Our Group We are the largest UK retail and commercial financial services provider with over 25 million customers and a presence in nearly every community.
Our shares are quoted on the London and New York stock exchanges and we are one of the largest companies in the FTSE 100 index.
This Annual Report and Accounts contains forward-looking statements with respect to the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. For further details, reference should be made to the forward-looking statements on page 347.
The 2020 Annual Report and Accounts incorporates the strategic report and the consolidated financial statements, both of which have been approved by the Board of Directors.
Snap happy As we did previously, in 2020, we offered colleagues from across the Group an opportunity to submit photographs that they felt represented their year. The winning images have been highlighted on the divider pages of this report alongside the photographer's name.
Group performance Continued strategic progress with financial performance impacted by the coronavirus pandemic, deterioration of the economic outlook and lower interest rates
Inside this year’s Annual Report 6.8pp Cost:income ratio deteriorated due to lower income
We have lent over £12 billion to help businesses bounce back and granted around 1.3 million payment holidays to support customers, while increasing customer satisfaction, strengthening our franchise with growth in deposits and further enhancing our leading digital proposition, which now serves 17.4 million customers.
Our Group We have and will continue to support our customers and colleagues to get through these extraordinary times.
We have supported them to obtain more than £12 billion in finance through the Governmentbacked lending schemes, helped them to manage their cash flow by granting around 34,000 capital repayment holidays and helped their working capital by agreeing around 22,000 fee-free overdrafts to businesses.
We’re giving our customers the flexibility they need to manage their finances, while helping protect them from fraud.
For over 320 years, with our unique family of brands, we have supported Britain through the good times and the bad and this time is no different. In 2021, we will continue to do all we can to Help Britain Recover, as this is in the best interests of all our stakeholders. More information on our next chapter on pages 36 to 45.
Through a range of new and existing partnerships we are providing extra capacity in friendship services, mental health programmes and digital skills training. We have also provided £25.5 million to our charitable Foundations in 2020 and have guaranteed the same funding for 2021, to keep those who are most isolated connected and give people support when they need it most.
Board oversight of the pandemic in 2020 can be found on pages 90 and 91
Overview My first annual statement to you as Chair comes at the end of what has been a tumultuous and extraordinary year for both the UK and Lloyds Banking Group. It has been a year of unprecedented challenge in which many people have suffered but also one in which the Group has proved it can make a difference and truly support its customers and the UK economy.
Helping Britain Recover and Strategic Review 2021 The role of Chair is to help ensure that the Board and the executive team are focusing on the right issues and developing the right purpose and strategy, executing it effectively and with the right values and cultures as an organisation.
We recognise that the focus of the Group's purpose must evolve in response to the current environment and changing customer needs and expectations. Many individual and business customers have been impacted by the crisis and we have a responsibility, as the UK’s largest bank, to help these customers and Help Britain Recover. This is completely aligned with our ongoing purpose of Helping Britain Prosper, and is in the best interests of all stakeholders.
We have subsequently published the findings which can provide insight and direction to different stakeholder groups as we explore together how we can help to rebuild the economy. We are privileged to be able to use our comprehensive regional and national network and our sector expertise to bring together people with a diverse range of perspectives.
Helping Britain Recover is at the heart of Strategic Review 2021, which launched the same day as our full year results, in February 2021 and will further enhance our capabilities to create the UK's preferred financial partner for personal customers and the best bank for business. Having been heavily involved in the development of the evolution of strategy, the Board is excited about the opportunities for the Group.
Given the Group’s unique position in the UK economy, as part of Strategic Review 2021, we have identified five areas where we can make a transformational societal impact and which are also deeply integrated into the strategic development of our business: Help rebuild households’ financial health and wellbeing, Support businesses to recover, adapt and grow, Expand availability of affordable and quality homes, Accelerate the transition to a low carbon economy and Build an inclusive society and organisation.
These five priorities for 2021 consist of a number of commitments in areas where we can make the biggest difference, create value for our customers and, given they will enable us to build a sustainable and inclusive business, will also benefit shareholders. Further detail on our purpose and the areas of focus are provided on pages 38 and 39.
Continued transformation of the Group The Group’s significant investment in transformation and digital in recent years has clearly positioned us well. It is also clear that we will need to continue to evolve and invest to build on this advantage. The COVID-19 crisis, which is having an unprecedented impact on the overall economy, on businesses across sectors, and on how we all live our lives, has accelerated the pace of change in the banking industry. It has also highlighted new emerging trends that will shape the industry in the future.
To do this, we need to continue our journey to become a much more flexible organisation with a more agile culture and faster decisionmaking. We will need to reinvent the way we do business and are increasingly likely to partner with specialist technology and fintech providers. The first stages of this approach are laid out in our evolution of strategy, Strategic Review 2021. I believe it is a solid foundation for our continued transformation and delivering strong and superior returns.
Our unique position allows us to Help Britain Recover and play our part in returning the UK to prosperity
We will partner with independent debt advice organisations to ensure customers have access to practical support
We will support at least 75,000 UK businesses to start up in 2021
We will help at least 185,000 small businesses boost their digital capability
We will provide £10 billion of lending to first-time-buyers and lead a national conversation on access to the housing market
We will provide £1.5 billion of new funding support, incl. £500 million in ESG-linked funding, in support of the social housing sector
We will assess the energy retrofit requirements of over 200,000 homes in the social housing sector
We will expand the funding available under our green finance initiatives from £3 billion to £5 billion
We will introduce a flagship fossil fuel-free fund to support green growth
We will set new aspirations for 50 per cent women, 3 per cent Black and 13 per cent Black, Asian and Minority Ethnic colleagues in senior roles by 2025
We will support regional regeneration, including launching the 'Regional Housing Growth Initiative'
Conversations have covered a range of topics, from accessing the finance and skills to support the recovery journey, to the opportunities brought about by an increasingly digital economy. Conversations also revealed a shared view of what the critical priorities should be for policy-makers to emerge with an economy that is both more resilient and more sustainable.
Given the financial performance of the business, we were not able to pay any bonuses for 2020, but to ensure that the support shown to customers was appropriately recognised, we made a one-off recognition award to 40,000 colleagues, predominantly those in customer-facing roles and are awarding all colleagues a £400 share award to motivate delivery of the next phase of our strategy. In addition, the vast majority of colleagues will receive an above inflation pay increase this year with larger relative increases for lower grade colleagues. As a result, the total package for the vast majority of customerfacing colleagues was largely unchanged in the year.
COVID-19 is likely to change ways of working beyond what we ever thought was possible with more virtually-connected, remote working teams and fewer offices. Also, employees’ expectations are evolving with over 77 per cent of our colleagues, who are currently working from home, indicating in recent colleague surveys that they would like to work from home three or more days per week. All this requires companies to rethink the way they manage their business and, given that we want to be an employer of choice, attracting the best staff, this hybrid approach is likely to be increasingly prevalent.
The values and standards of behaviour we set are an important guiding influence and we are determined to address and learn from historic failures, including those at HBOS Reading which occurred before Lloyds acquired HBOS in 2009. An independent re-review of compensation for those impacted is currently being progressed and we await the outcome of the Dame Linda Dobbs’ review on the Group’s handling of the issue. We are already implementing lessons learnt so far and are committed to ensuring all those impacted are treated fairly and compensated appropriately.
While the Group was the first FTSE 100 company to set targets to increase both gender and ethnic diversity at senior levels, the Board recognises that there is always more that can be done to ensure a diverse workforce. The Board was therefore pleased to endorse a Race Action plan in support of Black colleagues to drive cultural change, recruitment and progression across the Group. Further information about the Race Action plan can be found on page 25.
We also gained shareholder approval for the 2020 Directors’ Remuneration Policy at the AGM in May last year. We do however recognise that a substantial proportion of our shareholders voted against the Policy and against the Long Term Share Plan and are sensitive to concerns on remuneration in the sector. Following further engagement with our shareholders, we have therefore committed to a series of changes in how the new Policy is to be implemented and disclosed in 2021. Our new Chief Executive Officer, Charlie Nunn, has also agreed to a significantly reduced reward package. For further details, please refer to pages 115 to 142 in our Directors’ Remuneration Report.
Shareholder returns The Group's financial performance in 2020 was clearly impacted by the pandemic and the consequent challenging economic environment. Despite this we delivered a resilient financial performance and continued to make good strategic progress. Our performance continues to demonstrate the stability of our customer franchise and business model, the appropriateness of our strategy and the strength of our balance sheet.
I am also pleased to announce that the Board has recommended a final ordinary dividend of 0.57 pence per share. This is the maximum dividend we were able to recommend given current regulatory constraints. Going forward our capital position remains strong and we remain committed to future capital returns.
Introducing our new Group Chief Executive Charlie Nunn Charlie Nunn will, subject to regulatory approval, join the Group in August 2021, as our new Group Chief Executive. He was previously the Global Chief Executive of Wealth and Personal Banking at HSBC. Charlie has had a long and successful career in financial services. He began as a management consultant at Accenture where he worked for 13 years in the US, France, Switzerland and the UK. He then moved to McKinsey & Co. as a Senior Partner for five years, joining HSBC in 2011.
At HSBC, he has held a series of leadership positions including Global Chief Operating Officer of Retail Banking and Wealth Management, Group Head of Wealth Management and Digital, and Chief Executive of Retail Banking and Wealth Management before taking on his most recent role.
Also, as recently announced, Sara Weller will have served 9 years as a Non-Executive Director in February 2021 and accordingly plans to retire as Chair of the Responsible Business Committee and a Non-Executive Director at the AGM in May 2021. Amanda Mackenzie will take on the role of Chair of the Responsible Business Committee following Sara's retirement from the Board and Sarah Legg has been appointed as a member of the Responsible Business Committee with effect from 1 February 2021.
Full details of the changes are provided in the Nomination and Governance Committee Report on pages 98 to 100.
I would like to end by reiterating my thanks to our colleagues for their significant contribution in 2020. It is the commitment, innovation and dedication from all of them that enables us to deliver for our customers and shareholders. There are difficult times and more change ahead, both this year and beyond, however we will do our best to fulfil our role in the country’s recovery.
Lloyds Banking Group will Help Britain Recover and Help Britain Prosper again.
Continued strategic progress while supporting customers and colleagues in difficult times
The Group has benefited from its multi-brand, multi-channel distribution model during the pandemic, as we have been able to continue serving customers through the UK's leading digital bank, the largest branch network in the UK and our telephony centres. I am particularly pleased with how quickly the Group adapted to the initial lockdown and how well our digital banking proposition has performed in a period of significantly heightened usage.
Our infrastructure has been highly resilient, with around 90 per cent of our branches remaining open while our digital channels have performed well, attaining record levels of customer satisfaction despite significantly increased usage.
Financial performance In the context of the pandemic, statutory profit after tax was £1.4 billion. This was 54 per cent lower than 2019 and earnings per share of 1.2 pence were down 66 per cent. Lower profits were significantly due to the impairment charge of £4.2 billion in 2020 (2019: £1.3 billion), primarily reflecting the deterioration in the economic outlook. Trading surplus of £6.4 billion was down 27 per cent on 2019, reflecting continued revenue pressures partly offset by lower total costs. Our relentless focus on cost efficiencies has led to a 4 per cent reduction in operating costs despite absorbing additional coronavirus-related expenses during 2020.
Strategic progress The Group’s previous three-year strategic plan was launched in February 2018 and we have now achieved our ambitious target of transforming the Group for success in a digital world by investing £2.8 billion across our four strategic pillars.
Leading customer experience In 2020, we successfully built on our track record of improving customer propositions, even in the context of our focus on supporting our customers and ensuring operational resilience during the coronavirus crisis. The pandemic has accelerated the shift towards digital for everyday banking needs. We are the largest digital bank in the UK and have seen our digitally active customer base increase to 17.4 million customers, while our active mobile app users have increased by nearly two million in 2020 to 12.5 million customers. At the same time, we have continued to enhance our digital propositions, with a focus on convenience and control. As a consequence, we have seen our digital customer satisfaction scores improve to a year end record high of 67.
Alongside creating the UK’s leading digital bank, we have maintained the UK’s largest branch network. We have managed to keep around 90 per cent of our branches open during the coronavirus pandemic, using appropriate safeguarding measures. In addition, we have maintained our ATM network at over 95 per cent capacity and have set up dedicated telephone lines our customers over 70 years old and those working on the frontline in the NHS.
Digitising the Group We have accelerated the digitisation of the Group by progressively modernising and simplifying the IT architecture, continuing to digitise customer journeys and migrating applications to private cloud. We have now digitised 78 per cent of the Group’s cost base, ahead of our GSR3 target of 70 per cent. With cumulative technology spend of more than £4 billion over GSR3, our ongoing focus on transforming the business and investing in digital enabled us to respond effectively to the accelerated shift to digital channels brought about by the coronavirus pandemic. The proportion of products originated via digital channels increased significantly in 2020, up 10 percentage points to 85 per cent, our highest level to date.
Maximising Group capabilities We have actively supported our Commercial Banking clients through the pandemic, exceeding our £6 billion target for increasing net lending to start-ups, SME and Mid Market clients over the last three years. Outside of our support for the Government lending schemes, in 2020 we also achieved our £18 billion commitment for gross lending to UK businesses.
Transforming ways of working The coronavirus pandemic is having significant implications for our colleagues, in both their personal and professional lives. These include accelerating the transition to new ways of working for the majority of the Group and accentuating the skills that we have sought to develop over the course of GSR3. Since March 2020, more than 50,000 colleagues (over 70 per cent of our workforce) have worked remotely and we have increased our adoption of remote working tools to greatly increase collaboration and support more agile working practices.
Maximising Group capabilities >£6 billion of net lending to start-ups, SMEs and Mid Market customers 1.5 million additional pension customers >6 million customers able to see their banking, insurance and pension products in one place through Single Customer View functionality
Transforming ways of working 5.3 million cumulative additional future skills training hours delivered 65 per cent of change delivered by agile methodologies
Building capability and digital skills was more important in 2020 than ever, given the need for customers to access services during periods of lockdown. We have now facilitated digital training for 1.8 million individuals, SMEs and charities since the start of 2018 and delivered over 12,500 devices to customers, enabling them to safely book medical appointments, connect with family and access internet banking facilities.
Supporting businesses to start up and to grow is fundamental to Helping Britain Recover. We have now helped over 265,000 businesses start up since the beginning of 2018 and trained over 1,200 apprentices through our investment in the Lloyds Bank Advanced Manufacturing Training Centre since the beginning of 2018.
The Group launched The Big Conversation: Helping Britain Recover in September 2020, a national programme of events which brought together more than 900 businesses, community members, policy makers and subject-matter experts across the UK’s nations and regions to explore how we can together help the UK recover from the impact of coronavirus and build a more resilient and sustainable economy.
