition Plans (CTP) by the end of 2021. This includes oil and gas majors and also customers engaged in coal (thermal and lignite) related to mining, power generation and trading activities.
During 2020 we have worked with an external expert to define a methodology for CTP assessment. The methodology comprises: a) quantitative assessment using the climate scenario temperature alignment model to evaluate whether companies transition plans and resulting projections for Scope 1, 2 and 3 emissions are consistent with temperature scenarios that are aligned to the goals of the 2015 Paris Agreement. b) qualitative assessment of the credibility of customers’ transition plans through use of a questionnaire and scorecard to be filled in by relationship managers through public data and discussions with customers.
A proof of concept was completed for two customers and customer facing teams are being trained to carry out CTP assessments. We expect to complete our review of in scope customers by the end of 2021.
Climate and Sustainable Funding and Financing: Additional £20 billion climate and sustainable funding and financing between 2020-2021.
During the year, £12 billion climate and sustainable funding and financing has been completed. The £12 billion comprises £7.2 billion in NatWest Markets, £3.9 billion in Commercial Banking, £0.8 billion in RBS International and £0.1 billion in other segments. We expect to exceed our £20 billion target during 2021.
Climate considerations were included in Senior Executive remuneration for the year 2020 and have been updated for 2021. Refer to the Governance and remuneration report for further details.
NatWest Group was the first major UK bank to join Partnership for Carbon Accounting Financials (PCAF). NatWest Group joined Science Based Targets initiative (SBTi) following the launch of the Financial Sector Science- based Targets Guidance in 2020.
We will integrate the financial and non-financial risks arising from climate change into our EWRMF.
During 2020, work has continued to integrate climate risk within the Enterprise Wide Risk Management Framework (EWRMF).
As part of the Environmental, Social and Ethical framework, coal lending thresholds for the mining and metals, and power generation sectors were reduced from 40% to 15%. In addition, prohibitions on project financing for new exploration in the oil and gas sector, including fracking were put in place.
NatWest Group achieved Net Zero Carbon across our own operations in 2020 (1). We achieved this through a combination of emissions reductions, in line with our 1.5-degree science-based target commitment, alongside offsetting residual Scope 1, 2 and 3 emissions through the purchase of internationally recognised TIST Carbon Credits. In recognition of the exceptional circumstances in 2020, we have also offset all emissions from home working. We plan to achieve Climate Positive by continuing to reduce emissions 25% by 2025 against a 2019 baseline, while maintaining carbon offsetting at 2019 residual levels.
Use only renewable electricity in our direct global operations by 2025 (RE100)
Going forward, and in order to reach our target of 100% global renewable electricity by 2025, we will work with our principal landlords to advocate for renewable electricity provision for all properties, where possible.
Install electric vehicle charging infrastructure in more than 600 spaces across our UK and RoI portfolio by 2030 (EV100)
Improve Energy Productivity 40% by 2025 against a 2015 baseline (EP100)
Refer to the 2020 Climate-related disclosures report for further details on climate scenario analysis.
Climate data and sub-sector information availability, accessibility, and suitability for financial risk analysis, as well as climate-related risk modelling capabilities are still nascent and evolving. The activity carried out in 2020 has been the first step in what will be an ongoing development of NatWest Group’s data, modelling and risk management capabilities for managing climate-related risks.
Our approach to climate scenario analysis is summarised below: a. Our starting point for modelling climate-related risks are three climate scenarios, each of which includes a trajectory of carbon prices and emissions over time, and an associated change in global temperature. These are drawn from a set of scenarios published by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). NGFS has developed the scenarios to provide a common starting point for the financial sector to analyse physical and transition climate-related risks.
The three scenarios analysed were: Hot House World (no new policy action takes place to reduce greenhouse gas emissions, and as a result they continue to grow), Orderly (immediate and global action to reduce emissions in a measured way) and Disorderly (ambitious new climate policies are introduced, but only in 2030).
We examined the impacts of these three scenarios on a selected sample from our balance sheet comprising wholesale and retail customers.
d. We used the resulting flow of costs and revenues to assess the impacts on the value of customers in the NatWest Group’s portfolio, and used the existing credit risk models (adapted to incorporate the climate-related risk factors) to evaluate the impact on credit risk for the individual customers.
Recognising that the preliminary analysis carried out over 2020 was the first step in a multi-year development of capability and data with respect to climate scenario analysis, any insights and observations must be treated with appropriate caution. Sections below detail preliminary insights and progress in assessment of initial management plans to inform the development of the wider NatWest Group climate strategy and risk management.
Wholesale insights 1. Climate-related risks can vary considerably across sectors and companies. Among the sample tested so far, in scenarios with stronger climate action (‘Orderly’ and ‘Disorderly’), some companies see an increase in expected market value with others losing value. Since risks are distributed across sectors and companies, NatWest Group’s diversified lending portfolio is expected to limit the impact of these variations.
Differences in individual companies’ performance is driven by factors such as differences in their current carbon footprint and product mix. Recognising these company-specific differences, NatWest Group will continue to develop its granular customerlevel analysis of climate-related risks throughout its portfolio. In addition, work is on-going to train relationship managers as they engage with customers to both manage risk and support their transition.
4. New growth sectors and new opportunities: Many companies perform significantly better in scenarios with stronger climate action, including low carbon utilities and cleantech manufacturers. As part of its climate ambition, NatWest Group continues to support customers through £20 billion climate and sustainable funding and financing and by reserving at least 25% of the spaces in our Entrepreneur Accelerator hubs for businesses where their core offering supports sustainable environmental activities (including climate solutions). In addition, Commercial Banking has introduced a framework to encourage activity that supports the sustainability and climate change agenda. As part of the capital allocation process, corporate customers that are aligned with sustainability and climate change benefit from a lower allocation of capital allowing more competitive pricing. This benefit can also be applied at an individual facility level where a customer seeks funding for a specific, Climate Positive activity (e.g. land transport business looking to fund a fleet of EVs). This will help to reshape NatWest Group’s portfolio as it moves towards more sustainable transactions and sectors.
2. Geographical diversification helps contain the impact of physical risks. Since flood risk is highly geographically specific, NatWest Group’s regionally diverse mortgage portfolio limits exposure to a particular region in the UK.
4. Transition risks are more prevalent than flood risk, which is concentrated in certain regions or properties. This may impact property valuations as a result of rising energy bills and retrofit costs for inefficient properties. NatWest Group will continue to raise customers’ awareness of the importance of increasing the energy efficiency of their homes.
We will continue to strengthen our ability to effectively manage climate-related risks during 2021 and beyond, by expanding our own analysis from an initial sample to cover NatWest Group’s balance sheet more comprehensively, in line with the 2021 CBES exercise requirements. We will also further develop both our analytical tools and implementation of climate-related risk insights into our strategy and decision making.
The Board and senior management team respectively oversee and manage NatWest Group’s response to climate change. Refer to the 2020 Climate-related disclosures report for further details on climate governance.
Board monitoring and oversight of climate-related risks and opportunities is supported by management reporting on climate, climate strategy, ambition and risk management activities, which feature on the Board and Board Committee agendas.
• The Group Sustainable Banking Committee’s annual deep dive session on climate change in June 2020 focussed on climate ambition this year, with external input from the Green Finance Institute followed by a challenge session with management on current progress and future opportunities.
• The Group Performance and Remuneration Committee oversaw the inclusion of Climate goals, performance measures and targets as part of Senior Executive remuneration for the 2020 financial year and updated targets have been set for 2021.
In October 2020 as part of a scheduled review, the Board approved the allocation of Senior Management Function responsibility for identifying and managing financial risks from climate change jointly to the CEO and the Group Chief Risk Officer. This updated accountability supports the CEO’s ownership of our strategic climate purpose across the organisation and will drive delivery across the three lines of defence. This responsibility includes ensuring that the financial risks from climate change are adequately reflected in risk management frameworks, and that the firm can identify, measure, monitor, manage, and report on its exposure to these risks.
A Group-wide Climate Change Programme (GCCP) continues to support the delivery of NatWest Group’s climate-related objectives. The GCCP is overseen by an Executive Steering Group (GCCP ESG) which is responsible for coordinating the NatWest Group response across climate-related regulations, risks and opportunities. The GCCP ESG is co-chaired by the Group CEO and Group Chief Risk Officer, reflecting the materiality of this agenda.
Climate risk is the risk of financial loss or adverse non-financial impacts associated with climate change and the political, economic and environmental responses to it.
The risks associated with climate change are complex and pervasive. We recognise the cross-cutting causal nature of climate risk and during 2020, continued to integrate climate risk into the risk management framework. In addition, to provide immediate focus, we have adopted a dual approach and climate risk has also been recognised as a principal risk. Refer to the 2020 Climate-related disclosures report for further details on climate risk management.
During 2021 NatWest Group will assess and report on climate risk as a principal risk. The risk will have a dedicated policy, appetite statement and risk appetite measures implemented in accordance with the EWRMF. This approach supplements continued enhancements to risk management toolkits which will ensure comprehensive identification and assessment of climate risk impacts upon other principal risks.
Some examples of work done during 2020 to incorporate climate as a causal factor into existing principal risks include: • Guidance was issued to ensure appropriate consideration of climate-related risk in internal risk and control assessments.
The table below summarises exposures to sectors identified as exposed to heightened climate-related risk impacts. Total sector exposure comprises loans (gross loans and advances to customers and banks accounted at amortised cost and fair value through other comprehensive income) and related off balance sheet exposures. Amounts reported include all lending to customers including sustainable lending, as well as to environmentally responsible customers.
• Power utilities increased by £0.6 billion, primarily reflecting new lending for renewable energy and infrastructure projects.
• Within operational risk, a scenario analysis pilot was performed on the Group's operations in India to assess the potential effects of climate driven events including disruption to business services, damage to physical assets and health and safety.
Climate and Sustainable Funding and Financing (1) Number of deals £m Number of deals £m
Green Wholesale lending (2): specific purpose lending to customers within scope of the CSFI criteria
Green bond public issuances and green private placements (3): underwriting of specific use of proceeds debt capital market issuances for projects and clients that meet the CSFI criteria
Sustainability Linked Loans: made to customers in line with LMA sustainability linked loan principles where loan targets include green performance indicators, aligned to the CSFI criteria
Other wholesale general purpose lending or wider financing within the CSFI criteria (4 )
(4) In addition to transactions that directly meet CSFI criteria based on use of proceeds for green purposes, the CSFI criteria also includes certain general purpose loans and wider financing to a customer who can evidence (to NatWest Group’s satisfaction through review of the customers’ profit and loss statement) 50% or more revenues from the categories and sectors outlined in the criteria. In 2020, £1,823 million included above comprises loans of £428 million and bonds and private placements of £1,395 million.
NatWest Group understands that carbon offsetting is only an interim solution; however, we believe it’s the best way to take accountability for the carbon we emit until it can be eliminated at source.
Our priority now is to focus on becoming Climate Positive across our own operations by 2025, so that we offset more carbon than we emit. Last year we announced this would be achieved by maintaining our 2020 level of carbon offsetting and simultaneously reducing emissions from our own operations a further 25% by 2025 (2019 baseline).
Due to the exceptional circumstances linked to the COVID-19 pandemic, we have already reduced emissions by 33% (against 2019 baseline), driven by reduced energy consumption and business travel. Additionally, with more than 50,000 colleagues working from home due to the COVID-19 pandemic, some emissions have transferred to colleague homes.
In recognition of this exceptional year, we have: 1) Calculated and offset all colleague home working and commuting emissions (37,596 tCO2e). These additional emissions offset in 2020 go beyond our current reporting boundary of emissions in our direct operational control. To calculate these emissions, we collaborated with EcoAct, Lloyds Banking Group and other organisations to launch the first ever open source home working emissions methodology.
3) We will continue to pursue a 25% carbon reduction by 2025 (2019 baseline) due to an expected rebound in the future.
Emissions from the purchase of electricity, heat, steam or cooling by the company for its own use (Scope 2(3) Indirect) location-based CO2e emissions (tonnes)
Methodology: We have reported on all emission sources required under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Our reporting year runs from October 2019 to September 2020. The emissions reporting boundary is defined as all entities and facilities either owned or under our operational control. (1) Offshore area as defined in The Companies (Directors Report) and Limited Liability Partnerships (Energy and Carbon) Regulations 2018. (2) Scope 1 Emissions from fluorinated gas losses and fuel combustion in NatWest Group premises/ vehicles, (3) Scope 2 Emissions from electricity, district heating and cooling used in NatWest Group premises, (4) Market-based Scope 2 Emissions and (5) Scope 3 Emissions associated with business travel by NatWest Group colleagues and paper, waste (UK and RoI) and water use have been calculated using the Greenhouse Gas Protocol Corporate Standard and associated guidance. When converting data to carbon emissions, we use Emission Factors from UK Government Emissions Conversion Factors for Greenhouse Gas Company Reporting (Department for Business, Energy & Industrial Strategy, 2020), CO2 Emissions from Fuel Combustion (International Energy Agency, 2019) or relevant local authorities as required. For more information, please see our website (natwestgroup.com).
During 2020, we worked on developing our capabilities to estimate our financed emissions to enable us to enhance our understanding of climate-related risks and opportunities. We focused on estimating financed emissions and emissions intensities for four sectors: residential mortgages, agriculture (primary farming), automotive manufacturers and oil and gas extractors. These four sectors were selected based on their proportion of the NatWest Group’s total loans and investments as at 31 December 2019 in combination with climate impacts associated with the sector. Further considerations included whether appropriate methodologies for estimating emissions intensities were available. Refer to the NatWest Group 2020 Climate-related disclosures report for details on approach, standards and methodologies used for estimating financed emissions and emission intensities.
• UK Stand-by generation replacements – We have removed older, more polluting diesel back-up generators at two of our office locations in London and the South East of England, as well as removing older generators at one of our data centres. These projects will both reduce carbon emissions and improve local air quality.
=Financed emissions Attribution factor x Emissions (with i = borrower or investee)
Oil and gas extraction (8) 0.08 1.9 75 tCO2e/TJ 3,054 2.4 2.6 38 tCO2e/TJ
(2) Million tonnes of carbon dioxide equivalent, a measure used to compare the emissions from different greenhouse gases.
(5) For residential mortgages, floorspace varies between properties and larger properties tend to produce a larger quantity of absolute emissions as a result, floorspace has been used as the metric for assessing physical emissions intensity kgCO2e/m2 is kilograms carbon of carbon dioxide equivalent emitted per square meter.
(7) For automotive manufacturing, emissions intensity is based on kilometres travelled as this reflects the emissions for distance travelled. For automotive manufacturing, Scope 3 emissions and emission intensity estimates only relate to tailpipe emissions i.e. the emissions exclusively related to the burning of fuel in vehicles and do not take into account entire lifecycle emissions. gCO2/km is the grams of carbon dioxide emitted per kilometre.
The table below shows our preliminary estimates based on our work to date and should be read in conjunction with Risk factors included in this document and Section 5.7 (Caution about climate metrics) of the 2020 Climate-related disclosures report. The table below shows NatWest Group’s (i) estimated financed emissions, (ii) physical and economic emissions intensities (1) for the four sectors reviewed, (iii) preliminary physical emissions intensity estimates for year 2030 aligned to NatWest Group’s climate ambition to reduce climate impact of financing activity by 50%, as well as for Paris alignment, (iv) Paris alignment physical emissions intensity in 2050. We will continue to work on this in 2021 and further refine our estimates as we enhance our understanding, calculation methodologies and data. We have used a combination of methodologies (some of which are still under development) to calculate these emissions. Analysis performed during 2020 is based on NatWest Group loans and investments balances as at 31 December 2019.
Financed emissions estimates: For the purpose of calculating financed emissions estimates, EPC data has not been adjusted for any assumed energy efficiency changes since the date of collection. For Scope 2 financed emissions estimates, EPC data collected prior to 2019 has been adjusted only for the decarbonisation of the UK grid between the year of inspection and 2019.
PCAF data quality score: Our residential mortgages estimate achieves a weighted PCAF data quality score of 4.1. The weighting is based on two scores: a. Publicly available data: As at December 2019, EPC data was available for just under half of the residential mortgage portfolio which achieved a PCAF data quality score of 3.
b. Extrapolated data: To estimate EPC ratings for properties which did not have publicly available EPC data, we used average emissions profile of properties for which EPC data was available.
Customers engaged in primary farming activity with lending and investments of £3.8 billion were reviewed to estimate financed emissions.
EXIOBASE is a global, detailed multi-regional environmentally extended supply use table and inputoutput table. EXIOBASE was developed by harmonizing and detailing supply use tables for a large number of countries, estimating emissions, and resource extractions by industry.
We have included five GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs)) from EXIOBASE in our emissions estimates. In line with the CCC’s sixth carbon budget, we use the 'high' global warming potential (GWP) values with carbon-cycle feedbacks for methane and nitrous oxide from the IPCC 5th Assessment Report. Carbon cycle feedback refers to how the collection of processes that sees carbon exchanged between the atmosphere, land, ocean and organisms could change as the Earth warms and atmospheric CO2 concentrations rise.
b. Estimated data: For the remaining £1.3 billion balance, we applied the emissions intensity profile available in a above, achieving a data quality score of 5.
From a wider market perspective, the UK National Farmers Union has set the ambitious goal of reaching net zero GHG emissions across the whole of agriculture in England and Wales by 2040, and are aligning measures under three broad headings: • Improving farming’s productive efficiency; • Improving land management and changing land use to capture more carbon; • Boosting renewable energy and the wider bioeconomy.