We are championing Britain’s diversity and in 2020 launched our Race Action plan. This makes the Group the first FTSE 100 company to make such public commitments, including a new goal to specifically increase Black representation in senior roles to align with the overall UK labour market. We also published our first Ethnicity Pay Gap Report, made progress on gender diversity and published our annual Gender Pay Gap Report.
Management change It is with mixed emotions that I will step down as Group Chief Executive at the end of April. It has been a great honour to work alongside all of my colleagues and achieve the remarkable transformation of the past ten years, but now is the right time to move on, following my announcement last July.
Helping Britain Prosper We recognise that the focus of the Group's purpose must evolve in response to the current environment with changing societal and customer needs and expectations. Given our focus on the UK, we are dedicated to helping our customers, clients, colleagues and communities get through the coronavirus pandemic and rebuild livelihoods, whilst delivering long-term sustainable success for shareholders. Our core values underpin our purpose to Help Britain Prosper. With this in mind, our focus for the near-term will be to Help Britain Recover.
Support businesses across the UK to recover, adapt and grow Expand availability of affordable and quality homes Accelerate the transition to a low carbon economy Build an inclusive society and organisation
The Group is committed to helping the UK transition to a sustainable low carbon economy. We continue to make progress in implementing our financed emissions reduction ambition on the path to net zero by 2050 or sooner, working with customers, Government and the market to help reduce the emissions we finance. In so doing, we are also focusing on enhancing our green finance products and services. This includes supporting renewable energy projects since the start of 2018 that could power the equivalent of 10.1 million homes, more than doubling the number of electric vehicles we finance, raising around £2.9 billion funding in green and sustainable bonds for our clients since 2016 and offering pensions to our customers and colleagues with sustainable investment choices.
We are working hard to tackle social disadvantage across Britain. In 2020, the Group’s four independent charitable Foundations received £25.5 million of funding, enabling them to continue their work in supporting nearly 2,800 charities. These charities tackle vital issues such as domestic abuse, mental health, modern slavery and human trafficking, and employability. The Group has committed to maintain its £25.5 million funding to the Foundations in 2021, ensuring that these charities can secure a more certain future during these difficult times and safeguard their important work.
Our ongoing commitment to helping people save for the future is key to developing social mobility and we have increased the open book assets that we hold on behalf of customers in retirement and investment products by £46 billion since the start of 2018.
The strategy focused on supporting the real economy of the UK, in the retail, commercial and insurance areas.
Launch of Helping Britain Prosper Plan, and Group Strategic Review 2 Alongside the next phase of the strategy, the Group launched the Helping Britain Prosper Plan to address some of the social, economic and environmental challenges facing the UK. The Plan took us beyond business as usual, uniting the Group behind an inspiring set of objectives.
Recognising the importance of digital We became the first UK bank to have a digital division, reporting directly to the Chief Executive.
First dividend in six years announced Returning the Group to profitability with over £12 billion to date returned to shareholders since dividends were resumed in 2014.
The Group has raised over £13 million for Mental Health UK to date.
Lloyds Banking Group returns to private ownership In May 2017, the Government completed the sale of their shares and the Group returned to private ownership.
Largest digital bank in the UK 17.4 million digitally active customers and 12.5 million mobile app users, alongside the largest branch network in the UK.
Led the conversation on mental health in the workplace Increasingly engaged workforce First FTSE 100 company to set a public goal on gender diversity in 2014 and 2018, the first FTSE 100 company to target an increase in the proportion of Black, Asian and Minority Ethnic colleagues
Helping Britain Prosper The Group has a clear ongoing purpose of Helping Britain Prosper, and given the considerable impact of the pandemic, the current focus is on Helping Britain Recover.
We aim to help our customers, clients, colleagues and communities get through the crisis and back on their feet, while delivering long-term sustainable success for shareholders.
Our core values underpin our purpose to Help Britain Prosper Ensuring we create the right environment for our colleagues to deliver our aim to become the best bank for customers, colleagues and shareholders: Putting customers first Keeping it simple Making a difference together
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Market leading efficiency through tech-enabled productivity improvements Our simpler operating model and continued focus on efficiency provide a cost advantage, enabling us to invest more to the benefit of both customers and shareholders.
Prudent, low risk business with strong capital position Being low risk is fundamental to our business model. Our low risk appetite is reflected through the quality of our loan portfolio and underwriting criteria. Our financial strength has been transformed in recent years and our capital position is strong.
Purpose-driven and customer focused culture Our clear purpose of Helping Britain Prosper is driving the business and our current focus on Helping Britain Recover is at the heart of our evolution of strategy.
Inclusive and diverse organisation Being one of the largest employers in the country, we will further focus on developing an inclusive, diverse, skilled and future-ready workforce.
As a large, UK focused financial services provider we face several external and internal challenges: The main external challenges we face are discussed on pages 32 to 35
We recognise these challenges to our business model and strategy and regularly review the associated risk implications, to enhance our sustainability over the longer-term. For further details on the risks associated to our strategy, please refer to pages 56 to 59.
Pay for performance across the Group Key performance indicators are regularly reviewed by the Board and the Group Executive Committee, to evidence performance against the Group’s most important priorities. These include measures for assessing financial and non-financial performance, balancing the interests of various stakeholders including customers, shareholders and colleagues.
All the key performance indicators shown here directly impact remuneration outcomes and support the delivery of our reward principles.
In 2021 Further to stakeholder feedback we are looking to further simplify and enhance the single balanced scorecard used for performance assessment, the bonus (Group Performance Share) and the Long Term share plan in 2021. The new balanced scorecard has been aligned to our strategic priorities and has been structured to incentivise the right behaviours and results. The weighting for financial performance has been increased to 50 per cent while the number of measures in the balanced scorecard has been reduced from 15 to 7 to ensure greater focus and simplicity. Our 2021 balanced scorecard
- Increasing our gender and ethnic representation in senior roles (7.5%)
- Group Customer Dashboard – our assessment of how effectively we are serving customers across all brands, products and services (25%)
The statutory return on tangible equity was lower in 2020 given the lower statutory profit, largely due to increased impairment charges and lower income.
The Group's cost:income ratio deteriorated in the year, driven by lower income, but remains market leading.
Our common equity tier 1 ratio remains strong and is significantly in excess of our current target and regulatory requirement. 1 Reported on a pro forma basis, reflecting the dividend paid up by the Insurance business and declared share buybacks in 2017 and 2018.
This measures how well we are delivering a leading customer experience. It tells us how effective we are in building strong customer relationships. Historical scores restated to reflect changes in measurement approach
Reflecting the pace of digital adoption, the number of active digital customers increased in the year to 17.4 million, with 12.5 million mobile banking app customers and average customer logons at 26 times per month.
This indicates the progress we are making in digitising the Group from the customer usage standpoint.
We do make mistakes, but when this happens, we work hard to fix the issue quickly for the customers involved and learn from any mistakes.
Improved customer satisfaction, with digital net promoter score increasing by 2 per cent vs. 2017 to an all-time high of 67
Read more on page 18 78 per cent of cost base covered by digitisation, while progressively modernising and simplifying our IT architecture >£4 billion cumulative technology spend 2018 - 2020
Over £6 billion of net lending to start-ups, SMEs and Mid Market customers since 2018, comfortably exceeding our cumulative 3 year target 1.5 million new pension customers £46 billion cumulative growth in open book assets under administration since the end of 2017, despite challenging market conditions during 2020
Read more on page 19 5.3 million cumulative additional future skills training hours delivered 65 per cent of change delivered by agile methodologies
We have invested around £2.8 billion in our strategic priorities across four pillars over the past three years, with this investment helping us deliver significant progress in our ongoing transformation of the Group for success in a digital world.
Tackling social disadvantage across Britain Number of charities we supported in 2020 as a result of our £100 million commitment to the Group’s independent charitable Foundations
Building capability and digital skills Number of individuals, SMEs and charities trained in digital skills, including internet banking 1.8 million
Percentage of roles held by Black, Asian and Minority Ethnic colleagues in 2020 10.6 per cent1
Percentage of senior roles held by women in 2020 37 per cent1 1 2020 Indicator is subject to Limited ISAE3000 (revised) assurance by Deloitte LLP for the 2020 Annual Responsible Business Reporting
In line with our purpose of Helping Britain Prosper, our primary focus during the current pandemic has been to support and do what is right for our customers. Despite this challenging backdrop, we have successfully built on our track record of strengthening our propositions and improving the experience of both our personal and business customers during the course of 2020.
Improving the experience of our business customers Business customers are also turning to digital channels for everyday needs, while continuing to value human interaction for more complex needs. We have proactively supported approximately 60,000 business customers via our Client Outreach Programme, while also improving the digital propositions available to them. Amongst other developments, we were the first bank globally to implement ’SWIFT GPI Instant’ to increase the speed and transparency of cross-border payments. In addition, we launched a Green Building Tool to help customers make their properties more energy-efficient, as well as a pilot Business Finance Assistant tool designed to help clients save time on financial admin and manage their finances more effectively.
Delivering for customers The proportion of products originated via digital channels increased significantly in 2020, up 10 percentage points to 85 per cent, the highest level to date. Despite increased usage, this was not at the expense of customer satisfaction where net promoter scores reached an all-time high, as ongoing investment in systems and functionality meant that we were able to meet the increased customer demand, while also adapting our offering to make it easier for our customers to perform activities online. For example, we doubled the size of cheque scanning limits for our customers, resulting in a more than 80 per cent increase in the number of cheques deposited by our retail customers.
Without our robotics capability, we wouldn’t have been able to provide such timely support to our customers at a time when they needed it the most.
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We have continued to make strong progress in meeting our personal customers’ growing financial planning and retirement needs, while continuing to support our Commercial Banking clients through increased lending and further customer proposition improvements.
Meeting our customers’ growing financial planning and retirement needs In 2020 we increased the number of customers with access to our unique Single Customer View capability by approximately 1.5 million to c.6.5 million, but did not achieve our original target of extending this to 9 million customers, due to our revised focus on more immediate customer priorities in light of COVID-19. We also expanded the scope of Single Customer View to include Halifax Share Dealing so that customers with this functionality are now able to view their pensions and investment portfolios alongside their banking products. Separately, we also launched an equity release product via our Scottish Widows brand, through which customers can access equity in their homes to help family members get onto the housing ladder or supplement their own retirement income. While the pandemic has caused some delays, our ambition for Schroders Personal Wealth to become a top three UK financial planning business remains unchanged, although we now expect to achieve this by 2025.
Improving the experience of our Commercial Banking clients We have actively supported our Commercial Banking clients throughout the COVID-19 crisis. In 2020 we achieved our gross lending commitment to businesses of £18 billion and comfortably exceeded our cumulative three year target of increasing net lending to start-ups, SME and Mid Market clients by £6 billion. In addition, we extended our support for business clients who trade overseas by successfully completing the Bank’s first UK Export Finance backed Export Development Guarantee transaction, participating in the completion of transactions with a total syndicated value of £4.4 billion to support clients with their trading ambitions. We have also launched a number of new client propositions. These include our Payables API proposition, ’PayTo’, which has seen rapid client uptake, having processed around 500,000 transactions totalling over £2 billion over the course of the year, as well as a 25-fold increase in the value of transactions processed between the first and fourth quarters.
Delivering the skills for the future Despite significant levels of change during the year, we remain focused on ensuring our colleagues have the skills to deliver our longer-term transformation aims and, as such, have continued to invest in their development. We delivered an additional 2.1 million training hours to develop the skills for the future in 2020, taking the total to a cumulative 5.3 million over GSR3, surpassing our target for this strategic plan.
Key Objectives 2018 to 2020 50 per cent increase in training and development to 4.4 million hours Up to 30 per cent change efficiency improvement
Improving customer experience Our PayTo payments proposition enables our Commercial Banking clients to make single Faster Payments directly from their own systems in less than a second, via a secure, direct connection with the Bank, and without human intervention. Since launch, PayTo has processed around 500,000 transactions totalling over £2 billion, with its real-time response also enabling our clients to significantly improve their own working capital management as well as the experience of their customers.
Delivering for each other and our customers Throughout the year our colleagues have done a brilliant job of making the best of this situation by adapting at speed and continuing to deliver for our customers and each other. As we consider how our business can thrive in whatever the new world may look like, we’re also seizing the opportunity to pause, learn from our experiences and reimagine how we all might work in the future.
G Governance Our governance indicator relates to areas of performance that support good governance practices and facilitate Lloyds Banking Group being considered a responsible business.
This section contains certain disclosures in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Additional TCFD related disclosures can be found in the Lloyds Banking Group ESG Report.
Our unique position within the UK economy means that the successful transition to a more sustainable, low carbon economy is of strategic importance to us. We support the aims of the 2015 Paris Agreement, the UK Government’s Net Zero target and Ten Point Plan for a Green Industrial Revolution; and the recommendations of the TCFD.
The economic recovery required postCOVID -19 provides a critical opportunity to drive Clean Growth and ensure that the UK’s decarbonisation requirements sit at the heart of the UK’s policy framework. In 2020, we joined over 200 businesses, investors and business organisations in calling on the Government to deliver a clean, inclusive and resilient recovery plan. The Group produced a separate document outlining why we believe prioritising a green recovery is critical and the priority areas we thought should feature within any economic stimulus plan.
Government and the market to help reduce the emissions we finance by more than 50 per cent by 2030, on the path to net zero by 2050 or sooner, which will support the UK Government's ambition and the 2015 Paris Agreement. During the course of 2020, we have calculated an initial estimate of our 2018 financed emissions baseline and we developed our first emission intensity reduction ambition for the power sector, the decarbonisation of which is critical to the UK achieving its climate targets. We will continue to develop additional sector specific ambitions throughout 2021.
More detail is provided in the metrics and targets section (see page 22).
Identify, manage and disclose material sustainability and climate-related risks across the Group and their impacts on the Group and its financial planning processes, in line with the TCFD framework. This includes working with industry bodies, specialist consultancies and leading academics to develop a robust climate risk measurement capability. Use our scale and reach to help drive progress towards a sustainable and resilient UK economy through engagement with customers, communities, industry, Government, shareholders and suppliers. Embed sustainability into the way we do business and manage our own operations in a more sustainable way. To support this we have updated our operational climate pledges, setting a new net zero goal for 2030 (see page 22).
We participate in several industry initiatives and have signed up to key principles that drive action on climate change and sustainability, which are detailed in our Lloyds Banking Group ESG Report.