The NFU have stated that in reducing agriculture’s impact on climate, the UK must not achieve its climate change ambitions by exporting UK production, or our GHG emissions, to other countries. NatWest Group is actively exploring opportunities for GHG emissions reductions in agriculture aligned with the UK Agricultural Bill/Act and the transition to the Environmental Land Management Schemes (ELMSs) in England and corresponding schemes in the devolved nations. Possible options include assisting farmers in changes of land use and increasing sequestration uptake by our customers.
NatWest Group is committed to supporting our specialist relationship managers with climate-related training, and climate-related questions are being added to our agriculture sector customer engagement. These measures will support the consistent coverage of climate issues in future collaborations with customers, with the aim to support and help them transition to a low carbon resilient economy.
Financed emissions estimates: NatWest Group absolute financed emissions in automotive manufacturing includes Scope 1, Scope 2 and Scope 3 tailpipe emissions. This is based on £0.3 billion loans and investments related to automotive manufacturers at December 2019. Scope 1 and Scope 2 emissions were taken directly from customers’ sustainability reports.
In addition, Scope 3 tailpipe emissions have been included, aligned with the Katowice Banks guidance (1). Tailpipe emissions refer to emissions exclusively related to the burning of fuel in vehicles and do not take into account entire lifecycle emissions. As the reporting for Scope 3 tailpipe emissions is not uniform across all customers, we estimate it using average tailpipe emissions factors for car model and fuel combinations from the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), a global harmonised standard of drive cycle test to determine the tailpipe emissions and fuel efficiency of passenger cars.
(1) Katowice Banks refers to the five international banks that pledged at the 2018 COP24 in Katowice to develop an open-source methodology to progressively steer (or ‘align’) their lending portfolios with the goals of the 2015 Paris Agreement. In September 2020, 2 Degrees Investing Initiative (2DII) and the Katowice Banks launched their Credit Portfolio Alignment methodology for applying the 2015 Paris Agreement Capital Transition Assessment (PACTA) methodology to banks’ credit lending portfolios.
b. Scope 3: As above, for 97% of our Automotive manufacturing portfolio, we estimated the Scope 3 tailpipe financed emissions using emissions factors from WLTP and the reported global sales by customers. For the rest of the portfolio, we extrapolate Scope 3 tailpipe emissions based on the 97% population for which information is available. This achieved a data quality score of 3.1.
Estimated 2030 and 2050 emissions intensity: The 2030 and 2050 preliminary intensity estimates are based on vehicle sales by fuel type using the global vehicle stock projections from the IEA Energy Technology Perspectives (ETP) Beyond 2 Degrees Scenario (B2DS). Key assumptions include those related to operational lifetime of vehicles and replacement rates by fuel type, based on the IEA Global EV Outlook. In addition, we have assumed a constant vehicle efficiency by fuel type i.e. that the grams of CO2 per km emitted by cars of a fuel type remains constant until 2050, informed by the 2019 BEIS emissions factors for an average vehicle (split by fuel type). Vehicle emission factors by fuel type are applied to construct a weighted average emissions intensity for new vehicles sales to 2050. The preliminary emissions intensity estimates suggest that EV sales would need to be approximately 45% (as a top-end estimate) of total global sales by 2030, to achieve Paris alignment, based on the assumptions listed above.
A switch from internal combustion engine vehicles to EVs will play a key role in achieving Paris alignment in the automotive sector. In November 2020, the UK Government made a commitment to further support EV manufacturing as part of a £2.8 billion investment, which will greatly support the sector transition. In addition, the UK Government announced that new cars and vans powered wholly by petrol and diesel will not be sold in the UK from 2030. NatWest Group’s Future Mobility Group has launched various initiatives to support customers and colleagues.
Financed emissions estimate: In the oil and gas sector, we calculated financed emissions for customers engaged in extraction activities. In addition, we have included Scope 3 emissions in our financed emissions estimates for the oil and gas extraction sub-sector, as these have a high climate impact. This is in line with the Katowice Banks guidance.
b. Extrapolated data: For the rest of the portfolio (4%), we extrapolated the estimated financed emissions based on the population for which data is available. This achieved a data quality score of 5.
We have not yet developed a Paris aligned emissions pathway to 2050, as SBTi guidance for the oil and gas sector is still under development. We continue to liaise with SBTi on this.
During 2020, we have continued to reduce our loan and investments in the oil and gas sector from £2.1 billion to £1.6 billion primarily due to tighter lending criteria. During 2021, we will work with major oil and gas customers as part of the credible transition plan work to assess future actions. We expect further reductions in 2021 and beyond based on tighter lending criteria for the sector and the ongoing assessment of customers’ transition plans. We continue to support our selected customers in the North Sea oil and gas sector as they focus on reducing emissions, transitioning to low carbon energy solutions and decommissioning.
NatWest Group publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent cents in the European Union (‘EU’).
Segmental reporting UK Personal Banking was renamed Retail Banking with effect from September 2020.
Retail Banking; serves individuals and mass affluent customers in the UK and includes Ulster Bank customers in Northern Ireland.
Ulster Bank RoI; serves individuals and businesses in the Republic of Ireland (RoI).
Commercial Banking; serves start-up, SME, commercial and corporate customers in the UK.
Private Banking; serves UK connected high net worth individuals and their business interests.
RBS International (RBSI); serves retail, commercial, and corporate customers in the Channel Islands, Isle of Man and Gibraltar, and financial institution customers in those same locations in addition to the UK and Luxembourg.
Allocation of central items NatWest Group allocates all central costs relating to Services and Functions to the business using appropriate drivers, these are reported as indirect costs in the segmental income statements. Assets and risk-weighted assets held centrally, mainly relating to NatWest Group Treasury, are allocated to the business using appropriate drivers.
Non-IFRS financial information NatWest Group prepares its financial statements in accordance with the basis set out in the accounting policies, page 264, which constitutes a body of generally accepted accounting principles (GAAP).This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-onperiod comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS financial measures are not measures within the scope of IFRS and are not a substitute for IFRS financial measures. Refer to the section, ‘Non-IFRS financial measures’, on pages 339 to 342 for further information and calculations of non-IFRS financial measures included throughout this document, and, where relevant, the most directly comparable IFRS financial measures.
Attributable to: Preference shareholders 26 39 182 234 260 Dividend access share — — — — 1,193 Paid-in equity holders 355 367 355 487 303
Loans to banks and customers - amortised cost* 367,499 334,501 315,565 319,246 318,658
Deposits 452,345 389,740 384,211 391,712 357,173 Trading liabilities 72,256 73,949 72,350 81,982 84,536 Settlement balances, derivatives, and other financial liabilities 222,023 206,147 182,230 200,398 267,257 Other liabilities 9,043 9,647 8,954 14,871 40,286 Owners' equity 43,860 43,547 45,736 48,330 48,609 Non-controlling interests (36) 9 754 763 795 Total liabilities and equity 799,491 723,039 694,235 738,056 798,656 *Prior period data has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 for further details.
Total Retail Ulster Bank Commercial Private RBS NatWest Central items NatWest
Average interest earning assets 167,186 25,100 145,933 21,689 29,912 35,444 nm 448,556 Third party customer asset rate (3) 3.23% 2.28% 3.36% 2.93% 2.89% nm nm nm Third party customer funding rate (3) (0.37%) (0.09%) (0.19%) (0.35%) (0.11%) nm nm nm
Notes: (1) NatWest Group’s CET1 target is approximately 14% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit adjusted for preference share dividends and tax is divided by average notional equity allocated at different rates of 14.5% (Retail Banking - 15% prior to Q1 2020), 15.5% (Ulster Bank RoI - 15% prior to Q1 2020), 11.5% (Commercial Banking - 12% prior to Q1 2020), 12.5% (Private Banking - 13% prior to Q1 2020), 16% (RBS International) and 15% for all other segments, of the period average of segmental risk-weighted assets equivalents (RWAe) incorporating the effect of capital deductions. NatWest Group return on equity is calculated using profit for the period attributable to ordinary shareholders. Refer to the Non-IFRS financial measures section for details of the basis of preparation.
2020 compared with 2019  Total income decreased by £3,457 million, or 24.3%. Excluding notable items, income decreased by £958 million, or 7.9%, due to reductions across the retail and commercial businesses, partially offset by higher NatWest Markets income reflecting increased customer activity as the market reacted to the spread of the COVID-19 virus.
Notes: (1) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities. (2) 2019 Includes £290 million arising on the completion of the Alawwal bank merger, £1,102 million arising on the liquidation of RFS Holdings and £67 million in
 Strategic costs of £1,013 million included £256 million related to property charges, £173 million redundancy costs and a £154 million charge related to technology spend.
Impairment losses ECL charge 3,242 696 2,546 nm ECL loss rate - annualised (basis points) 87 20 67 nm *2019 data has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 for further details.
2020 compared with 2019  The net impairment loss of £3,242 million increased by £2,546 million compared with 2019, predominantly driven by stage one and two charges which reflected the expected deterioration in the economic environment. Stage three impairment losses were £616 million as government support measures mitigated defaults across lending portfolios and associated ECL stage migration. Total impairment provisions increased by £2.4 billion to £6.2 billion, mainly reflecting expected credit losses on non-defaulted portfolios, and the ECL coverage ratio increased from 1.13% to 1.66%.
Tax charge 83 432 UK corporation tax rate 19.0% 19.0% Effective tax rate (23.7%) 10.2%
Financial summary continued Summary consolidated balance sheet as at 31 December 2020 £m £m £m
Loans to banks - amortised cost* 6,955 7,554 (599) (8%) Loans to customers - amortised cost 360,544 326,947 33,597 10%
Tangible net asset value per ordinary share (pence) (1) 261p 268p (7)p (3%)
*2019 data has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 for further details.
 Cash and balances at central banks increased by £43.5 billion, 54%, to £124.5 billion mainly as a result of a net customer funding surplus driven by significant deposit inflows from March 2020 due to the impact of the COVID-19 pandemic.
 Derivative assets were up £16.5 billion, 11%, to £166.5 billion, and liabilities, increased by £13.8 billion, 9% to £160.7 billion. These movements were driven by an increase in underlying volumes, together with an increase in mark-to-market driven by a downward shift in interest rate yields and FX rate fluctuation across major currencies in the year.
 Other financial assets include debt securities, equity shares and other loans, decreased by £6.3 billion, 10%, to £55.1 billion, primarily driven by reductions in debt securities.
 Other financial liabilities, which includes customer deposits at fair value through profit and loss and debt securities in issue, increased by £0.6 billion, 1%, to £45.8 billion.
 Subordinated liabilities have remained at £9.9 billion. Reflecting new issuances of £1.6 billion and a reclassification from equity of £1.6 billion, offset by redemptions of £3.1 billion.
 Owners’ equity increased by £0.3 billion, 1%, to £43.8 billion, driven by a net increase in paid-in equity, partially offset by the loss for the year, paid-in equity dividends paid and redemption and reclassification of paid-in equity.
Net interest margin 2.13% 2.47% (0.34%) Cost:income ratio 60.8% 74.4% (13.6%)
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 14.5% (15%
prior to Q1 2020) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate.
Note: (1) Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on full year 2019 operating profit would have been to decrease total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.
 Total income was £685 million, or 14.1%, lower as regulatory changes and COVID-19 support measures impacted fee income, combined with lower deposit returns and unsecured balances, partially offset by strong balance growth in mortgages and customer deposits.
 Other expenses decreased by £108 million, or 4.5%, reflecting a significant reduction in headcount, enabled by digital transformation benefits and increased digital adoption, lower fraud costs and COVID-19 slowing down investment spend. Litigation and conduct costs were £19 million.
 Net loans to customers increased by £13.4 billion, or 8.4%, as a result of strong gross new mortgage lending and retention. Gross new mortgage lending was £31.5 billion with flow share of 13%, supporting a stock share of 10.9%, up from 10.2% at Q4 2019. Personal advances and cards reduced by £1.2 billion and £0.5 billion respectively reflecting lower spend and higher repayments due to COVID-19 restrictions.
 Customer deposits increased by £21.5 billion, or 14.3%, as UK Government backed initiatives for COVID-19, combined with restrictions, resulted in lower customer spend and increased savings.
 RWAs decreased by £1.1 billion, or 2.9%, supported by lower personal unsecured balances.
Notes: (1) Return on equity is based on segmental operating profit after tax adjusted for preference share dividends divided by average notional equity based on 15.5%
Total loans to customers (amortised cost) 20.9 22.3 (1.4) (6%) 18.8 19.0 (0.2) (1%)
 Impairment losses of €281 million reflect the charges taken in the first half of 2020 which were significantly impacted by the uncertain economic environment created by the COVID-19 pandemic.
 Throughout the difficulties and uncertainties of 2020, Ulster Bank RoI has continued to support its customers through COVID-19 by keeping its branches, cash and call centres open throughout and by making significant improvements to its digital platforms. During 2020 almost 18,000 payment breaks were provided, with 82% returning to payment arrangements as at 31 December 2020. Additionally, Ulster Bank RoI continued to support its commercial customers by providing them assistance with the Future Growth Loan and Credit Guarantee schemes initiated by the Irish government.
 Total income decreased by €73 million, or 11.3%, reflecting lower lending volumes and fee income due to the impact of COVID-19, lower FX gains, lower hedging income and a one-off swap breakage benefit in 2019.
 Following an extensive review and despite the progress that has been made, it has become clear Ulster Bank will not be able to generate sustainable long term returns for our shareholders. As a result, we are to begin a phased withdrawal from the Republic of Ireland over the coming years which will be undertaken with careful consideration of the impact on customers and our colleagues.
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 11.5% (12%
Notes: (1) Segment reporting for loans to customers for Large Corporates & Institutions (LC&I) includes the Western European business segment. (2) Real estate includes commercial real estate and housing associations. (3) Other includes shipping and project finance.
 Net interest margin decreased by 27 basis points reflecting the impact of the lower yield curve on deposit returns and increased liquidity portfolio costs from higher deposit volumes, partially offset by deposit repricing.
Net interest margin 2.05% 2.40% (0.35%) Cost:income ratio 59.6% 62.5% (2.9%)
Total loans to customers (amortised cost) 17.1 15.5 1.6 10% Loan impairment provisions (0.1) — (0.1) — Net loans to customers (amortised cost) 17.0 15.5 1.5 10%
Notes: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 12.5% (13.0%
prior to Q1 2020 and 13.5% prior to Q1 2019) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate.
2020 compared with 2019  Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and via participation in the UK Government’s financial support schemes. During 2020, £58 million BBLS, £237 million CBILS and £44 million CLBILS had been approved.
 Impairment losses of £100 million primarily reflect stage one and two charges due to the deterioration of the economic outlook, with total stage three charges of £15 million.
 Customer deposits increased by £3.8 billion, or 13.3%, reflecting £2.3 billion of commercial inflows and £1.5 billion of personal inflows.
 AUMAs increased by £1.7 billion, or 5.6%, reflecting positive investment performance of £0.9 billion and net new money inflows of £0.8 billion, which were impacted by EEA resident client outflows following the UK’s exit from the EU.
Net interest margin 1.17% 1.60% (0.43%) Cost:income ratio 58.6% 43.3% 15.3%
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 16% of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).
 RWAs increased by £1.0 billion, or 15.4%, due to customer maturities and higher lending facilities in the wholesale sector.
Revenue share paid to other segments (193) (208) 15 (7%) Income excluding asset disposals/strategic risk reduction and own credit adjustments 1,230 1,422 (192) (14%) Asset disposals/strategic risk reduction (2) (83) — (83) —
Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment.
2020 compared with 2019  NatWest Markets has made significant progress in reshaping the business for the future and advancing its transformation to deliver the refocused strategy announced in February 2020. As progress has been made against the strategy, RWAs have reduced and the business is ahead of its plan to achieve the medium-term reduction to £20 billion.
 Total income decreased by £219 million, or 16.3%, reflecting the £444 million Alawwal bank merger gain in 2019 and an increase in disposal losses of £48 million partially offset by stronger business performance in the current year.
 Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £217 million, or 21.4%, reflecting a strong performance over the year, particularly in the first half of 2020 as customer activity increased as the market reacted to the spread of the COVID-19 virus.
 Other expenses decreased by £140 million, or 11.9%, reflecting continued reductions in line with the strategic announcement in February 2020.
Funding and operating costs have been allocated to operating segments based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one segment. Residual unallocated items relate to volatile corporate items that do not naturally reside within a segment.
2020 compared with 2019  Central items not allocated represented a £655 million operating loss in 2020 principally reflecting the day one loss on redemption of own debt of £324 million related to the repurchase of legacy instruments, property related strategic costs, litigation and conduct charges and other treasury income. 2019 included £1,459 million of FX recycling gains, a £169 million reimbursement under indemnification agreements relating to US residential mortgage-backed securities (RMBS) and strategic costs of £449 million, which were mainly property related.
2 Alison Rose Appointed: 1 November 2019 Experience: Alison has worked at NatWest Group for 27 years. Prior to her current role, Alison was Deputy CEO of NatWest Holdings and CEO of the Commercial and Private Banking business. She has held a number of senior roles across NatWest Group including Head of Europe, Middle East and Africa, Markets & International Banking, Global Head of International Banking Capital and Balance Sheet and Head of Leveraged Finance. Alison was invited by the UK Government to lead a review of the barriers to women starting a business and launched The Rose Review in March 2019. Alison also champions NatWest’s Entrepreneur Accelerator programme, an innovative initiative supporting start-up businesses across the UK, and sponsors the bank’s employee-led networks.
External appointments: Alison sits on the board of directors for the Institute of International Finance and is a member of the International Business Council for the World Economic Forum. Alison is a non-executive director of Great Portland Estates plc and sits on the board of the Coutts Charitable Foundation.