Recognition of activity To address the increasing needs of our stakeholders, and to enhance our ESG disclosures we have included a full table of the Group’s performance against various ESG indices, which includes our 2020 CDP (formerly Carbon Disclosure Project) rating, in the Lloyds Banking Group ESG Report.
We have produced a supplementary ESG Report on our performance in 2020 which contains further details on all disclosures included in this section which is available on our webpage.
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Homes Be a leading UK provider of customer support for energy efficient, sustainable homes
Vehicles Be a leading UK provider of low emission/green vehicle fleets
How we are delivering against our ambitions In 2020, we have focused on enhancing our green finance products and services to achieve our ambitions. Examples of this include the following.
Since 2018 the Group has supported renewable energy projects that could power the equivalent of 10.1 million homes, significantly exceeding our Helping Britain Prosper Plan 2020 target We launched several new green finance products, tools and services: a Lloyds Bank and Bank of Scotland Green Buildings Tool; a
We launched our Green Living and Eco Home Hub for Halifax and Lloyds customers To support Halifax customers with the cost of green home improvements, we have also introduced a Green Living Reward under the UK Department for Business, Energy and Industrial Strategy (BEIS) Green Home Finance Innovation Fund
In 2020, we more than doubled the number of electric vehicles financed through our Motor Finance and Leasing subsidiaries, Lex Autolease and Black Horse
We continue to partner with RedArc to operate a trauma helpline that aids customers needing extra help after a traumatic claim such as a fire or flood
We are also investing in ways to minimise the impact of flooding on our customers. For example, we continue to provide a Rapid Response Vehicle to quickly assess claims and release funds to customers in the worst affected areas
Since the launch of this ambition in 2016, we have maintained our role as a leader for our UK corporate clients between 2016 and 2020, raising around £2.9 billion.
Integration of climate risk into our existing principal risks, to ensure comprehensive consideration across all aspects of our business activity.
As the understanding and importance of climate risk progresses, climate scenario analysis is becoming an essential capability and risk management tool. Scenario analysis assists the identification, measurement and ongoing assessment of climate risks over the longer-term, and the potential threats to the Group’s strategic objectives. In 2020, the Group has developed its climate scenario analysis framework and will see outputs from this in 2021.
Climate risk and sustainability has been a key consideration in the credit assessment process in recent years, and in 2020 we have deepened the integration of sustainability into our credit risk processes and appetite statements. We
As currently recommended by PCAF, the baseline only includes Scope 1 and 2 emissions of clients and does not include undrawn lending commitments, off balance sheet contingents or areas where there is no methodology. Insurance and Wealth financed emissions The financed emissions for the Insurance and Wealth division are not included in the Group’s total financed emissions or the Group’s target to reduce financed emissions by 50 per cent by 2030. Due to the different nature of banking and investment activity, the Insurance and Wealth division will be further developing its approach to reporting appropriate climate metrics and targets during 2021.
Power sector ambition In Commercial Banking, we have been working to develop a power sector ambition as power sector decarbonisation is critical for the UK to achieve its Net Zero goal.
Achieving our ambition will be dependent on the UK and European countries putting in place the policy frameworks to meet decarbonisation goals and major utilities achieving their decarbonisation objectives. We will work with the Government and our clients to help support this transition. Green finance In 2020, we provided over £2.3 billion of green finance in Commercial Banking, through our Clean Growth Finance Initiative, Commercial Real Estate Green Lending Initiative, Renewable Energy Financing and Green Bond facilitation. This increased our total green finance to over £7.3 billion since 2016. In addition, we have supported clients with over £1.8 billion of Sustainability Linked Loans since 2017.
New climate pledges for our own operations In 2019 we announced achievement of our 2030 carbon emission reduction goal for our own operations, 11 years early, having reduced carbon emissions by 63 per cent between 2009 and 2019, and exceeding our 60 per cent reduction target. We are now able to announce three new operational climate pledges which
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 23
accelerate our plan to tackle climate change and apply across our operations.
Looking forward In 2021, we will continue to develop additional sector-based ambitions to support our goal to help reduce the emissions we finance by more than 50 per cent by 2030. We will continue to enhance our methodologies and framework for reporting climate risks and opportunities, taking into account relevant industry guidelines and regulatory reporting requirements. This will further advance our disclosures and respond to the evolving needs of both our shareholders and other stakeholders.
Table 2. Initial estimated view of the 2018 financed emissions baseline for the Group’s own lending (excluding the Insurance and Wealth division)
Equivalent share of UK total emissions by sector / asset class6
Energy use in buildings Real estate (inc housing associations) 25,426 27,124 5.04% 5.44% Agriculture Agriculture, forestry & fishing5 7,464 7,219 1.48% 1.45%
Retail division areas9 Dec 2020 Dec 2019 Dec 2020 Dec 2019 1. Commercial Banking and Retail divisions only. Excludes Insurance and Wealth division. 2. Commercial Banking division only, excludes Commercial Finance. Drawn lending is gross of significant risk transfers. Excludes Business Banking lending, which sits within Retail division.
4. Commercial lending classified using ONS SIC codes at legal entity level. 5. Agriculture lending includes Agricultural Mortgage Corporation (AMC) based on loans and advances to customers £4,186 million (2019: £3,998 million). 6. Includes Automotive manufacture, retail & wholesale trade, rentals and parts but excludes finance captives and securitisations. 7. Construction excludes 41100 Development of building projects (included within Real Estate) and 41202 Construction of domestic buildings (reported separately as Housebuilders). 8. Excludes Commodity Traders. 9. Based on loans and advances to customers within Retail Division.
4 Covers 97 per cent of mortgages. Excludes non-UK mortgages. Uses EPC emissions estimates for 45% of properties and average emission intensity profiles of EPC C to G properties to calculate emissions for the balance of properties where EPCs are not available. Property index value as at end 2018 is used for current property value in PCAF emission attribution calculations.
6 Total UK emissions in 2018 were: 88 MtCO2e from cars and vans; c.100 MtCO2e from homes, including emissions from both electricity and heating; and 263 MtCO2e from business (excluding emissions from electricity used in residential property). Source: Department for Business, Energy and Industrial Strategy - 2018 UK Greenhouse Gas Emissions, Final Figures.
We will continue to support existing customers in the coal industry to diversify their strategy to eliminate coal mining or coal power operations from their UK operations in line with the Government’s 2024 phase-out target. We will also continue to encourage clients with international coal-related operations to reduce their exposure in line with the Paris Agreement.
During 2020 we have placed additional emphasis on the importance of engagement with clients in the oil and gas sector to determine whether they have Paris-aligned transition plans in place.
We will continue to develop sector specific guidance to help relationship managers identify climate risks.
Our full sector statements are available on our website, and further detail related to the sector statements can be found in the 2020 Lloyds Banking Group ESG report.
Our 2020 performance table related to The Equator Principles can be found in the 2020 Lloyds Banking Group ESG Report.
As an asset owner, we work with the largest of our investee companies to engender positive change and enhance their approach to climate and Board diversity issues. We ask all of our fund managers to comply with the UK Stewardship Code or an equivalent for their jurisdiction.
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% of Senior managers from an ethnic minority background* 7.7% 6.7%
% of colleagues who disclose that they are lesbian, gay, bisexual or transgender 2.3% 2.2%
Building a truly inclusive organisation also requires us to be an anti-racist organisation – one where all colleagues speak up, challenge, and act to take an active stance against racism and discrimination of any kind.
Ethnic diversity In 2018 we made a public commitment to increase the ethnic diversity of both our overall and senior workforce, which has led to positive changes. Feedback from our Black colleagues however, demonstrated that there was still more to do.
The Lloyds Banking Group Race Action plan Our Race Action plan aims to drive cultural change, recruitment and progression across the Group.
The plan includes a new public goal, complementing our broader 2018 ethnic diversity target, to specifically increase Black representation in senior roles from 0.6 per cent at senior roles to at least 3 per cent by 2025, aligning the Group with the overall UK labour market.
In December 2020, we broadened our plan to go further and work beyond our own internal boundaries by actively supporting Black communities through our partnerships with Foundervine and the Black Business Network.
Further information and progress in relation to our implementation of our Race Action plan can be found in the 2020 Lloyds Banking Group ESG Report.
Championing inclusion and diversity continued new Race Advisory Panel made up of Black, Asian and Minority Ethnic colleagues to influence and inform our diversity strategy, delivering a series of race education sessions for our senior leaders, and publishing our first Ethnicity Pay Gap report. The Board currently meets, and will aim to continue to meet, the objectives of the Parker review for at least one Black, Asian or Minority Ethnic Board member.
Supporting disability The Group is committed to creating an inclusive and diverse organisation where colleagues with disabilities or long-term health conditions feel valued and supported to reach their full potential. This has been recognised through the Group holding the Business Disability Forum Gold Standard accreditation and retaining Disability Confident Leader status from the Department for Work and Pensions, which recognise the inclusive culture of the Group and the support we provide our colleagues who identified as having a disability. The Group offers bespoke training, career development and adjustments for colleagues and applicants with disabilities, including those who became disabled while employed.
We have supported over a million customers with payment holidays across Mortgages, Credit Cards, Loans and Motor Finance. This has given customers the flexibility they need to help get them back on track and the comfort that their credit file will not be impacted.
We made it easier for our customers less able to see us in branch, to contact us by launching a priority phone number. Priority lines have been set up for NHS workers and over 70’s along with increased telephony resource, to support our customers, allowing them to reach us quickly and to avoid the need for unnecessary journeys. Our branch colleagues made over 750,000 outbound wellbeing calls to customers throughout the year not only to support customers with their banking needs but to check on their wellbeing, and in some cases connect customers to local support.
We recognise that many customers have chosen to interact with us digitally through this period, and have developed a number of new online journeys which give customers access to set up and service forbearance plans with us. This also helps us to keep our phone lines available for those who need or want to speak to us. Further information on our digital support to customers is on page 28.
Read more on how we are supporting our customers lloydsbankinggroup.com/who-we-are responsible-business/downloads.html
Highlights We have provided over £12 billion of lending through Government-backed lending schemes. We have helped over 265,000 businesses start up since 2018. We have trained 1,211 apprentices, graduates and engineers through our investment in the Lloyds Bank Advanced Manufacturing Training Centre since 2018. We have invested over £5 million in supporting over 230 businesses and 450 apprentices to develop STEM skills that will support the UK’s recovery. We have supported over 368,000 organisations in gaining digital skills and to adapt their businesses with technology since 2018 through strategic partnerships. To support businesses in their transition to a low carbon future, we launched several new green finance products, tools and services (page 21).
Supporting businesses of all types and sizes is fundamental to helping Britain to both prosper and recover. The pandemic has had a profound impact on the way we live our lives and on the global economy. We remain fully focused on helping our customers and the UK economy recover, in collaboration with Government and our regulators.
This year we have actively supported our clients with over £12 billion of Government backed lending in addition to a range of propositions including approximately 34,000 capital repayment holidays and around 22,000 fee-free overdrafts as part of the Group's £2 billion COVID-19 fund. As the impact of the pandemic has been felt across the UK, we have also looked to address wider concerns related to the impact on businesses in a number of ways through providing online guides and a webcast series. Content has covered topics such as managing fraud risks, mental health, the road to a low carbon economy, optimising working capital and risk management.
In addition, by utilising our apprenticeship levy we have now committed in excess of £5.4 million supporting over 230 businesses and 450 apprentices to invest in critical science, technology, engineering, maths (STEM) and digital skills that will support the UK’s recovery across London, West Midlands and Greater Manchester. This is part of a £9 million commitment by the Group over three years to help small and medium enterprises to develop apprenticeships through our Levy Transfer initiative.
Highlights We have facilitated digital training for 1.8 million people since 2018 to assist in narrowing the digital skills gap. We have facilitated the delivery of over 12,500 devices through the DevicesDotNow campaign and We Are Digital Helpline. Through the latter, we have assisted over 8,000 people to learn digital skills to be able to access online services and connect virtually with family and friends. We established a Domestic and Economic Abuse Team, conducted training for our colleagues on how to support customers facing these circumstances through strategic partnerships, and supported charities assisting victims.
FutureDotNow Lloyds Banking Group is a founding organisation of FutureDotNow, a coalition of leading companies in the UK dedicated to accelerating the UK’s digital skills at scale, with a focus on the employees and customers of large organisations. As the pandemic started to impact communities in the UK, the Group was heavily involved with the DevicesDotNow emergency campaign, helping with the call to industry for devices, data and support for people who were shielding. The campaign raised over £1.5 million and funding secured to deliver over 11,500 devices, data and support to customers.
Our engagement with the charity Surviving Economic Abuse has been critical to achieving this and working with them, we have developed an ability to support victims in separating financial affairs quickly and, where appropriate, to offer forbearance from debt incurred as a result of coercion.
During 2020, to support our initiatives, we have partnered with the charities Surviving Economic Abuse and Tender to train our colleagues to support customers experiencing domestic and financial abuse, and have engaged with a number of charities to refer victims and survivors of abuse to our Domestic and Economic Abuse Team for support with their finances. We work very closely with the charity Safe Lives. Safe Lives have participated in our live broadcasts and colleague webinars which we run all year round to provide expert advice and guidance to colleagues.
Financial capability The Group has a suite of financial capability resources available online. These interactive tools are designed to be an engaging and informative way of helping children and young people understand money and financial management.
In support of our communities and in the spirit of Helping Britain Recover from the ongoing pandemic, content has been made available to all via the Lloyds Bank Academy. This provides the opportunity for the lesson plans to be delivered by individuals, parents, teachers, employers or charities, encouraging positive conversations about money at home, at work and in our communities.
Spanning across the past 35 years, our four regional Foundations have been providing essential funding and support to charities across the UK and Channel Islands, helping communities overcome complex social issues and rebuild lives.
In 2020, the Foundations received £25.5 million enabling them to support 2,787 charities. These charities are tackling issues such as domestic abuse, mental health, modern slavery and human trafficking, and employability. The Group’s commitment to maintain its £25.5 million in the Foundations funding in 2021 helps secure a more certain future for charities during these difficult times and safeguard the important work that they do.
Read more on how we are supporting our community initiatives lloydsbankinggroup.com/who-we-are responsible-business/downloads.html
Providing a safe work environment During 2020, a key challenge posed by the pandemic was for the Group to continue to provide essential financial services through its physical infrastructure and remain open to customers. The Group has been implementing business changes to manage the pandemic since early 2020, and has reviewed every iteration of the UK Government's advice. By the end of 2020, the Group had co-ordinated over 3,000 risk assessments across our operations to ensure all offices and branches are compliant with legislation and safe for our colleagues and customers.
Highlights £51.2 million in total was provided for community investment in 2020. £25.5 million was donated to our 4 independent charitable foundations in 2020. 2,787 charities were supported in 2020.
Highlights Health and safety of our colleagues and customers was a key COVID-19 response focus, ensuring our offices and branches were compliant with regulations, safe and able to remain open. Over 50,000 colleagues were supported in converting to a working from home arrangement with technology, equipment and IT assistance. Free access was provided for all colleagues to the Headspace app, and we have continued to train colleagues to become mental health advocates. Our colleague engagement surveys indicated overall that colleagues felt supported, that the company culture was more positive and caring, and that there is an interest by colleagues to explore changing ways of working in the future. 4.1 million hours of training were delivered to colleagues primarily via virtual training delivery.
We have extended our partnership with Headspace, offering all colleagues a free subscription to the market leading meditation app, providing access to mindfulness modules covering a range of topics from stress to self-esteem.
Emergency support The pandemic has brought the issue of domestic and economic abuse to the fore. In 2020, we launched an Emergency Assistance Programme covering the cost of emergency accommodation and one-to-one support. This is available to all Lloyds Banking Group colleagues and their children, at no cost to them. During this emergency stay, the colleague can receive additional support from our Employee Assistance Programme which will help them through their next steps and provide support.
Speak Up Colleagues are encouraged to speak up, challenge and act if they witness anything inappropriate and we provide colleagues with a variety of channels to do this. They can report the matter directly to Group Conduct Investigations, or make use of our independent and confidential Speak Up service, that is operated by a third party. All concerns are taken seriously and if an investigation is required, it will be conducted sensitively by an independent party. In 2020 colleagues reported 482 concerns, of which 178 were formally investigated following triage, with 41 per cent of those investigations substantiated, resulting in remedial action. Other Group services also exist to support colleagues in trying to informally resolve grievances. In addition, a new informal resolution channel ‘Let’s Talk’ was launched to support colleagues to reflect on their concerns and understand their rights and options so that grievances can be effectively and appropriately resolved through formal and informal channels.
As signatories to the United Nations (UN) Global Compact, we are aligned with its human rights and labour standards and report on our progress annually. We also recognise the Organisation for Economic Co-Operation and Development (OECD) Guidelines for Multinational Enterprises and the UN’s Guiding Principles on Business and Human Rights.
Pursuant to the UK Modern Slavery Act, we produce a Modern Slavery Statement on an annual basis. The Statement outlines the steps we take to combat modern slavery and human trafficking in our business and supply chains and the steps we take to respond and support survivors and is available on our website.
More information related to our approach and management of Conduct Risk can be located on page 197.
We continue as a founding member of the Financial Services Cyber Collaboration Centre, working with the Government’s National Cyber Security Centre, and the Cross-Market Operational Resilience Group. We work closely with other banks recognising the importance of collaboration when it comes to security, including as part of the Cyber Defence Alliance (CDA). Recognising cyber security as a non-competitive issue, we continue to collaborate externally to protect the Group and the wider industry.
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Responsible sourcing We work closely with our suppliers of goods and services to manage risks and drive continuous improvements in the standards of performance and quality. We work with approximately 3,000 active suppliers of varying sizes, with the majority in the professional services sectors such as management consultancy, legal, HR, IT, operations, marketing and communication. In 2020 our supplier expenditure was £5.1 billion with over 95 per cent of our third-party supplier spend incorporated in the UK.
For further information about the taxes we pay, and the economic value we generate for the UK, please refer to our annual Tax Strategy document on the Lloyds Banking Group website.
– Suppliers, page 51 – Championing inclusion & diversity, page 25 – Conducting our business responsibly, page 30 – Modern Slavery and Human Trafficking
– Reflecting the needs of our stakeholders: Communities and Environment, page 49
– Helping Britain Prosper Plan, page 17 – Championing inclusion and diversity,
Assisting our customers, Supporting businesses and SMEs, Helping Britain get a home, Building financial resilience, Supporting our communities, Supporting our colleagues, Conducting our business responsibly, page 25 to 31
– Helping the transition to a sustainable low carbon economy: Risk management, page 20
– Risk overview 2020 themes, page 56 – Our principal risks, page 57
– Our Business Model, page 13 – Key performance indicators, page 14 – Our strategic priorities, page 18 – Helping Britain Prosper Plan, page 17 – Global Reporting Initiative (GRI) standards who-we-are/responsible-business/ downloads.html
Non-financial key performance indicators 1 Certain Group Policies, internal standards and guidelines are not published externally.
Highlights Given our focus on UK customers, the Group’s prospects are closely linked to the fortunes of the UK economy. The economic outlook is highly uncertain, dependent on how fast the UK can deliver vaccines and how effective they are against potential variants of COVID-19. We expect the UK economy to grow by 3 per cent in 2021 after a weak start this quarter, followed by brisker growth of 6 per cent in 2022. There are uncertainties in both directions. Our low risk business model and focus on efficiency serves us well in an uncertain environment. Nevertheless, improving Group financial performance is heavily dependent on economic recovery.
Overview 2020 was an extraordinarily difficult year for the UK economy with GDP falling by almost 10 per cent due to the restrictions on activity necessary to contain the COVID-19 pandemic. Emergency action from the Government and banks was key in limiting long-term damage, but the pace and extent of recovery are uncertain, dependent crucially on how quickly and how completely vaccine programmes in the UK and abroad can be delivered and suppress mutating variants of COVID-19. Significant restrictions on activity are expected to ease only gradually through 2021, and unemployment and business closures will drag on the economy’s ability to return to the pre-COVID level of output, which we expect to take until during 2024.
2021 is expected to see the start of unwinding of many of these impacts as consumer spending recovers further and businesses begin to pay down some of the debt recently accrued. Unemployment is expected to rise further to a peak around 8 per cent during the second half of 2021 as furlough support is withdrawn. We expect average house prices to fall 4 per cent in 2021, as the stamp duty reduction expires and as first time buyer demand is constrained by a lower employment rate amongst the young and very limited pay growth. Mortgages growth is expected to weaken to its slowest in seven years. Consumer credit growth is expected to remain subdued, and growth in households’ deposits to slow sharply from its high rate of 2020. Balances of companies' lending and deposits are both expected to fall in 2021 after their large increases of 2020. Interest rates are likely to stay very low near-term, to help the economy recover at a time when Government and companies' debt has increased significantly.
Against this backdrop, a number of customer trends that existed prior to the pandemic have accelerated, most notably the shift to digital channels. Customers are increasingly shopping online and turning to digital channels to meet everyday banking needs, while continuing to value human interaction and more direct support for more complex and immediate needs, such as addressing financial difficulties.
Customer expectations continue to be shaped by experiences outside financial services, with speed, convenience and greater levels of personalisation, based on more sophisticated data insight, becoming ever more important in an increasingly competitive market.
We have introduced a range of measures to alleviate the most immediate financial pressures and provided support through dedicated Government backed schemes.
We have ensured that our customers could continue to benefit from our multi-channel model and have maintained good access to our banking services. We have also set up dedicated phone lines to give priority access to NHS staff and our more elderly customers.
Looking beyond our customers’ financial needs, we have provided digital skills training to help more of our personal and business customers get online, mentoring support to our business customers, and increased support for our customers’ mental health needs.
The COVID-19 crisis has impacted our customers in different ways and we need to ensure we are able to respond to everyone's circumstances and needs. From helping customers in financial difficulties to get back on track, to building their financial resilience and supporting the achievement of their life-goals across generations, we will continue to leverage our unique data and insights, capabilities and multi-channel business model, to deliver personalised and fit-for purpose propositions.
Now more than ever it is vital that we address our customers' needs holistically and leverage our unique reach, strength of our franchise as well as capabilities, such as Single Customer View. An end-to-end focus on customers' life-time needs will create additional value for our customers and strengthen our competitive advantages.
In order to meet all our customers' evolving payment needs in their channel of choice, we will need to continue modernising our payments infrastructure to deliver a seamless customer experience. Our unparalleled market position and strong participation across the payments ecosystem mean we can support our clients in improving their payments systems for their customers, while simplifying the retail experience.
Our commercial clients have also seen their businesses being impacted in different ways and we will continue to support them through the crisis and get back on their feet, whatever their circumstances might be. We are also looking to help our business customers adapt and grow back stronger and more sustainably, introducing new value adding services and improving our capabilities. As businesses are increasingly looking to self-serve their simple banking needs, we are enhancing our digital offering and improving our product portfolio to deepen our client relationships through the cycle.
Our strong franchise, combined with an ongoing focus on innovation, provide us with the ability to not only be relevant but also deepen relationships with our customers as we effectively respond to the changing environment.
Market dynamics The Group continues to operate in competitive markets, with competition supported by regulatory change, ongoing shifts in customer behaviours and increasing levels of innovation. Against this backdrop the COVID-19 pandemic has significantly accelerated the pace of change in numerous areas.
Digital-only providers have continued to gain traction with customers. Neobanks, in particular, have replicated a more traditional customer offering alongside strong digital functionality, while marketplace models enable collaboration and provide customers access to a broader suite of products and services.
However, the COVID-19 crisis has had a meaningful impact on a number of these businesses, slowing growth and limiting revenue streams. This has created a heightened focus on the profitability and sustainability of these models, with greater levels of uncertainty reflected in lower valuations in a number of recent funding rounds. While these pressures have the potential to limit disruptive threats over the near to medium-term, the threat from more differentiated businesses, often those who pursue a more traditional banking model, are likely to persist.
Capital regulation The Group continues its implementation of regulatory capital developments including the final Basel III reforms.
IBOR transition Progress continues, with alternative products delivered and transfer of clients to updated products underway.
Link to principal risks Regulatory and legal Conduct Credit Capital Market Operational resilience Climate
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Highlights Digital adoption continues to increase at pace, with a significant acceleration in 2020 as a result of COVID-19 Investment in new technologies is of increasing importance in order to deliver continued improvements to the customer experience and to improve operational efficiencies Cyber security and the protection and appropriate use of customer data remain important factors in retaining customer trust
This continued change in channel preference has created an ongoing need for investment in technology across the sector. This investment often includes but is not limited to enabling the delivery of innovative new features for the benefit of customers, the upgrading and modernising of legacy systems, and the adoption of new technologies such as machine learning, artificial intelligence and cloud based solutions in order to increase the effectiveness and efficiency of an organisation.
Customers are using the digital channel more than ever for simpler needs % volume of products originated digitally
This includes using robotics to process over 90 per cent of Bounce Back Loan applications, having built this process from scratch, using technology to accurately and at scale provide credit decisions at a time when customers required urgent support. The use of robotics has significantly improved colleague capacity to focus on providing additional customer support. Across the Group, we have saved more than 1.8 million hours through the use of robotics over the last three years, including over 700,000 in 2020 alone.
In addition to improving outcomes for customers, significant investment in new technologies and the modernisation of our existing IT architecture have supported our ongoing focus on efficiency, with business as usual costs down 4 per cent in 2020. This relentless focus on efficiency continues to create capacity for future investment, helping us to future-proof our business.
In June 2019, the Board discussed how recent and expected trends across customer behaviours, technology and competition pointed to a narrowing of scenarios for the banking sector’s longer-term evolution. In addition, the Board considered the key societal and environmental challenges facing the UK and the Group’s role in addressing them.
Development of highlevel strategic options with Helping Britain Recover at their heart While these priorities remain relevant for the Group’s long-term strategic focus, the significant impacts of COVID-19 on the UK and our stakeholders, have become the most important drivers of our shorter-term response and strategic priorities.
At an extended Board session in November, attended by both the then incumbent and incoming Chair, these initiatives were subsequently discussed in the context of the investment required in 2021 and the Group’s longer-term financial plan.
Since then, the Board have supported the development of detailed plans, with measurable outcomes designed to support successful delivery and mitigate execution risks, as well as the communication approach for our evolution of strategy.
Building the UK's preferred financial partner Over the following pages, we outline our strategic priorities for 2021 and beyond, and how they have both been shaped by and will be instrumental in Helping Britain Recover.
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Strategic Review 2021 Lloyds Banking Group is a customer focused, sustainable, efficient and low risk UK financial services leader with the clear purpose of Helping Britain Prosper. The next phase of our strategy, Strategic Review 2021, is focused on Helping Britain Recover and further enhancing our core capabilities.
Strategic Review 2021 builds on our core capabilities and the strong foundations from previous strategic reviews, reinforcing our customer focus. We have made significant progress in recent years, leveraging the unique strengths and assets of the Group, including our purpose driven and customer focused business model, our low risk approach to business, our market leading efficiency and our leading multi-channel propositions including the largest digital bank and branch network in the UK. This has created the platform for Strategic Review 2021.
In 2021, we will: Have over 6,500 colleagues trained to support customers to build their financial resilience Maintain our commitment to supporting mental health and become accredited as ‘Mental Health Accessible’ for Halifax and Bank of Scotland, in addition to the existing Lloyds Bank accreditation Partner with independent debt advice organisations to ensure customers have access to practical support
We will support businesses to recover, adapt and grow We will be by the side of businesses as they recover, supporting UK business to adapt and grow, and create quality jobs across the regions of the UK.
In 2021, we will: Develop appropriate recovery plans for our customers, supported by 1,100 business specialists in communities across Britain Support at least 75,000 UK businesses to start up in 2021 Help at least 185,000 small businesses boost their digital capability through our Regional Academies, partnerships and digital mentoring
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We will expand the availability of affordable and quality homes As the UK recovers from the pandemic, we aspire to a UK in which all households have access to stable, affordable and safe homes in places they want to live. We are committed to broadening access to home ownership and exploring opportunities to increase our support to the UK rental sector.
We will help accelerate the transition to a low carbon economy With recovery comes an opportunity to build a greener future, creating new businesses and jobs for the future. We want to play our part in supporting the transition to net zero and are committed to working with customers, Government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030 on the path to net zero by 2050 or sooner.
We will help build an inclusive society through our financial services offering and by creating an organisation that reflects the society we serve We believe that the economic and social recovery should be one that’s truly inclusive and involves communities across the UK's nations and regions.