Independent non-executive directors 4 Frank Dangeard Appointed: 16 May 2016 Experience: Frank assumed the role of Chairman, NatWest Markets Plc on 30 April 2018. Previously, Frank served as a nonexecutive director of Crédit Agricole CIB, EDF, Home Credit, Orange, Sonaecom SGPS, and as Deputy Chairman and acting Chairman of Telenor ASA. During his executive career he held various roles at Thomson S.A., including Chairman and Chief Executive Officer, and was Deputy Chief
Frank is a graduate of HEC and IEP in Paris and of Harvard Law School in the US.
External appointments: Senior independent director of Aviva plc and member of the Remuneration, Risk and Nominations Committees and Chair of the Audit Committee.
External appointments: Chairman of the Boat Race Company Limited; non-executive director of Social Finance Limited; and nonexecutive director of Burford Capital Limited and a member of its Audit Committee.
Yasmin holds a Master of Science in Management Science from Imperial College London and a Bachelor of Science in Mathematics from the University of London. She is a Fellow of the Chartered Institute of Management Accountants, was awarded an honorary Doctor of Laws degree by the University of Leicester in 2005 and was made an honorary Fellow of the University of Bedfordshire in 2011.
External appointments: Non-executive director of Guardian Media Group plc and member of its Remuneration Committee, and non-executive director of Nation Media Group Ltd and Chair of its HR and Remuneration Committee and member of its Strategy and Investment Committee.
External appointments: Chairman of Experian plc and Chairman of Aegon UK plc.
External appointments: Non-executive director of Scottish Power Renewables Limited, visiting Professor, University of Strathclyde Business School and Senior Independent Director and Chair of the Nominations Committee of Argentex Group plc. Chair of the Advisory Board of Turtle Pack Limited and Chair of Chiene + Tait LLP. Chair and non-executive director of Picton Property Income Limited.
Chief Governance Officer and Company Secretary 12 Jan Cargill Appointed: 5 August 2019 Experience: Jan is a chartered company secretary with over 20 years corporate governance experience. She was appointed Chief Governance Officer and Company Secretary in 2019, and prior to that held various roles in the legal and secretariat functions, including Head of Board and Shareholder Services.
Jan has a law degree and is a Fellow of the Chartered Banker Institute. She is also an Associate of The Chartered Governance Institute and has an INSEAD Certificate in Corporate Governance.
NatWest Group has made great strides as it focuses on becoming a purpose-led organisation. As a Board, we are working hard to embed our purpose in Board discussions and decision-making, ensuring different stakeholder needs are considered. Our section 172(1) statement on page 48 provides further information on our approach and includes case study examples.
On 1 April 2020 Yasmin Jetha re-joined the Board of NatWest Group plc, having first been appointed in June 2017. Yasmin stepped down in April 2018 in order to serve solely as a director of our key ring-fenced entities, and, like the majority of our directors, she continues to serve on these boards in addition to the Board of NatWest Group plc. The following Board Committee chair and membership changes were also made during 2020:-  On 1 April 2020 Yasmin Jetha was appointed Chair of the Technology and Innovation Committee and joined the Group Sustainable Banking Committee.
UK Corporate Governance Code 2018 All directors are committed to observing high standards of corporate governance, integrity and professionalism.
In conclusion I would like to thank my fellow Board members for their resilience and dedication throughout what has been an exceptional year.
Board and Committee meetings The table below shows Board and Committee membership and directors’ attendance at scheduled meetings during 2020. There were six scheduled Board meetings during 2020, the same number as in 2019.
Nominations Sustainable Technology Performance and and Governance Group Audit Group Board Banking and Innovation Remuneration
At each scheduled Board meeting the directors received reports from the Chairman, Board Committee Chairs, Group CEO, Group Chief Financial Officer (Group CFO) and other members of the executive management team, as appropriate. Other senior executives attended Board meetings throughout the year to present reports to the Board. This provided the Board with an opportunity to engage directly with management on key issues and supports succession planning.
During 2020 there was continued focus on the Board and Group Executive Committee (ExCo) operating rhythm to support a proactive and transparent agenda planning and paper preparation process. This process includes the following key elements:-
 A post Board meeting with the Chairman, Group CEO and Chief Governance Officer and Company Secretary, to discuss what went well/could be improved after each meeting.
Principal areas of Board focus in 2020 As in 2019, a short set of Board Objectives was adopted, closely aligned to our purpose and strategic priorities. These have supported agenda planning and helped to guide how the Board spends its time, ensuring appropriate focus on the longer-term and strategic issues. An overview of the principal areas of Board focus during 2020 is set out below:-
Purpose and Strategy  Strategy development and implementation  Consideration and approval of new purpose  Company change of name  Purpose and progress against external sustainability commitments
Customers  COVID-19 updates  Business reviews from main customer businesses  Customer experience
Culture  Banking Standards Board (BSB) culture assessment report  Modern Slavery and Human Rights statements
Financial  COVID-19 updates  Capital distributions  Financial plans (budget, cost and investment and scenario planning)  Brexit updates  Annual and quarterly results  IFRS9
arrangements  Board evaluation outcomes and Board objectives  Legal and regulatory reports  Material regulatory correspondence  Annual review of the governance framework and terms of reference for the Board and its Committees
Subsidiary governance and ring-fencing NatWest Group plc is a listed company with equity listed on the London and New York stock exchanges.
The DINEDs play a critical role in NatWest Group’s ring-fencing governance structure, and are responsible for exercising appropriate oversight of the independence and effectiveness of the NWH Sub Group’s governance arrangements, including the ability of each board to take decisions independently.
The DINEDs attend NatWest Group plc Board meetings in an observer capacity.
NatWest Markets supports NatWest Group’s corporate and institutional customers through NatWest Markets Plc and its subsidiaries.
RBS International serves retail, commercial and corporate customers and financial institutions and operates through The Royal Bank of Scotland International (Holdings) Limited and its subsidiaries.
In both instances, the Board considers that these are matters which should rightly be reserved for the Board, as set out in more detail in our statement of compliance on page 151.
Further information on how the company has applied the Principles and complied with the Provisions of the Code is set out below under the Code’s 5 main section headings.
The Board terms of reference include a formal schedule of matters specifically reserved for the Board’s decision and are reviewed at least annually. They are available on natwestgroup.com.
Colleague opinion survey results were another useful culture oversight tool available to the Board. Directors considered the results of colleague pulse surveys conducted in May and June, and in October 2020, reviewed the results of the annual colleague opinion survey, Our View. Key themes noted and discussed by the Board were culture, inclusion, capability, resilience and wellbeing (including financial wellbeing and colleague advocacy).
In December, as part of a spotlight on colleagues, the Board received an update on future ways of working and how this might evolve in a way that is consistent with our purpose and strategy; continues to support colleagues; drives greater collaboration; and supports the long-term sustainability of NatWest Group.
Stakeholder engagement In February 2020, the Board approved its annual objectives and confirmed the Board’s key stakeholder groups. The Board’s agenda and engagement plans were structured to enhance the Board’s understanding of these stakeholders’ views and interests. This in turn has informed Board discussions and decisionmaking.
The effectiveness of Board stakeholder engagement mechanisms is considered during the annual Board evaluation. Further details of the outputs of the 2020 evaluation in relation to stakeholder engagement can be found on page 104.
Further details on NatWest Group’s approach to investing in and rewarding its workforce can be found on page 57 of the Strategic report (Our Colleagues).
Workforce policies and practices As referred to above, the Board has delegated certain Code provisions to Board Committees, with regular updates to the Board on relevant issues. The Group Sustainable Banking Committee considers key workforce policies and practices (not related to pay) to ensure they are consistent with NatWest Group’s values and support long term sustainable success. The Group Audit Committee retains responsibility for reviewing and monitoring NatWest Group’s whistleblowing procedures. Further details on Speak Up, NatWest Group’s whistleblowing service, can be found on page 58 of the Strategic report.
Division of responsibilities The Board has 11 directors comprising the Chairman, two executive directors and eight independent non-executive directors, one of whom is the Senior Independent Director.
Non-executive director independence The Board considers that the Chairman was independent on appointment and that all current non-executive directors are independent for the purposes of the Code.
The non-executive directors combine broad business and commercial experience with independent and objective judgement. They provide constructive challenge, strategic guidance, and specialist advice to the executive directors and the executive management team and hold management to account.
The Chairman and non-executive directors meet at least once every year without the executive directors present.
The performance of the Chairman and nonexecutive directors is evaluated annually and further details of the process undertaken can be found on page 105.
Chief Governance Officer and Company Secretary The Chief Governance Officer and Company Secretary, Jan Cargill, works closely with the Chairman to ensure effective and efficient functioning of the Board and appropriate alignment and information flows between the Board and its Committees.
The format for Board and Board Committee papers was further enhanced during 2020 and now includes a dedicated section which explains how the proposal or update aligns to our purpose, alongside existing sections detailing stakeholder impacts. This ensures that due consideration is given to our purpose and our stakeholders in the boardroom and supports the Board’s oversight of NatWest Group’s progress and performance as a purpose-led organisation.
Directors have access to a wide range of briefing and training sessions and other professional development opportunities. Internal training relevant to the business of NatWest Group is also provided. Directors undertake the training they consider necessary to assist them in carrying out their duties and responsibilities. The non-executive directors discuss their training and professional development with the Chairman at least annually.
Election and re-election of directors In accordance with the provisions of the Code, all directors stand for election or re-election by shareholders at the company’s AGM.
 Management reporting changes were introduced to provide consistent and concise information on key metrics and trends to the Board to support more focussed debate. Board paper templates were further enhanced to support purpose alignment.
Key findings and recommendations The conclusion of the 2020 Board evaluation was that the Board operated effectively throughout the year and fulfilled its remit as set out in its terms of reference. Directors engaged fully with the evaluation exercise and commented positively in relation to many aspects of the Board’s operations.
Key findings and recommendations included the following  COVID-19 response - Directors felt that management had responded well to the pandemic. The Board had been kept regularly informed throughout, providing constructive challenge and support as appropriate, and virtual board meetings had worked efficiently.
 Board composition and succession planning – The majority of directors felt the Board is now right-sized with no material skills gaps. Directors expressed a desire for greater visibility of ExCo successors.
Actions Following Board discussion of the evaluation report, a number of actions were agreed for 2021, including the following:  Agree a shorter and more focused set of
Separately, the Senior Independent Director sought feedback on the Chairman’s performance from the non-executive directors, executive directors and other key internal and external stakeholders and discussed it with the Chairman.
Audit, Risk & Internal Control Information on how the company has applied the Principles and complied with the Provisions set out in this section of the Code can be found throughout the Annual Report and Accounts. The following sections are of particular relevance:  the Group Audit Committee Chairman’s letter and the report of the Committee (on page 107) which sets out the process undertaken to evaluate the effectiveness of both the Internal Audit function and the external auditors in 2020, and the principal findings thereof. It also explains the approach taken to ensuring the integrity of financial and narrative statements, and confirms that it supports the Board in the assessment of the Group’s disclosures to be fair, balanced and understandable;  the Viability Statement (page 67) which details how the Board has assessed the future prospects of NatWest Group plc and the ways in which risks are considered and managed in order to achieve its strategic objectives;  the Compliance report (page 151), which explains the internal control framework in place; and
 the Board Risk Committee Chairman’s letter and report of the Committee (page 112) which explains how the Board oversees the principal risks facing NatWest Group and how management addresses these.
The terms of reference of the Committee are reviewed annually, approved by the Board and are available at www.natwestgroup.com.
In addition to succession planning, the Committee has overseen the process to reach agreement with the PRA in respect of the renewal of regulatory modifications which ensure the continuation of a governance model that is compatible with ring-fencing legislation. Membership and meetings At the same time as standing down from the Board, Baroness Noakes stepped down from the Committee with effect from 31 July 2020. Morten Friis joined the Committee on 1 August 2020 meaning that throughout 2020 the Committee comprised the Chairman of the Board and four independent non-executive directors. Graham Beale also observes meetings of the Committee in his capacity as Senior Independent Director of NWH Ltd and member of the NWH Ltd Nominations Committee.
Performance evaluation The review of the effectiveness of the Board and its senior Committees was conducted internally in 2020. The Committee has considered and discussed the outcomes of the evaluation and accepts the findings. Overall, the review concluded that the Committee operated effectively with no material recommendations being identified for action. The Committee will continue to ensure that the full Board is appropriately sighted on the work of the Committee.
Monitoring and reporting The boards of NatWest Group plc and the NWH Group meet consecutively and share a largely common membership. When considered together, the director population across both boards currently meets the Parker target and exceeds the Hampton-Alexander target with a female representation of 36%.
Notwithstanding the largely common membership between boards, NatWest remains committed to ensuring that the NatWest Group plc Board meets the targets on a standalone basis. The NatWest Group plc Board currently meets the Parker Target and, notwithstanding the departures of Alison Davis and Baroness Noakes during 2020, continues to exceed the Hampton-Alexander target with a board composition including 36% female representation.
Diversity and inclusion progress, including information about the appointment process, will continue to be reported in the Group Nominations and Governance Committee’s report in the NatWest Group plc Annual Report and Accounts. The balance of skills, experience, independence, knowledge and diversity on the Board, and how the Board operates together as a unit is reviewed annually as part of the Board evaluation. Where appropriate, findings from the evaluation will be considered in the search, nomination and appointment process. Further details on NatWest Group’s approach to diversity can be found on page 60.
Dear Shareholder, I am pleased to share with you a summary of the work undertaken by the Group Audit Committee (GAC) in 2020.
Throughout nearly all its work in 2020 the COVID-19 pandemic has been a key consideration. Much time was dedicated to reviewing accounting judgements and the potential and actual impact on expected credit losses, including modelling methodologies, as well as impairment levels and guidance.
Meetings and visits Five scheduled meetings of the Committee were held in 2020, four of which took place immediately prior to the release of the financial results each quarter. During the year all members attended the scheduled meetings, one of which was held in person and the remainder via video conferencing facilities. Two ad hoc meetings were held to consider regulatory submissions, including additional Pillar 3 disclosures requested by the regulators to reflect the impact of the COVID-19 pandemic.
Performance evaluations The annual review of the effectiveness of the Board and its senior Committees, including the Audit Committee, was conducted internally in 2020. Themes focused on during the Committee’s discussion session included: operating rhythm; effectiveness and dynamics of meetings; and future priorities. It was determined that the GAC had continued to operate effectively during 2020. Certain areas to be strengthened were identified and will be progressed in 2021.
The performance of the External Auditor and the Internal Audit function were monitored by the GAC in 2020 and assessed at the end of the year via an internal process. Feedback was provided by relevant stakeholders and a summary reviewed by the Committee. Progress made to address the recommendations of the previous year’s evaluations was welcomed.
The GAC considered a number of accounting judgements and reporting issues in the preparation of NatWest Group’s financial results throughout 2020.
Expected Credit Losses – Judgements (including overlays) in relation to credit impairments and the impact of macro-economic risks on the credit environment, in particular those arising from the COVID-19 pandemic, were discussed throughout the year. The GAC focused on the key assumptions, methodologies and in-model and post-model adjustments applied to provisions under IFRS 9. The Committee discussed these in detail with management and was satisfied that they were reasonable in the exceptional circumstances and had been applied consistently. External benchmarking data, where available, and historic loss experience helped inform considerations in this respect. The economic uncertainty and unprecedented conditions not experienced since the implementation of IFRS 9 challenged the usefulness of model outputs. While the use of judgemental overlays and post-model adjustments should ideally be limited, their extensive use was deemed appropriate during 2020, and are likely to continue to be required in future reporting periods.
Accounting Developments – The GAC studied the impact of various changes to accounting standards during 2020, including: the adoption of phase two of the IBOR guidance which includes amendments to IAS 39/ IFRS 9; the replacement of IAS 1; and the move to UK-based IFRS. The Committee has also considered any changes in accounting policy.
Reporting matters – The Committee reflected on a number of proposed changes to reporting requirements – for example the recommendations of the Brydon Report – and in particular any elements which could be adopted early. The publication of climate-related disclosures aligned to the Taskforce for Climate related Financial Disclosures (TCFD) alongside this Annual Report and Accounts (ahead of the regulatory deadline) demonstrates NatWest Group’s commitment to early adoption of reporting requirements.
Viability statement and the going concern basis of accounting – The GAC considered evidence of NatWest Group’s capital, liquidity and funding position and considered the process to support the assessment of principal risks, taking into account the additional industry guidance on the matter during the COVID-19 pandemic. The GAC reviewed the company’s prospects in light of its current position, the identified principal and emerging risks and the ongoing economic uncertainty resulting from the pandemic. A range of adverse economic scenarios were examined to understand the potential impacts of the pandemic on the bank, and peer comparisons considered to further inform the position. The GAC reviewed NatWest Group’s going concern and expanded viability statements and recommended them to the Board. (refer to the Report of the directors for further information.)
Non-financial reporting – As global focus on and publication of non-financial information increases the Committee has received a number of presentations on the firm’s approach to non-financial disclosures. It has put particular emphasis on the high standards of control expected to support the preparation of this information. The Committee was satisfied the non-financial disclosures and the processes undertaken by management in their preparation of these were robust and recommended the disclosures to the Group Board for approval prior to external release. These disclosures are published as part of a suite of year end documents, which is a move away from an all-encompassing Annual Report and Accounts.
Sarbanes-Oxley Act of 2002 – The GAC considered NatWest Group’s compliance with the requirements of section 404 of the Sarbanes-Oxley Act of 2002. Following interim updates on the status of the bank’s internal controls over financial reporting during 2020 to monitor progress, the GAC was satisfied that there were no Material Weaknesses for NatWest Group at the year-end. Additional work was undertaken to monitor and address the challenges to the control environment resulting from COVID-19, in particular those related to the introduction of new products and the increased risk of fraud. The Committee also reviewed the process undertaken to support the CEO and CFO in providing the certifications required under sections 302, 404 and 906 of the SarbanesOxley Act of 2002.