In 2021, we will: Set new aspirations for a leadership team that reflects the society we serve, of 50 per cent women, 3 per cent Black and 13 per cent Black, Asian and Minority Ethnic colleagues in senior roles by 2025 Maintain our £25.5 million contribution to our independent charitable foundations, with the Lloyds Bank Foundation for England and Wales focusing 25 per cent of its support on Black, Asian and Minority Ethnic led charities Support regional regeneration, including launching the ‘Regional Housing Growth Initiative’, helping small- and mediumsized housebuilders create more homes in the North of England, the Midlands and the regions of Scotland Support financial inclusion by providing banking for groups of people experiencing homelessness, financial abuse or victims of modern slavery and supporting the prisoner banking programme
Long-term vision Leveraging our unique capabilities to meet more of our customers' needs 2021 investment focus To achieve our vision and become the preferred financial partner for personal customers, we are focusing on three key areas of investment in 2021: Enable financial resilience and wellbeing through dedicated customer assessment and support Significantly deepen relationships with priority segments through enhanced journeys and new capabilities Digitise to reduce cost to serve
Over the course of 2021, we will support our customers, with a dual focus on building short-term resilience through savings and borrowings, and on strengthening long-term resilience by broadening access to protection and other insurance coverage against unforeseen life events. As part of our overall approach, in 2021 we will launch a range of tools that enable a better assessment of financial wellbeing, while also building on our strong track record in supporting our most vulnerable customers by simplifying our customer treatment approaches and deploying specialist vulnerable customer support where needed.
We will also broaden customer access to long-term financial planning and long-term saving with priorities including the better integration of our Schroders Personal Wealth offering across our Retail branch network. Through these and other initiatives, we expect to achieve net growth in open book mortgage balances in 2021. Looking beyond this, we are aiming to increase priority segment customers with needs met by both Retail and Insurance and Wealth propositions and expect to generate positive annual net new money into our open book Insurance and Wealth propositions, delivering a £25 billion increase by 2023.
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Why this is important We are committed to remaining by the side of British businesses of all sizes, with marketleading propositions that are relevant to their very specific and evolving needs. As we emerge from the COVID pandemic, we will need to continue supporting our clients, not only with their immediate financial needs, but with a focus on helping them adapt, grow and thrive as we transition to a low carbon economy.
Measures of success: More than 50 per cent growth in SME products originated via a digital source in 2021 5 point increase in SME and Retail Business Banking digital net promoter score by 2023 Profitably improve share in markets products for core clients in 2021
Automate recovery support and finance the green transition In 2020, we stood firmly by the side of UK business, providing support to clients impacted by the pandemic. We will continue to work closely with these clients and the Government to ensure that businesses approaching the end of COVID capital support have the best chance to build resilience, adapt and return to growth. As part of this, we will roll out a digital-led BBLs engagement model enabling clients to access support and self-serve, while also working individually with clients requiring specialist help.
We strongly believe that there is a unique opportunity to rebuild the UK economy on a more sustainable and low-carbon basis and that, through our focus on Helping Britain Recover, we can be at the forefront of this. We have already started working with our clients, the Government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030 on the path to net zero and, as part of this, in 2021 will expand our funding for green finance initiatives from £3 billion to £5 billion.
Long-term vision Efficient, scalable and resilient cloudbased architecture, supporting business transformation 2021 investment focus We have identified three key areas for strategic investment in 2021 to support our vision of delivering a modernised technology architecture: Further broaden self-service capabilities through digitisation Prove and leverage public cloud to create foundations for future technology architecture Simplify legacy estate through technology optimisation
Measures of success Mobile app releases to double year-onyear in 2021 Further mobile app enhancement to maintain record mobile-app net promoter score c.30 per cent of technology applications and services migrated and c.20 per cent decommissioned by 2023 Deliver new technology architecture pilot
Simplify legacy estate through technology optimisation Through our investment in technology, we have a significant opportunity to simplify our estate, and by the end of 2023 expect to have migrated around 30 per cent and decommissioned about 20 per cent of our technology applications and services.
To achieve our longer-term ambitions, we will ultimately need to migrate our customers and relevant applications to this new environment.
Looking ahead, we will build on this strong track record and respond to the growing customer demand for convenience and control by broadening the self-service capabilities available to our digital customers. Consistent with this focus and our objective of maintaining our record mobile app net promoter score, we will double the number of enhancements we make to our mobile app in 2021.
Measures of success Maintain leading card spend market share in 2021, with growth in credit card spend market share from 2022 3x increase in corporate clients on new cash management and payments platform in 2021 15 per cent to 20 per cent new client growth per annum in merchant services
Enhance card e-commerce and international payments experience to drive increased customer usage As a Group, we are well-positioned to capture the significant growth opportunity associated with the accelerated shift to digital payments. We are the largest card issuer in the UK and have over a 20 per cent share in card-based payments.
As part of this overall approach, we will continue to build out our international and complex liquidity capabilities, while also improving the integration between our payments platform and other digital channels used by our corporate clients. Through these initiatives, we have set an objective of achieving a threefold increase in the number of corporate clients using our new cash management and payments platform in 2021.
Enhance merchant services proposition with improved distribution capabilities Against a backdrop of ongoing and significant growth in e-commerce and digital payment volumes, our merchant customers are increasingly demanding the ability to accept multiple payment methods, with a view to improving checkout conversion rates and lower payment costs.
To address these needs, in 2021 we will modernise our payments gateway to offer integrated journeys across different payment types as well as a range of value-added services. In addition, this will form part of a strong merchant services proposition with key features including realtime data insights and customer analytics.
To ensure that we are able to meet more of our merchant customers’ needs through these proposition enhancements, we are also focused on improving our distribution capabilities. In light of these developments, we are targeting new client growth of between 15 and 20 per cent per year in this fast-growing and evolving market.
Long-term vision Leveraging our data proposition to create value for all stakeholders 2021 investment focus We have identified three key areas of strategic investment focus in 2021 to support our medium-term vision and become a data-driven organisation
Expand use of data to enable better customer and business propositions Extend machine learning capabilities to drive faster and more accurate pricing and risk decisions Deliver organisational reform of data strategy and management, supporting collaboration
Expand use of data to enable better customer and business propositions As customers’ expectations of financial services are increasingly being shaped by their experiences outside of the sector, personalisation has become an increasingly important differentiator. In our most recent strategic plan, we were able to successfully develop our data and advanced analytics capabilities to deliver more personalised propositions and improve the customer experience.
Extend machine learning capabilities to drive faster and more accurate pricing and risk decisions The potential benefits from improved data and analytics capabilities extend beyond customer outcomes and an improvement in the overall customer experience, with significant efficiency and risk opportunities also available through the further development and deployment of our machine learning across key business processes.
In addition, advanced analytics will be used to deliver early insights into financial vulnerabilities, which is particularly important as our personal customers and business clients recover from the effects of pandemic.
In addition, we will further embed data and analytics capabilities within our business functions, with the aim of achieving a more effective alignment between our technical and business expertise. Through this approach, we also expect to be able to direct our strategic investment in a more effective and immediate way, in turn helping us to deliver greater financial and operational benefits. Through this and our broader approach to data, we expect to be able to deliver a 50 per cent return on our investment in advanced analytics in the first year.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 45
Further build our purpose-led culture through refreshed values and behaviours Helping Britain Prosper is at the heart of everything we do. We want all of our colleagues to be able to identify with this purpose, while also recognising how they are contributing to Britain’s recovery.
Why this is important Our people are crucial to the success of the Group and our purpose. To retain this source of competitive advantage, we must evolve our colleague proposition to reflect new working patterns and colleague expectations post COVID, while also delivering a sustainable workspace that supports increased collaboration and innovation. We must also invest in developing future skills, ensuring that everything we do is underpinned by a purpose-driven and inclusive culture.
Long-term vision Purpose-led future ready and inclusive workforce in a transformed workspace 2021 investment focus In order to evolve to a future-ready workplace, ways of working and workforce, our activity and investment will centre around three areas in 2021: Further build our purpose-led culture through refreshed values and behaviours Build career pathways to attract and retain a more diverse, skilled and future ready workforce Deliver sustainable workplace solutions, including reduced office footprint
Regular Board updates from across the Group identified key areas of customer concern. In addition, the Group Chief Executive attended virtual customer engagement events, which provided an important opportunity for customers to raise directly any concerns on the matters of most significance to them. Areas of worry included customers’ ability to meet their ongoing financial commitments, and to continue to operate their businesses as the extent of the economic impacts emerged.
With Board oversight, new means of sharing customer views were developed for use over the coming year. These will provide greater insight not only on customer experience, but also on the progress being made to improve customer satisfaction in the areas of most importance. This will in turn help in ensuring the Board can continue to focus on the things that matter most to our customers and our clients.
Helping Britain Recover The needs of customers once the pandemic abates has also been a focus for the Board. This has included providing direction for the development of our Helping Britain Recover ambitions, building on the Group's purpose of Helping Britain Prosper.
This year interaction with stakeholders was adapted to comply with the Government’s measures in relation to COVID-19, and has been undertaken virtually as necessary.
This section (pages 46 to 51) acts as our Section 172(1) statement; but, given the importance of stakeholder interests, our reputation for high standards of business conduct and a long-term perspective, these matters are discussed where relevant throughout the report.
Section 172(1) Statement In accordance with the Companies Act 2006 (the ‘Act’), the Directors provide this statement describing how they have had regard to the matters set out in section 172(1) of the Act, when performing their duty to promote the success of the Company, under section 172. Further details on key actions in this regard are also contained within the Corporate Governance Report on pages 81 to 110 and the Directors’ Report on pages 111 to 114.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 47
To ensure investors were fully briefed on Group governance initiatives a Governance event was also held in November, hosted by the Chair and the Chairs of all the Board Committees. Key topics discussed included governance, sustainability and remuneration, and it provided an excellent forum for Board members to hear directly investor views on key topics.
The opportunity was provided for shareholders to hear from and put questions to the Board, on a virtual basis in line with safety guidance. Answers to questions, and remarks from the Chair and Group Chief Executive were also made available online.
Succession planning The Board recognises the key role played by the Chair and the Group Chief Executive in the Group’s future success, and the relevance of these important appointments to all of the Group’s stakeholders, including to our many shareholders.
Consideration was given to feedback from key stakeholders, including understanding the priorities of the Group’s shareholders in respect of our strategic direction. The Group’s approach to the environment and climate change was of particular importance in shaping strategy, and is discussed further on page 50.
The Group has the largest shareholder base in the UK, with around 2.3 million shareholders including most employees.
Despite the challenging economic environment, the Group has delivered a robust financial performance, and demonstrated resilience and ability to continue to generate capital. This has been supported by our customercentric strategy and the strength of our balance sheet.
At the end of March, in response to a request from the PRA the Board took the decision not to make quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares. While the Board understood this was a difficult decision from the perspective of the Group's stakeholders, it was nonetheless important in helping the Group serve the needs of businesses and households through the extraordinary challenges of COVID-19.
In addition, to preserve additional capital for use in serving our customers, the Board agreed to cancel the final 2019 dividend on ordinary shares.
The Board is pleased that despite the challenges which the year has presented, the Group’s strong performance has enabled us to recommence dividend payments, and recommend to shareholders a final ordinary dividend of 0.57 pence per share. Robin Budenberg Chair
The Board agreed in 2019 its approach to workforce engagement, which has remained unchanged during the year. The definition of workforce agreed by the Board is our permanent colleagues, contingent workers and third-party suppliers that work on the Group’s premises delivering services to our customers and supporting key business operations.
The Board continues to receive Workforce Engagement reports which comprises two component parts, a summary of the Board’s engagement activity with colleagues, and key themes raised by colleagues and trends on people matters. These covered all matters of colleague engagement, in particular key and emerging issues for colleagues, including Group culture and our response to the COVID pandemic.
Virtual Town Hall sessions were hosted by both the Chair and the Group Chief Executive. These were complemented by engagement sessions led by other senior leaders, with feedback from all sessions shared with the Board. Town Hall sessions were particularly helpful in allowing colleagues the opportunity to ask questions, share their views, and receive a direct answer in real time.
During the year the Group also communicated directly with colleagues detailing Group performance, changes in the economic and regulatory environment and updates on key strategic initiatives.
The Group offers a competitive and fair reward package. Colleagues are eligible to participate in HMRC-approved share plans which promote share ownership by giving employees an opportunity to invest in Group shares. Further information can be found on page 136 in the Directors’ Remuneration Report.
A number of related initiatives were successfully completed during the year. These included a project to simplify the Group’s Committee structure, and retain a more agile approach to decision-making which had been necessary during the pandemic.
The Board also approved a target to increase Black representation in senior roles to at least 3 per cent by 2025. This complemented the Group’s broader 2018 Black, Asian and Minority Ethnic representation targets of 10 per cent overall, and 8 per cent at senior management levels.
More detail Colleague engagement Read more on page 29 Diversity Read more on page 25 Speak Up Read more on page 30
While the COVID pandemic has been challenging for our customers, it has also posed challenges for our colleagues. The Board was therefore keen to ensure colleagues received all the support the Group could give.
This was supported by other members of the Executive, including colleague Q&A sessions held by the Group’s People Director, where colleagues posed the questions which mattered to them most.
The Board agreed various measures of support for colleagues in response to the crisis. These included the temporary suspension of staff reductions, enhancements to working environment safety, flexible holiday entitlement and a commitment to pay colleagues in full, regardless of how their work had been impacted.
The Board considered it important that priority continue to be given to supporting colleague mental health. A number of related steps were taken, including support via the Group’s ‘Your Resilience’ portal, with new content to address the challenges colleagues faced as a result of the pandemic. The Group’s partnership with Headspace was also extended, offering all colleagues a free subscription to an app providing access to modules covering a range of mental health related topics.
The Board was also keen the Group’s response should include faster roll-out of our Digital Workplace programme, which on completion allowed the majority of colleagues to work from home. The Board in addition approved a recognition payment to frontline colleagues, in thanks for their efforts in supporting our customers during the pandemic.
The Board has considered how colleague working practices will develop beyond the COVID crisis, in particular how more flexible and efficient ways of working seen during 2020 could be retained.
This included the agreement of steps to be taken by the Executive to ensure the Group’s workplace continues to evolve with both the needs of the business, and the changing ways in which colleagues wish to work.
Colleagues are vital to the delivery of the Group’s strategy and ambitions. This is recognised by the Board in its engagement with colleagues throughout the year.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 49
Regional Ambassadors The Board continues to value the support provided by the Group’s ten regional ambassadors, who between them help in establishing strong relationships with local politicians, councils and other community institutions across the UK.
Charitable Foundations The Board continued to support the work of the Group's charitable Foundations. Together during the year they have funded local charities in tackling issues ranging from financial disadvantage and social exclusion, to domestic abuse and modern slavery.
The Board was particularly pleased at the positive impact of the Foundations in helping charities respond locally to the COVID crisis. During the year the Board agreed the Group would continue to fund the important work of the Foundations in 2021, at levels of funding in line with those of 2020.
The Chair undertook virtual visits to several charities supported by the Foundations, including the Tom Harrison House in Liverpool, providing important insight into the role of the Group in supporting communities across the UK.
In September 2020 the Group launched The Big Conversation: Helping Britain Recover. A three-month series of roundtable discussions were held across all nations and regions of the UK, which encouraged open debate of the challenges facing the country during the pandemic, and how the UK could emerge with an economy that is more resilient and more sustainable.