Control Environment Certification – The GAC considered the control environment ratings of the businesses, functions and material subsidiaries and management’s actions to ensure that the control environment was maintained throughout new working arrangements brought about by the COVID-19 pandemic and plans to address areas of weakness.
Notifiable Event Process – The GAC considered semi-annual reports on control breaches, captured by the internal notifiable event process. All Board directors were alerted to the most significant breaches as part of that process.
Annual Plan and Budget – GAC considered and approved Internal Audit’s 2020 plan and budget at the end of 2019. In light of the COVID-19 pandemic the 2020 plan was revised and submitted to the Committee for approval in July 2020. At the end of 2020 the GAC considered and approved Internal Audit’s plan and budget for 2021. The Committee was satisfied that Internal Audit had and will have adequate budget and appropriate resources to deliver its plan. In addition, the Committee was satisfied that the audit universe appropriately reflects the challenges facing NatWest Group over the coming year.
Internal Audit Charter and Independence – The GAC reviewed and approved the Internal Audit Charter and noted the Chief Audit Executive’s independence statement. In line with the revised industry guidance issued in September 2017, and in light of the current Chief Audit Executive (CAE) having been in role for 9 years, it was determined that it would be appropriate to appoint a new CAE in order to maintain the independence and perceived independence of both the role and the wider IA function. The recruitment process was overseen by the Chairman of the GAC and involved an internal and external search. The successful candidate joined the bank this month.
Performance – In 2020 the CAE continued to report to the GAC Chairman, with a secondary reporting line to the Chief Executive for administrative purposes. The GAC assessed the annual performance (including risk performance) of the function and CAE. The remuneration arrangements for both the incoming and outgoing CAEs were also determined by the GAC Chairman with input from the Chief Executive and support of the wider Committee members.
Visit – Together with the BRC, the GAC participated in a successful virtual deep dive session with members of the Internal Audit team during 2020. A variety of issues impacting the Internal Audit function were discussed, including operating during COVID-19, the function’s work on behavioural risk and financial crime, audit quality, and building capability in the function.
Evaluation – The 2020 evaluation of the Internal Audit function was carried out internally. Key stakeholders across the bank, including the GAC members, attendees and the external auditors, provided feedback, identifying areas of particular strength and those for enhancement. The overall findings were positive, and the Internal Audit function was found to be operating effectively with continued improvement in most areas being noted. Certain areas for continued development were identified, including improving bench strength in certain areas and increasing use of analytic tools; progress will be overseen by the GAC.
The GAC has responsibility for monitoring the independence and objectivity of the External Auditor, the effectiveness of the audit process and for reviewing the bank’s financial relationship with the External Auditor and fixing its remuneration.
Annual Evaluation – An internal evaluation was carried out at the GAC’s request to assess the independence and objectivity of the External Auditor and the effectiveness of the audit process during 2020. The GAC members, attendees, Finance Directors of customer businesses and functions and key members of the Finance team were consulted as part of the evaluation. The process assessed the external auditor’s mindset and culture, skills, character and knowledge, quality control and judgement. The evaluation found that the External Auditor was operating effectively and with objectivity. Certain areas for consideration to further strengthen effectiveness were suggested including making greater use of industry knowledge and benchmarking, seeking to reduce the length of formal reports and being more vocal at audit committee meetings. Following the evaluation, the GAC recommended that the Board seek the reappointment of EY as external auditor at the next AGM. FCA Client Asset Rule Opinions – During 2020 the external auditor presented the results of its assurance procedures on compliance with the FCA’s Client Asset Rules for NatWest Group’s regulated legal entities for the year ended 31 December 2019. The GAC also considered the CASS Audit plan for 2020, the findings of which will be reported to the GAC once the audit is complete.
Audit Partner – Mr Bourne has been EY’s lead audit partner for NatWest Group since the 2016 year-end and will rotate off the audit after the publication of the 2020 financial results. He will be succeeded by Micha Missakian and in preparation for this there has been a transition period in which Micha has observed GAC meetings and met with members of the Committee and management.
NatWest Group has a policy in relation to the engagement of the external auditors to perform audit and non-audit services (the policy).
The GAC reviews the policy annually to ensure it remains fit for purpose. All audit and non-audit services are preapproved by, or on behalf of, the GAC to safeguard the external auditor’s independence and objectivity.
Letter from Morten Friis Chairman of the Group Board Risk Committee
I am also pleased to welcome Lena Wilson as a member of BRC. She joined the Committee in August 2020.
Further information on all the key topics considered by the Committee during the year is provided on the following pages. Part of the BRC’s role is to review reports and regulatory submissions on behalf of the Board and recommend them for approval. Where this is the case, the report on the following pages is annotated with an asterisk (*).
2020 has been an extraordinary year and I would like to thank my fellow Committee members for their continued commitment, support and challenge throughout the year.
Membership BRC comprises four independent nonexecutive directors. The details of the members and their skills and experience are set out on pages 97 to 98.
Regular attendees at BRC meetings include: the Group Chairman, Group CEO, Group CFO, Group Chief Risk Officer, Group Chief Legal Officer and General Counsel, Group Chief Audit Executive, and the External Auditor. External advice is sought by the Committee where appropriate.
Two non-executive directors of NWH Ltd (the ring-fenced bank) attended Committee meetings as observers in their capacity as members of NWH Ltd’s BRC. Meetings of the Group and NWH Ltd’s BRCs share much of a common agenda and are generally run in parallel.
As in previous years, during 2020, members of the Committee undertook a programme of visits to the Risk, Internal Audit and Finance functions, in conjunction with members of the Group Audit Committee. The Committee also held in-depth meetings on risk reporting. Again, all these meeting were held virtually during 2020.
Performance Evaluation The annual review of the effectiveness of the Board and its senior Committees, including BRC, was conducted internally in 2020.
Risk Management Reports – The Committee considered detailed analysis on NatWest Group’s risk profile, including the UK and global economic outlook, top and emerging risks and threats, and NatWest Group’s performance against risk appetite, at each of its meetings via Risk Management Reports. As the COVID-19 pandemic evolved, this was supplemented in H1 2020 by additional risk reporting focussed specifically on the impact of the pandemic on NatWest Group, and management’s response to the crisis. Reporting and discussion included coverage of NatWest Group’s treatment of its customers and colleagues (with a particular focus on operationalisation of COVID-19-related UK Government lending schemes and management of capital repayment holidays), management of key credit, conduct and operational resilience risks, prioritisation and risk appetite decisions, and impacts of the pandemic upon the change portfolio, including regulatory forbearance. Reports on legal and regulatory developments and litigation risks were also frequently considered.
BRC monitors and challenges the development of plans which would allow NatWest Group to be dealt with effectively in the event of financial failure.
Recovery and Resolution – BRC continued to receive updates on the progress and status of the NatWest Group resolution planning programme, including compliance with the Operational Continuity in Resolution (OCiR) requirements, and work being undertaken to enhance adequacy and effectiveness testing. In 2020, management commissioned a strategic review of Internal Service Management and ensured that identified areas for improvement in relation to the OCiR framework were incorporated, to ensure full alignment, BRC reviewed the outputs of this exercise and will keep actions under review. BRC also reviewed management’s approach and progress to the resolvability self-assessment, including reviewing activity in plan to provide management and BRC with the requisite assurance prior to regulatory submission in 2021. BRC reviewed planned enhancements to the NatWest Group recovery plan, based on learnings since the 2019 submission. Due to COVID-19, the next recovery plan submission will be due in 2021.
BRC devoted considerable time to stress testing, challenging and scrutinising the outputs.
ICAAPs, ILAAPs and Budget Stress Tests – The BRC considered the budget and stress tests ahead of review of the results of the ICAAPs and ILAAPs and the reverse stress tests for NatWest Group, including the material judgements and areas for future enhancement. It was noted that the tests did not cover NatWest Group’s current and evolving view of COVID-19 implications (due to timing of submission). Management has since continued to update base economic and stress scenarios as the pandemic has evolved, with oversight by BRC as appropriate. BRC reviewed an annual update on the stress testing control environment, key learnings including those related to the COVID-19 pandemic, and recent and imminent outcomes from NatWest Group’s investment in stress testing capability. The Committee also kept under review changes to the stress testing operating model and related work to strengthen and validate models and improve supporting governance.
BRC has continued its key role in the review of the implementation of the Enterprise Wide Risk Management Framework and oversight of the Risk Appetite Framework.
Risk Management Framework – The development of the Enterprise Wide Risk Management Framework in 2019 was intended to help ensure consistent, efficient and effective risk management across NatWest Group. During 2020, BRC has continued its oversight of the implementation and embedding of the framework.