A final report, published in December 2020, was shared with all participants as well as with key politicians and policy makers, and is available on the Group’s website. The Board was pleased the Group was in this way able to amplify its stakeholders’ voices to those who can make a difference. We anticipate extending this initiative in 2021 to encompass more topics of importance to our stakeholders.
In addition, the Board agreed in June that it was important to build a longterm framework which would help the Group more fully integrate its business ambitions with its societal objectives, acting wherever possible as a positive driver for change.
COVID response Extensive engagement was needed with regulators and Government in the initial response to the COVID crisis. This helped ensure the Group’s response could both best support our customers, but also remain in step with Government priorities for supporting the stability of the wider UK economy.
The Board continued to review the provision of this support as the year progressed, remaining close to the developing priorities of Government and of our regulators, as well as the impact on our customers and business.
Key areas of regulatory interest for the Board have included ensuring robust prudential standards, the fair treatment of customers, and the Group’s ongoing response to market changes. During the year such changes have included not only the response to COVID, but the UK’s exit from the EU, in addition to climate change responsibilities, and ensuring the Group’s ongoing financial and operational resilience.
These updates cover all aspects of the regulatory agenda, with emerging regulatory and legal risks, in addition to an overview of the Group’s wider regulatory interaction. This provides a focused view of areas of priority, alongside detail of regulatory actions, and enforcement activity.
The Board continues to closely monitor the status of the Group’s regulatory relationship, seeking to enhance engagement particularly in key areas of regulatory change. During the coming year this is expected to include the ongoing impacts of COVID, including customer relief, in addition to EU exit transition, climate risk management, dividend distribution and remuneration policy.
These will over the coming years include investing in our buildings, removing the use of natural gas from our estate, and progressing our plans for zero carbon branches in communities across the UK. Many of the technologies needed are still new. The Board therefore recognises that close work will be needed with our partners and suppliers in developing innovative new solutions.
As the amount of new regulation continues to increase, and uncertainty remains about the impact of the UK’s exit from the EU on regulatory frameworks, the Board recognises the importance of continuing to strengthen the Group’s relationships with our key regulators. Sara Weller Independent Director
This has during the year included those supporting the Group’s digital ambitions, as discussed in more detail below, with the Board approving certain supplier contracts which were key in progressing this strategic priority.
The framework also ensures appropriate Executive oversight of supplier spending not considered by the Board, allowing challenge to be made where appropriate, and minimising risks and unnecessary cost. The Board reviewed updates on material related actions.
To that end, the Board’s Audit Committee considered reports from the Group’s Sourcing and Finance teams on the efficiency of supplier payment practices, including those relating to the Group’s key supplier relationships.
The Board recognised the challenge of preparations by suppliers for finalisation of the EU Exit, in particular when combined with the pressures of the COVID crisis. This included regular related updates for suppliers provided using the Group’s website.
The Board agreed that as we prepare for the next phase of our strategy, acceleration of our approach to the public cloud was central in further digitising our business, enabling us to greatly improve the experience of both our customers and of our colleagues.
While the Group has already taken some big steps in digital transformation, modernising how we serve customers, and changing how we work, the Board agreed that cloud technology was key to building on this progress.
This will include continuing to simplify our IT systems, and enhancing our IT architecture. Combining future-proofed cloud technology with smart customer data and insight, we want to deliver an even better and more personalised experience, regardless of the channel a customer chooses to do business with us.
The Board was pleased that, despite the challenges of the pandemic, progress was also made in delivering technological developments which have helped to further improve our customer experience. These included industry leading capability for customers to view and cancel subscription services for items such as their monthly TV streaming and broadband service providers, paid for via their current account. Functionality was also introduced allowing more of our general insurance customers to submit their claims digitally, improving the speed and efficiency our claims process.
We rely on a number of partners for important aspects of our operations and customer service provision.
The Board recognises that the Group’s supply chain, and ensuring strong and mutually beneficial relationships with our suppliers, are key to the Group’s ongoing success. Catherine Woods Independent Director
Trading surplus for the year was £6,440 million, a reduction of 27 per cent on 2019, reflecting the challenging external environment. Net income was down 16 per cent to £14,404 million, driven by both lower net interest income and lower other income. The Group has maintained its focus on delivering cost savings, with total costs down 4 per cent, while continuing to invest in the Group's digital propositions.
The Group’s underlying profit was £2,193 million for the year, compared to an underlying profit of £7,531 million in 2019, reflecting lower net income and the significant impairment charge of £4,247 million taken in 2020.
The Group’s CET1 capital ratio post dividend increased 242 basis points over the year, from 13.8 per cent on a pro forma basis to 16.2 per cent, or 16.4 per cent pre dividend accrual.
Return on tangible equity - existing basis 3.7% 7.8% (4.1) pp
3 The CET1, MREL and leverage ratios and risk-weighted assets at 31 December 2019 are reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period. The CET1 ratio pre IFRS 9 transitional relief reflects the full impact of IFRS 9, prior to the application of transitional arrangement for capital that provide relief for the impact. Excluding dividend accrual, the CET 1 ratio at 31 December 2020 was 16.4 per cent.
Retail offers a broad range of financial service products to personal and business banking customers, including current accounts, savings, mortgages, credit cards, unsecured loans, motor finance and leasing solutions. Its aim is to be the preferred financial partner for personal customers, by building deep and enduring relationships that meet more of our customers' financial needs and improve their financial resilience throughout their lifetime, with personalised products and services that are increasingly relevant to them. Retail operates a multi-brand and multi-channel strategy. It continues to simplify its business and provide more transparent products, helping to improve service levels and reduce conduct risk, whilst working within a prudent risk appetite.
Continued to support first time buyers with c.£40 billion of mortgage lending in 2018 to 2020, exceeding the Group's target by over 30 per cent.
Launched Business Finance Assistant, to support small businesses managing their finance needs
Maximising Group capabilities £7.6 billion of Bounce Back Loans provided to Business Banking customers (out of Group total £12.4 billion)
Launched new green propositions including an Energy Saving Tool, helping customers improve energy efficiency of their homes and an electric vehicle salary sacrifice proposition
Financial performance Net interest income 9 per cent lower, reflecting the low rate environment, actions to support customers and lower unsecured balances with reduced levels of activity and demand during the pandemic
Other income 14 per cent lower with reduced levels of customer activity and customer spending and the continued impact of a smaller Lex fleet size in line with the market, in part offset by lower operating lease depreciation
A nurse contacted the dedicated payment holiday line to explain how she had been impacted by COVID. She normally made up her income working additional shifts, however because of COVID had only been able to work on one ward, to prevent the spread of the virus across wards, which had reduced her income by half. Her husband who worked in a restaurant had also been furloughed.
With a mortgage, credit card and a loan, it was a worrying time for the customer. We were able to give the customer a payment holiday across all products saving the customer c.£2,000 per month. The customer was emotional, overwhelmed and very grateful for the support the bank had been able to give her and her family when they most needed it.
Commercial Banking has a client-led, low risk, capital efficient strategy and is committed to becoming the best bank for business. Through its segmented client coverage model, it provides clients with a range of products and services such as lending, transaction banking, working capital management, risk management and debt capital markets. Continued investment in capabilities and digital propositions will enable the business to build a leading digital SME proposition and a disciplined and strengthened Corporate and Institutional client franchise.
French oil major Total has advanced its diversification into renewable energy by taking a majority stake in the UK’s Seagreen 1 offshore wind project.
Cost of more than £3.0 billion, Seagreen is one of the largest investments in Scottish infrastructure. Upon completion it will provide sustainable energy to 1 million homes.
The Seagreen transaction is the first partially-subsidised offshore wind project to be financed in the UK, as the sector moves away from its dependency on Government subsidies. Approximately 40 per cent of the turbines benefit from a fixed power price guarantee from the UK Government
Implemented an extensive client outreach programme across SME and Mid Corporates in response to the coronavirus crisis, reaching c.60,000 businesses impacted by the pandemic to date
Over £2 billion processed through the Payables API, allowing clients to send Faster Payments directly from their systems without human intervention
Launched the Trade Tracker API, giving clients greater transparency through realtime transaction status updates
Maximising Group capabilities Exceeded the Group’s three year target to provide £6 billion of additional net lending to start-up, SME and Mid Market clients by end-2020 and surpassed the 2020 target of £18 billion gross new lending target to these businesses
In 2020, provided over £2.3 billion of green finance, taking the total green finance provided to over £7.3 billion since 2016. In addition, we have supported clients with over £1.8 billion of Sustainability Linked Loans since 2017
Operating costs were 11 per cent lower reflecting the result of continued investment in efficiency initiatives
Customer deposits grew by 1 per cent to £145.6 billion, as optimisation within the term deposit book was more than offset by growth in SME deposits, given the partial retention of Government-backed lending on deposit and growth in SME deposits generally
Risk-weighted assets decreased 3 per cent to £75.0 billion, driven by ongoing optimisation in the Corporate book, partly offset by regulatory headwinds and credit migrations
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 55
The good news is that the gender pensions gap is now the narrowest on record, with just a 1 per cent difference between the proportion of men and women putting enough money aside for a comfortable retirement. Almost three in five (59 per cent) women – the highest since we began this research – are saving adequately, compared to 60 per cent of men.
Achieved 5 stars for the fifth consecutive year in the Financial Adviser Service Awards in Investments, Pensions and Protection, and Mortgages, together with the Editor’s Achievement Award for 30 years’ Consistent Service
Achieved GSR3 target of 15 per cent market share of workplace business, up from 10 per cent at start of 2018
Supported customers throughout the pandemic, including free additional insurance cover to NHS workers and reducing medical evidence requirements to help alleviate pressures on GPs
Maximising Group capabilities Grew open book assets under administration by £46 billion, or 69 per cent, over the GSR3 period to £113 billion, narrowly missing the £50 billion growth target despite challenging market conditions
Further exceeded GSR3 target of 1 million new pension customers, with 1.5 million now added Completed migration to Schroders Personal Wealth. Continue to target becoming a top 3 financial planning business
Insurance capital Estimated Solvency II ratio of 151 per cent, reflects the dividend paid in February 2020, continued investment in new business, and the impact of lower interest rates Credit asset portfolio is average ‘A’ rated, well diversified and non-cyclical, with less than 1 per cent sub investment grade or unrated. No Insurance ordinary dividend will be paid for 2020
Simplified approach to managing risks Over the course of the year, there has been a strong focus on simplifying and enhancing the enterprise risk management framework. A One Risk and Control Self Assessment (One RCSA) approach to managing risks across the Group has been adopted, which supports the proactive identification of risks to customers and the Group's business objectives, as well as enabling a strong control framework. More information on One RCSA is available on page 145.
Risk culture and the customer A transparent risk culture resonates across the organisation and is supported by the Board and its tone from the top.
Risk management requires all colleagues to play their part with individuals taking responsibility for their actions.
Within our approach there is a strong focus on building and sustaining long-term relationships with customers through the economic cycle.
Senior Management articulate the core risk values to which the Group aspires, based on the Group's conservative business model, prudent approach to risk management and the Board's guidance.
Our approach to risk Risk management is at the heart of Helping Britain Recover and building the UK's preferred financial partner.
A prudent approach to risk is fundamental to our business model and drives our participation choices.
Our enterprise risk management framework Risks are identified, managed, mitigated and monitored using our comprehensive enterprise risk management framework. This is the foundation for the delivery of effective risk control.
The Group's risk appetite, principles, policies, procedures, controls and reporting are regularly reviewed and updated when needed to ensure they remain fully in line with regulation, law, corporate governance and industry good practice.
The Board is responsible for approving the Group's risk appetite statement annually. Board-level metrics are cascaded into more detailed business appetite metrics and limits. Regular close monitoring and comprehensive reporting to all levels of management and the Board ensures appetite limits are maintained and subject to stress analysis at a risk-type and portfolio level, as appropriate.
Principal Risks The Board-approved enterprise-wide risk categories used to monitor and report the risk exposures posing the greatest impact to the Group.
Strategic Risk A principal risk arising from: A failure to understand the potential impact of strategic responses on existing risk types Incorrect assumptions about internal or external operating environments Inappropriate strategic responses and business plans
Connectivity of risks: The impact of emerging and strategic risks on the Group's principal risks
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 57 2020 has been a year of significant uncertainty, including the spread of COVID-19 and its impact on global and domestic economies and the UK's exit from the European Union.
COVID-19 has had a significant impact on all risk types in 2020. Understanding and managing its impacts dynamically has been a major area of focus. The Group has responded quickly to the challenges faced, putting in place risk mitigation strategies and refining its investment and strategic plans.
The risk management section from pages 143 to 204 provides a more in-depth picture of how risk is managed within the Group.
Key focus areas during 2020 Climate – new The Group recognises the evolving pace of climate risk and has adopted a comprehensive approach to embedding this risk within its enterprise risk management framework. This includes the creation of a new principal risk as well as its integration into our existing principal risks. Work has also continued to develop scenario modelling and other analytical tools and to increase the level of external disclosure to further align to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Market The Group’s structural hedge, nominal balance £186 billion (2019: £179 billion), provides protection against margin compression caused by falling interest rates. In addition, customer deposits have seen significant growth in 2020 which creates near-term interest rate exposure. Customer behaviour and hedging of these balances are reviewed regularly. The Group’s defined benefit pension schemes have seen an improvement in IAS19 accounting surplus to £1.6 billion (2019: £0.5 billion), as a result of deficit reduction contributions and greater than expected asset returns partially offset by the impact of the Retail Price Index (RPI) reform announced by the Chancellor of the Exchequer in November 2020. Credit A range of measures have been deployed to help support customers, including around 1.3 million of payment holidays, over £12 billion of additional Government support scheme lending through the Bounce Back Loan (BBLS) and Coronavirus Business Interruption Loan (CBILS) schemes, together with liquidity facilities for larger clients.
This support together with the wide array of public policy interventions, such as the job retention scheme, has limited the increase in unemployment, and helped to suppress credit defaults and business failures.
The Group has responded dynamically to mitigate and address credit risk, with specific focus on higher risk segments, sectors and counterparties, as well as undertaking extensive preparation to support the expected increase in customers who may experience financial difficulty.
The 2020 full year impairment charge of £4,247 million (2019: £1,291 million) reflects the weaker economic outlook, with reserves built in anticipation of an increase in losses during 2021 as unemployment increases and more business failures are seen. Funding and liquidity The Group maintained its strong funding and liquidity position in 2020, with the loan to deposit ratio decreasing to 98 per cent (2019: 107 per cent). Customer deposits increased significantly as spending reduced and customers deposited Government lending scheme balances. During the year, the Group repaid all outstanding amounts of its Term Funding Scheme (TFS) and Funding for Lending Scheme (FLS) drawings and drew £13.7 billion from the Term Funding Scheme with additional incentives for SMEs (TFSME). Total wholesale funding reduced by £14.8 billion principally as a result of the growth in customer deposits.