Transformation – BRC considered progress on the delivery of NatWest Group’s transformation and change programme and its position relative to risk appetite, including investment prioritisation and assessment of the impacts of COVID-19 and associated regulatory forbearance, on the portfolio. BRC placed particular attention on General Data Protection Regulation (GDPR) compliance, payment systems resilience, and work being undertaken to enhance models to meet European Banking Authority (EBA) standards.
Control Environment Certification and oversight – The Committee was provided with updates regarding the control environment ratings of the franchises, functions, Services and legal entities. The Committee considered the impact of crisis management decisions made in response to the COVID-19 crisis on the control environment and measures which had been put in place to ensure that the business could continue to operate safely whilst supporting customers. For 2020, the control environment rating across NatWest Group remained a 3, meaning the required target was not attained.
Risk Culture – BRC considered the outcome of an externally facilitated exercise to benchmark progress against NatWest Group’s internal assessment of risk culture, noting areas of strength and actions underway to address issues identified and maximise opportunities, including realignment of a broader culture strategy to NatWest Group’s refreshed Purpose. Subsequently, management reported to the Committee on the new strategic workstream that has been established to link Purpose and Culture and drive a bank-wide holistic approach to culture development, including risk culture.
Capital and Liquidity –In addition to reviewing the NatWest Group and NWH Ltd ICAAPS* and ILAAPs* as outlined above, BRC carefully monitored the impacts of COVID-19 upon NatWest Group’s capital and liquidity position. BRC received reports on NatWest Group’s approach to capital, liquidity and funding management and risk appetite targets, including double leverage implications and considered the risks associated with capital distribution proposals in advance of Board consideration.
Operational risk, resilience and cyber security – BRC received regular updates on NatWest Group’s operational risk profile and risk appetite, with a particular focus on resilience through COVID-19, outsourcing, information and change. The Committee considered the bank’s preparation for external regulatory developments in relation to operational resilience and an assessment of preparedness for certain scenarios relating to interconnected risks. In addition, separate updates on information security were reviewed and BRC dedicated time to the consideration of cyber risk, the external threat landscape, and action being taken by management in response. Reports were also received in relation to NatWest Group’s payments risk and control environment and fraud.
Regular monitoring of key risks is a pivotal part of BRC’s role both via routine risk reporting and via regular focused reports.
Model risk management – Models remain fundamental to NatWest Group’s risk management processes and stress testing capability and BRC dedicated time to reviewing progress made by management to deliver improvements to model risk policy and governance. BRC received updates on model risk appetite, the model risk profile and future model risk management enhancements required to ensure the risk can be managed within appetite, noting future model risk challenges which will impact the risk profile from 2020 onwards.
Remuneration – The risk and control goals of members and attendees of the NatWest Group Executive Committee (ExCo) were reviewed, with additional focus on underlying objectives for the Group Chief Risk Officer. In addition, the Committee reviewed the risk management performance and Long-Term Incentive performance conditions, pre-grant and pre-vest assessments for ExCo, ensuring fair reflection of risk management performance in award and vesting outcomes. More generally, the Committee made recommendations to RemCo on the NatWest Group bonus calculation, ensuring appropriate consideration of risk management performance. Further detail on how risk is taken into account in remuneration decisions can be found in the Report of RemCo from page 119.
Dear Shareholder, I am pleased to present my third report as Chairman of the Group Sustainable Banking Committee (the Committee or SBC).
Purpose Pillars This year, it was agreed that the Committee’s remit would be amended to focus on NatWest Group’s new Purpose framework and priorities, launched in February 2020 given their strategic importance. While the Board retains ownership of the overall strategic and purposeful direction, it was agreed that the Committee would oversee progress towards achieving NatWest Group’s purposeful commitments and ambitions on behalf of the Board.
The refreshed pillars of sustainable banking for 2020 focussed on: Learning & Capability; Climate; Enterprise; Conduct & Ethics; and, People & Culture. This Purpose-focus informed our meeting structure and proved helpful in prioritising matters for which the Committee felt oversight and challenge, on behalf of the Board, was most valuable.
In response to the COVID-19 pandemic, the April meeting of the Committee was repurposed from Learning & Capability to focus on our response to the crisis and our treatment of customers.
The Committee’s stakeholder engagement model involves integrated engagement sessions aligned to our pillars of sustainable banking and seeks to bring internal and external voices and challenging perspectives into the boardroom. We will continue to keep SBC’s focus and responsibilities under review.
2020 Highlights I am pleased to report that the Committee believe they have played a key role in supporting the Board in the organisation’s purpose-led journey, with the Committee benefitting from focussed discussion on matters such as Climate, Enterprise and our People & Culture.
Climate  The Committee met to consider how we become a leading bank driving the UK’s transition to a low carbon economy, while also tracking broader ESG progress. Topics included progress against the climate risk agenda, future areas of focus and an update on progress against expectations in the UN Principles of Responsible Banking.
 Areas of debate and challenge included climate innovation, peer comparisons and industry collaboration, as well as the approach to disclosure. The Committee also received a further detailed update on best-in-class climate change action among European banks.
 We discussed opportunities to support our customers across the Retail, Commercial and Private Banking areas, and some of the positive ways the organisation had pivoted to support Enterprise given the challenging climate, including via the Business Builder and Accelerator programmes.
 The Committee noted management updates on progress and plans to embed culture, particularly given the impact of the COVID-19 pandemic on colleagues. Further to the Committee discussion, management provided additional peer comparison information to Members in support of the Committee’s role in overseeing Culture.
 The Committee was provided with a Culture Measurement Report providing insights to understand the status of culture across NatWest Group. The report now follows the ‘Five principles of a purpose driven business’ model and uses Banking Standards Board (BSB) survey results, culture measures, inclusion and wellbeing data. It was noted that there had been some improvement in BSB survey results year-on-year and the Committee acknowledged that progress had been made across culture dimensions in 2020 despite the challenges of the global pandemic.
Meetings and escalation mechanisms have not changed since last year’s report. In many cases the Committee and the Sustainable Banking Committee of NatWest Holdings Limited met concurrently.
Authority is delegated to Group SBC by the Board and a regular report of the Committee’s activities is provided. The terms of reference are available on natwestgroup.com and these are reviewed annually and approved by the Board.
Performance evaluation The annual review of the effectiveness of the Board and its senior Committees was conducted internally in 2020. Overall, the feedback on the Committee was positive and it was agreed that the Committee was operating in accordance with its terms of reference.
Areas of focus for 2021 will be to continue to oversee the embedding of Purpose across NatWest Group, consider focus on Customer Service & Experience at the Committee, and ensure appropriate challenge from external speakers.
Conclusion In this first year of supporting the embedding of our Purpose, my fellow directors and I have had the opportunity to help shape and oversee NatWest Group’s future sustainable banking strategy and response to these important issues in the context of a challenging year. I want to take the opportunity to thank the Committee members, attendees and presenters for their continued contribution and support in 2020.
2021 presents challenges and opportunities for the sustainable banking agenda as it builds on the progress achieved in 2020 and seeks to support the recovery post-2020. I am looking forward to steering future SBC discussions in such an important area for NatWest Group’s strategy and to reporting on progress next year.
Authority is delegated to TIC by the Board and a regular report of the Committee’s activities is provided to the Board. The terms of reference are available on natwestgroup.com. These are reviewed annually and approved by the NatWest Group Board.
Principal activity during 2020 During 2020, TIC priorities were reset to focus on the following key themes: Digitising the Core – TIC has considered actions being taken in relation to existing technology to enhance customer and colleague experience and improve the resilience of IT systems.
It also highlighted how NatWest Group could collaborate as one-team to deliver digital enhancements, automated solutions and critical changes at pace for customers.
NatWest Group’s cloud strategy provides capabilities to support customers and colleagues. TIC discussed the continued development, adoption and practical implementation of the cloud strategy and cloud technologies. It also considered the potential future use and opportunities presented by cloud.
Future Ready – Technology and innovation are enabling fundamental shifts in the way financial services are delivered. This has been significantly accelerated due to COVID-19. TIC has had oversight of actions being taken to transform data and technology capabilities and deploy ‘forward-looking’ technology across the bank. It has received updates on the implementation of the One-Bank technology transformation strategy, which includes the consolidation of services and creation of centres of excellence. The Committee considered how technology services are provided from NWH to NatWest Markets and steps being taken to improve NatWest Group’s long-term data capabilities.
Collaboration – TIC considered management’s new approach to the operating model overseeing innovation, partnerships and ventures. The framework will provide oversight across NatWest Group, driving alignment and a One-Bank approach. It will promote customer focussed innovation and partnerships and build on the innovation ecosystem that has been established.
Ventures – to continue the bank’s journey to introduce new and innovative customer solutions, TIC considered the strategic options to deliver a digital bank. This included the viability assessment for Mettle (our digital banking proposition for small businesses to combine their current account with invoicing, payment chasing and bookkeeping capabilities) and Bó, (our digital bank pilot) and lessons learnt following the decision to close Bó.