The key areas of focus in 2020 are broadly unchanged from 2019. In addition, three themes have been magnified and exacerbated as a result of the pandemic: Technology: Which considers the long-term technology changes disrupting the industry, the emergence of new technology-driven business models, and the likely impact of technology change on our customers.
Societal expectations: Which reflects the expectations of the role the Group can play in supporting society across a range of issues such as housing, environmental sustainability and helping customers in financial difficulty.
Some emerging risks, such as data, have materialised and are recognised by the Group as principal risks. However, with risks continuing to evolve there will be important aspects of these risks that will need to continue to be captured through our emerging risks framework.
The emerging risks that the Group have monitored during 2020 are outlined in more detail in pages 147 to 149 of the risk management section.
Risk view of key Strategic Review 2021 themes The Group’s strategy plays an important role in managing our strategic risks, responding to the priorities identified by the Board, and transforming our capabilities to deliver on these priorities. Some of the key themes from our strategy, as outlined on pages 36 to 45, represent new opportunities, while also posing corresponding risks that need to be understood.
In 2020 the Group undertook an initiative to enhance our framework and approach for identifying and understanding our strategic risks, with particular focus on the connectivity of risks.
In line with the Group’s strategy to gain greater organisational value from data and advanced analytics, we are also developing a quantitative approach to further strengthen our strategic risk management framework.
The health of the UK economy and the financial health and wellbeing of our customers are core influences on the Group’s principal and strategic risks. We are therefore committed to Helping Britain Prosper and placing this purpose at the heart of our strategy.
We are well-positioned to respond to potential challenges posed by increased customer financial vulnerability and societal disparity, ensuring our proposition resonates with evolving customer needs.
Acceleration of underlying growth in economic and societal disparity Customer and colleague resilience heading into longer-term uncertain future Impact of prolonged remote working
– Adverse impacts on productivity, creativity, customer treatment, colleague wellbeing and data security
– Calibration of risk appetite, pricing and model approach to achieve external commitments
– Risk arising from participation choices in respect of green economy and sustainability
– Increased risk of outages and system failure impacting operational resilience risk, and inability to respond in an agile, efficient manner to growing threats from modern competitors
– Greater volumes of data at risk, with more challenging control environment
Understanding the potential risk implications of Strategic Review 2021 is an important area of focus. The key strategic risk drivers outlined below have been assessed as part of the development of our strategic themes and objectives.
Lloyds Banking Group Annual Report and Accounts 2020 61 Strateg ic rep ort
Successfully supporting customers, colleagues and communities through the pandemic Over £12 billion lending to businesses through Government-backed schemes, including Bounce Back Loan, Coronavirus Business Interruption Loan and Coronavirus Large Business Interruption Loan schemes
More than 50,000 colleagues working from home for most of 2020, increased from up to 15,000 before the pandemic c.90 per cent of branches remained open through the pandemic, enabling the Group to continue to serve customers
Resilient financial performance in a highly challenging macroeconomic environment Net income of £14.4 billion, down 16 per cent with net interest income of £10.8 billion, down 13 per cent. Net interest margin of 2.52 per cent, reflecting lower rates, actions taken to support customers and changes in asset mix, including growth in high quality UK mortgages and lower levels of unsecured lending; average interest-earning assets stable at £435 billion. Other income of £4.5 billion, impacted by lower levels of customer activity, the impact of negative assumption changes in Insurance and Wealth and lower non-recurring items
Total costs of £8.0 billion, 4 per cent lower, enabling continued investment in digital projects and enhanced support for customers during the pandemic
Strong balance sheet and capital position Loans and advances broadly in line with prior year at £440.2 billion with growth in the open mortgage book and Government-backed lending of £11.1 billion (£12.4 billion approved at 12 February 2021), more than offsetting lower balances in unsecured Retail, Corporate and Institutional, and the closed mortgage book
Customer deposits up £38.9 billion in the year to £450.7 billion with Retail current accounts up 27 per cent having grown ahead of the market
Loan to deposit ratio of 98 per cent, providing a strong liquidity position and significant potential to lend into recovery
CET1 ratio of 16.4 per cent before dividends and 16.2 per cent after, both significantly ahead of the ongoing target of c.12.5 per cent, plus a management buffer of c.1 per cent and regulatory requirements of c.11 per cent
Further digitise the Group; by progressively modernising and simplifying the IT architecture across 78 per cent of the Group’s cost base whilst continuing to migrate applications to private cloud
Maximise Group capabilities; by exceeding the £6 billion target for increasing net lending to start-ups, SMEs and Mid Market clients over the three years, whilst surpassing the 2020 target of £18 billion gross new lending to these businesses and also extending the Group’s unique Single Customer View functionality to c.6.5 million customers
Strategic Review 2021 Strategic Review 2021 builds on our core capabilities and the strong foundations from previous strategic reviews, while reinforcing our customer focus. We have made significant progress in recent years, leveraging the unique strengths and assets of the Group, including our purpose driven and customerfocused business model, our low risk approach to business, our market leading efficiency and our leading multi-channel propositions, including the largest digital bank and branch network in the UK. Strategic Review 2021 will deliver co-ordinated growth opportunities in our two core customer segments, supported by enhanced capabilities in four areas. With 2021 execution underpinned by long-term strategic vision, we aim to: Significantly deepen our customer relationships across banking, insurance and wealth, building our position as the preferred financial partner for personal customers
Further enhance and leverage core capabilities, including through a modernised technology architecture, integrated payment solutions, a truly data-driven organisation and reimagined ways of working for our colleagues 2021 guidance, based on our current economic assumptions, reflects confidence in the Group’s unique business model and customer focused strategy
Net interest margin to be in excess of 240 basis points
Financial performance reflects the challenging economic environment The Group’s statutory profit before tax for the year was £1,226 million with statutory profit after tax of £1,387 million. Both measures were impacted by the significant impairment charge taken during the year, the majority of which was recognised during the first half and reflected the Group’s revised economic outlook for the UK, following the outbreak of the coronavirus pandemic. In the fourth quarter, statutory profit before tax was £792 million and statutory profit after tax was £680 million, both benefiting from improved business conditions and a reduced impairment charge.
Net income of £14,404 million was 16 per cent lower than in the prior year, reflecting both lower net interest income and lower other income in the period, partially offset by a decrease in operating lease depreciation.
Net interest income of £10,773 million was down 13 per cent, driven by a reduction in the banking net interest margin and stable average interestearning banking assets. The net interest margin was down 36 basis points to 2.52 per cent. This reflected the lower rate environment, actions taken during the year to support customers and a change in asset mix, largely as a result of reduced levels of customer activity and demand during the coronavirus pandemic. The net interest margin in the fourth quarter of 2.46 per cent, up 4 basis points on the third quarter, reflected the positive impact of deposit repricing and improved mortgage pricing, together with reduced funding costs, partially offset by lower income from the Group’s structural hedge.
In 2021, based on current economic assumptions, the Group expects a net interest margin of in excess of 240 basis points.
Average interest-earning banking assets were stable compared to prior year at £435 billion, with growth due to Government-backed lending to support business clients through the coronavirus crisis, open mortgage book growth and the full impact of the 2019 Tesco mortgage book acquisition. This was offset by lower balances in the closed mortgage book and in credit cards, as well as reductions in revolving credit facilities (RCFs) and the continued optimisation of the Corporate and Institutional book within Commercial Banking. Average interest-earning banking assets in the fourth quarter increased marginally to £437 billion as the Group continued to benefit from strong growth in the open mortgage book (lending balances up £6.7 billion in the fourth quarter), offset by further RCF reductions in Commercial Banking. The Group expects average interest-earning assets in 2021 to be flat to modestly higher than in 2020.
Other income of £4,515 million in 2020 was 21 per cent lower than in 2019 reflecting lower levels of customer activity across the Group’s main business lines, largely due to the coronavirus pandemic, combined with an adverse impact from assumption changes in Insurance and Wealth and lower non-recurring items. Within Retail, other income fell as a result of reduced customer spending and the continuing impact of a lower Lex fleet size. Commercial Banking saw lower transaction banking income as a consequence of coronavirus-related activity levels, with resilience in markets income. Insurance and Wealth income was lower than the prior year, impacted by reduced new business given the effects of the pandemic, the nonrecurrence of c.£140 million of new business income associated with workplace pensions auto-enrolment benefits in 2019 and £60 million of negative methodology and assumption changes in 2020 versus £336 million of positive assumption changes, including the benefit of the change in investment management provider in 2019. In addition, across the Group a £77 million charge was incurred as a consequence of the response to the Asset Management Market Review, largely incurred in Insurance and Wealth. Income associated with the Group’s equity investments business, including Lloyds Development Capital, was £281 million (2019: £341 million), with £166 million recognised in the fourth quarter.
Total costs of £7,964 million were 4 per cent lower than in 2019, driven by continued reductions in operating costs and lower levels of remediation. Operating costs of £7,585 million were 4 per cent lower, in the context of continued investment in the Group’s digital transformation. Business as usual costs were down 4 per cent, driven by ongoing cost management as well as lower remuneration and reduced travel costs, partially offset by increased pension costs and coronavirus-related expenses.
Total investment spend in 2020 amounted to £2.0 billion, down 14 per cent on 2019. This included £0.9 billion relating to strategic investment, taking the cumulative strategic spend since the start of GSR3 to £2.8 billion. Although investment spend continues to be managed carefully in response to the current operating environment, the Group has continued to prioritise technology and digital projects and will continue to invest in the long-term success of the business.
During 2020 the Group capitalised c.£1.3 billion of investment spend, of which c.£0.9 billion related to intangible assets. Total capitalised spend was equivalent to c.60 per cent of above the line investment, in line with prior periods.
Despite the continued delivery of cost savings, the lower net income over the period meant that the Group’s cost:income ratio of 55.3 per cent was higher than in 2019.
Remediation charges were £379 million (2019: £445 million) and down 15 per cent on 2019, including additional charges of £125 million in the fourth quarter relating to pre-existing programmes. During the year additional charges, both redress and operational costs, of £159 million, have been taken in relation to HBOS Reading, as well as further costs in relation to arrears handling, packaged bank account complaints and various settlements in relation to historic claims. A number of programmes are now close to conclusion. Others, such as HBOS Reading, including the conclusion of the recommendations from the Cranston Review, are still ongoing and further costs are likely to be incurred.
The Group’s net asset quality ratio was 0.96 per cent compared with 0.29 per cent in 2019, largely driven by increases in expected credit loss (ECL) allowance in the first half of the year. Excluding the updated economic assumptions and coronavirus-impacted restructuring cases, the asset quality ratio would not have been materially higher than in 2019.
Overall the Group’s loan portfolio continues to be well-positioned, reflecting a prudent through-the-cycle approach to credit risk and high levels of security. The Retail portfolio is heavily weighted toward high quality mortgage lending where low loan-to-value ratios provide security against potential risks. The prime consumer finance portfolio also benefits from high quality growth in past periods in the context of the Group’s prudent risk appetite. The commercial portfolio reflects a diverse client base with relatively limited exposure to the most vulnerable sectors so far affected by the coronavirus outbreak. Within Commercial Banking, the Group’s management of concentration risk includes single name and country limits as well as controls over the overall exposure to certain higher risk and vulnerable sectors or asset classes.
3 Total and Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £179 million (31 December 2019: £205 million).
4 Includes reverse repos of £58.6 billion (31 December 2019: £54.6 billion).
The updated economic outlook in the fourth quarter drove a £659 million ECL release which was partially offset by a central overlay of £400 million. This overlay was added in recognition of the significant uncertainty that remains as to the efficacy of the vaccine, the vaccination programme, potential virus mutation, further lockdowns and economic performance post lockdown restrictions and Government support, recognising that the full range of these risks is not captured in the Group’s method of generating alternative scenarios around its base case. The previous £200 million central overlay noted at the halfyear for the severe scenario is now included in model outputs within divisional ECL provisions. The scale of the current uncertainty overlay approximately equates to a c.1 percentage point increase in unemployment allied with a 5 per cent lower HPI in 2021, or a c.10 percentage point higher weighting of the severe downside scenario.
The ECL allowance continues to reflect a probability-weighted view of future economic scenarios with a 30 per cent weighting applied to base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. All scenarios have deteriorated since the start of the year, following the changes made to the base case. They also reflect a widening of the range of potential outcomes, following changes to the generation of scenarios around the base case.
The Group’s ECL coverage of Stage 2 assets increased to 4.5 per cent (31 December 2019: 3.7 per cent), again reflecting the updated economic outlook. Coverage of Stage 3 assets has also increased to 28.1 per cent (31 December 2019: 22.5 per cent) primarily due to an increase in ECL of £403 million on distressed existing clients whose recovery strategies were affected by the coronavirus pandemic.
Despite action taken to mitigate the significant levels of uncertainty through the use of the central overlay, the extent of the impairment charge in 2021 will depend on the potential severity and duration of the economic shock in the UK. Based on current macroeconomic assumptions, the Group expects the 2021 net asset quality ratio to be below 40 basis points.
1 Lending classified using ONS SIC codes at legal entity level.
Mortgages Cards Loans Motor Total 000s £bn 000s £bn 000s £bn 000s £bn 000s £bn
First payment holiday still in force 10 1.4 14 0.1 11 0.1 9 0.1 44 1.7
Matured payment holidays – missed payment 24 3.1 36 0.2 20 0.2 10 0.2 91 3.6
1 Mortgages, credit cards and personal loans at 16 February 2021; Motor finance at 16 February 2021. Analysis of mortgage payment holidays excludes St James Place, Intelligent Finance and Tesco; Motor finance payment holidays excludes Lex Autolease. Total payment holidays granted are equal to the sum of first payment holiday still in force and matured payment holidays Totals and percentages calculated using unrounded numbers.
Coronavirus Large Business Interruption Loan Scheme 0.1 0.7 1 Data as at 12 February 2021.
Around 1.3 million Retail payment holidays, on £68.3 billion of lending, have been granted to help alleviate temporary financial pressure on customers during the crisis. Payment holidays of up to three months have been granted across Retail mortgages, personal loans, credit cards and motor finance, with extensions available of up to three months should customers request them. There are c.44,000 (£1.7 billion) payment holidays where the first payment holiday is still in force and 1.2 million (£66.6 billion) that have matured, including c.64,000 (£4.1 billion) that have then been extended.
The vast majority of first payment holidays (98 per cent) have now matured, of which 89 per cent by value have restarted payments, 6 per cent have been extended and 5 per cent have missed payment when due.
Mortgages account for the largest proportion of payment holidays, with a total of around 489,000 having been granted, equating to customer balances of £61.9 billion. As at 16 February 2021, 98 per cent, or c.479,000, have matured with 89 per cent, or 428,000, of those having resumed repayments, 5 per cent having extended and 5 per cent having missed payment. The average LTV of customers extending their mortgage payment holidays and still in extension remains relatively low at 50 per cent, compared to 44 per cent for the total mortgage book.
The Group also granted c.338,000 payment holidays on £1.7 billion of credit card balances, 298,000 payment holidays on £2.4 billion of unsecured personal loans and c.155,000 payment holidays on £2.3 billion of motor finance products. These products have experienced c.85 per cent of customers resuming payments at the end of their payment holidays. Only £0.1 billion of credit card balances have been subject to a payment holiday extension and are still in extension. £0.2 billion of total credit card payment holidays granted have missed payment.
For the duration of the payment holiday the Group continues to recognise interest on the loan under the effective interest rate method.
Mergers and acquisitions, integration and other restructuring costs (116) (184) 37
Restructuring costs of £521 million were 11 per cent higher than in 2019 with £233 million incurred in the fourth quarter, as the Group resumed the property transformation programme and role reduction activities that were paused earlier in the year and also as a function of increased investment in technology research and development. The Group expects to increase its investment in technology research and development in 2021 and as a result expects restructuring costs to be higher in 2021 than in 2020.
The Group recognised a charge of £85 million for PPI in the final quarter of the year. This charge was driven by the impact of coronavirus delaying operational activities during 2020, the final stages of work to ensure operational completeness and final validation of information requests and complaints with third parties that resulted in a limited number of additional complaints to be handled. Of the approximately six million enquiries received predeadline, more than 99 per cent have now been processed. A small part of the costs incurred during the year also reflect the costs associated with litigation activity to date.
The return on tangible equity for 2020 was 3.7 per cent (2019: 7.8 per cent) and earnings per share were 1.2 pence (2019: 3.5 pence). In the fourth quarter of the year, return on tangible equity was 7.2 per cent.
Going forward and in order to aid comparability across the banking sector, the Group will report its statutory return on tangible equity without adding back the post-tax amortisation of intangible assets to the return. On this new basis and given improving profitability, the Group is targeting a return on tangible equity of between 5 and 7 per cent in 2021 and in excess of the cost of equity in the medium-term.
Lloyds Banking Group Annual Report and Accounts 2020 67 Strateg ic rep ort
4 Eligible assets are calculated as an average of month-end observations over the previous 12 months post any liquidity haircuts. 2019 assets have been restated accordingly.
Total customer deposits increased by £38.9 billion in the year, to £450.7 billion. The Group continues to target current account balance growth and optimise funding with Retail current accounts up 27 per cent at £97.4 billion (31 December 2019: £76.9 billion), having grown ahead of the market in the year. The Group’s loan to deposit ratio of 98 per cent, down 9 percentage points on 2019, was driven by increased customer deposits and evidences a strong liquidity position and significant potential to lend into an economic recovery. The Group continues to access wholesale funding markets across a variety of currencies and markets. During the year, the Group repaid all outstanding amounts of its Term Funding Scheme (TFS) drawings of £15.4 billion and the remaining £1 billion outstanding of its Funding for Lending Scheme (FLS) drawings. In addition to the £1 billion drawn in the first half of the year, the Group has made drawings of £12.7 billion in the second half from the new Term Funding Scheme with additional incentives for SMEs (TFSME), taking the total outstanding amount to £13.7 billion at 31 December 2020. Overall, total wholesale funding has reduced to £109.4 billion at 31 December 2020 (31 December 2019: £124.2 billion) principally as a result of the growth in customer deposits.
The Group’s CET1 capital ratio post dividend increased 242 basis points over the year, from 13.8 per cent on a pro forma basis to 16.2 per cent. Capital build prior to the dividend accrual of 21 basis points, the impact of the revised treatment of intangible software assets of 51 basis points and the 2019 full year dividend reversal of 83 basis points, was 129 basis points. Banking business capital build of 192 basis points was largely offset by the 174 basis point impact of impairment in the year, mitigated by the benefit of the IFRS 9 transitional relief (83 basis points). RWA and other movements contributed 28 basis points, with pension contributions (equivalent to 46 basis points) more than offset by reductions in underlying risk-weighted assets and excess expected losses as well as favourable market and other movements.
Whilst the net increase in IFRS 9 transitional relief over the year amounted to 83 basis points, the Group’s total relief recognised at 31 December 2020 amounted to 115 basis points, including static relief.
Risk-weighted assets reduced by £2.5 billion in the fourth quarter, largely reflecting reductions from credit migrations and model calibrations (including HPI improvement), continued optimisation of the Commercial Banking portfolio and the disposal of a legacy equity investment in Visa Inc., offset in part by an increase as a result of the revised capital treatment of intangible software assets.
During the first half of 2020 the PRA reduced the Group’s Pillar 2A CET1 requirement from 2.6 per cent to 2.3 per cent. In December 2020 the PRA further reduced the requirement to c.2.1 per cent in the context of a higher UK countercyclical capital buffer rate, which in normal conditions will be set at 2 per cent (currently set at zero per cent). In line with PRA policy, the latter reduction is currently fully offset by other regulatory capital requirements at the CET1 level.
Following the decision by the PRA to reduce the UK countercyclical capital buffer rate to zero earlier in the year, combined with the initial Pillar 2A reduction noted above, the Group’s CET1 capital regulatory requirement has reduced to c.11 per cent. Consequently, current CET1 headroom over requirements has increased.
Pensions Terms have now been agreed in principle with the Group Pensions Trustee in respect of the valuations of the Group’s three main defined benefit pension schemes. The valuations showed an aggregate ongoing funding deficit of £7.3 billion as at 31 December 2019 (£7.3 billion deficit at 31 December 2016). The revised deficit now includes an allowance for the impact of RPI reform announced by the Chancellor of the Exchequer in November 2020.
Under the previous recovery plan, deficit contributions were committed of c.£0.8 billion in 2020 and c.£1.3 billion per annum from 2021 to 2024. Under the new recovery plans, c.£0.8 billion was paid in 2020 with contributions looking forward equating to c.£0.8 billion per annum, plus a further 30 per cent of in year capital distributions to ordinary shareholders, up to a limit on total deficit contributions of £2.0 billion per annum payable until this deficit has been removed. The Group continues to provide security to these pension schemes, with corporate guarantees and collateral pledged, while also making additional annual contributions for future service and scheme running costs.
In December 2020, the PRA announced that dividend payments could recommence, provided that this was subject to a prudent framework for the setting of such distributions. As a result the PRA has established a cap on distributions for year end 2020.
The Group will update the market on interim dividend payments with the half year results, following receipt of the update from the regulator and based on macroeconomic conditions at the time.
Lloyds Banking Group Annual Report and Accounts 2020 69 Strateg ic rep ort
4 CET1 ratios at 31 December 2020 include an increase of 51 basis points following the implementation of the revised capital treatment of intangible software assets. The benefit through CET1 capital is reflected through the MREL and leverage ratios.
Statutory profit (loss) after tax 680 688 (461) 480 1,019 (238) 1,025 1,200
Loans and advances to customers1 £440bn £439bn £440bn £443bn £440bn £447bn £441bn £441bn
Tangible net assets per share 52.3p 52.2p 51.6p 57.4p 50.8p 52.0p 53.0p 53.4p 1 Excludes reverse repos.
Lloyds Banking Group Annual Report and Accounts 2020 71 Strateg ic rep ort
Loans and advances to customers4 440.2 439.2 – 440.4 – 440.4 –
3 Commercial Banking segmentation has been updated to reflect new client coverage model.
Risk-weighted assets £98.4bn £77.4bn £1.3bn £26.3bn £203.4bn 1 Excludes reverse repos.
3 Prior period segmental comparatives restated. See note 4 on page 240.
Alternative performance measures The Group uses a number of alternative performance measures, including underlying profit in the discussion of its business performance and financial position. Further information is provided on page 348.
Underlying basis In order to allow a comparison of the Group’s underlying performance, the results are adjusted for certain items including restructuring, including severance-related costs, property transformation, technology research and development, regulatory programmes and merger, acquisition and integration costs, volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group’s hedging arrangements and that arising in the insurance businesses, insurance gross up, the unwind of acquisition related fair value adjustments and the amortisation of purchased intangible assets and payment protection insurance provisions.
Lloyds Banking Group Annual Report and Accounts 2020 73 Strateg ic rep ort
Return on risk-weighted assets 2.01% 4.36% (235) bp £bn £bn Change
Risk-weighted assets 99.0 98.4 1 1 Restated to reflect migration of certain customer relationships from the SME business within Commercial Banking to Business Banking within Retail and to reflect the Group’s adoption of the Sterling Overnight Index Average (SONIA).
1 Restated to reflect migration of certain customer relationships from the SME business within Commercial Banking to Business Banking within Retail and to reflect the Group’s adoption of the Sterling Overnight Index Average (SONIA).
Lloyds Banking Group Annual Report and Accounts 2020 75 Strateg ic rep ort
Net income 1,299 2,098 1 Restated to reflect the Group’s adoption of the Sterling Overnight Index Average (SONIA).
2 Present value of new business premiums. Further information on page 348.
3 Equivalent estimated regulatory view of ratio (including With Profits funds) was 144 per cent (31 December 2019: 154 per cent).
4 2019 wealth income includes c.£70 million relating to business that was transferred to Schroders Personal Wealth in October 2019.
Underlying (loss) profit (232) 498 1 Prior period restated. See note 4 on page 240.
Central items includes income and expenditure not attributed to divisions, including residual net interest income after transfer pricing (including the central recovery of the Group’s distributions on other equity instruments), in period gains from gilt sales and the unwind of associated hedging costs, as well as the Group’s equities business, including Lloyds Development Capital.
During 2020, net income included a gain of £149 million on the sale of gilts and other liquid assets, compared with a £185 million gain on sale of such assets in 2019. The Group’s equities business, including Lloyds Development Capital, contributed net income of £150 million compared to £223 million in the prior year. In addition, the net income comparative for 2019 included a gain of £50 million relating to the sale of the Group’s interest in Vocalink.
The impairment charge incurred in 2020 includes a £400 million central uncertainty overlay applied in respect of uncertainty in the economic outlook not captured within the modelled divisional ECL allowances. In 2019 impairment included releases relating to the reassessment of credit risk associated with debt instruments held within the Group’s equity investment business.
Lloyds Banking Group Annual Report and Accounts 2020 77 Strateg ic rep ort
Other income, net of insurance claims 8,179 (426) (2,021) – 5,732
The table below sets out the reconciliation from statutory profit before tax to underlying trading surplus.
5 Certain derivative valuation adjustments associated with credit-impaired customers are included within the impairment charge on an underlying basis but reported within other income, net of insurance claims on a statutory basis.
2 2020 includes the effects of the growth in the open mortgage book towards the end of the year.
3. Volatility arising in the insurance business Volatility included in the Group’s statutory results before tax comprises the following: £m
The Group’s insurance business has policyholder liabilities that are supported by substantial holdings of investments. IFRS requires that the changes in both the value of the liabilities and investments are reflected within the income statement. The value of the liabilities does not move exactly in line with changes in the value of the investments. As the investments are substantial, movements in their value can have a significant impact on the profitability of the Group. Management believes that it is appropriate to disclose the division’s results on the basis of an expected return. The impact of the actual return on these investments differing from the expected return is included within insurance volatility.
Key life and pensions assumptions and methodologies are reviewed through the annual basis review in the fourth quarter of each year, however assumptions are monitored continuously and updated when necessary.
Current year changes reflect the macroeconomic impacts of the pandemic such as redundancies and furlough; prior year included annuitant longevity benefit from updates to the industry standard model for the projection of future mortality rates. The changes in expense assumptions reflect lower in-year new business volumes impacting average per policy administration costs, reallocation of costs between business lines and future short-term committed expenditure on specific projects. 2019 included the benefit of the change in investment management provider.
Tangible net assets per share 52.3p 50.8p 6. Return on tangible equity
Less profit attributable to non-controlling interests and other equity holders (£m) (522) (547)
Add back amortisation of intangible assets (post tax) (£m) 502 438
Adjusted statutory profit after tax (£m) – existing basis 1,367 2,897
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 81
Set out below are some of the Group's key corporate governance activities during the year.
Stakeholder engagement While supporting customers and colleagues has been a key focus during these troubling times, the Board has remained aware of the need for the Group to continue to engage effectively with all its stakeholders. Meeting the Group’s responsibilities and duties both to shareholders and the communities we serve is central to our purpose of Helping Britain Prosper. Details of how the Board takes account of shareholder and wider stakeholder interests in its strategic planning and decision-making processes are set out on pages 46 to 51.
Culture The Board supports the Group’s aim to develop its values-led culture. That culture needs to continue to develop to ensure that the business can adapt rapidly to a changing environment while delivering the best outcome for customers. During the year, the Board has regularly assessed and monitored the Group’s progress on culture. Further information about our oversight of the Group’s culture journey can be found on page 92.
Climate change The Board is conscious of the impact of climate change on the Group’s business and how the Group’s activities affect the environment. These topics have been discussed by the Board and a number of its Committees. Further information about the Group’s new pledges to reduce the emissions that the Group finances and the carbon footprint and energy consumption of its own operations can be found on pages 20 to 24.
The Board believes that good governance and stakeholder engagement are more important than ever and key to the Group achieving its purpose of Helping Britain Prosper. Robin Budenberg Chair
Board and Committee changes There have been a number of changes to the Board and its Committees during 2020.
Catherine Woods joined the Board as a Non-Executive Director in March and I joined the Board as a Non-Executive Director in October ahead of succeeding Lord Blackwell as Chair of the Group on his retirement on 1 January 2021.
Juan Colombás retired as Chief Operating Officer in September. Juan played key roles in turning the Group around after the financial crisis and in the Group's initial response to the pandemic. Juan left with our thanks and we wish him every success for the future.
Full details of the changes are set out on page 98.
Although this is the Company's Corporate Governance Report, I would also like to take the opportunity to thank Nigel Hinshelwood, Sarah Bentley and Brendan Gilligan for their huge contribution as ongoing board members of Lloyds Bank plc and Bank of Scotland plc.
Skills, experience, and contribution: Deep financial services and regulatory knowledge and experience Governance experience and strong leadership qualities Significant experience in strategic planning and implementation Nick has served as Chief Executive of Lloyd’s of London, Prudential UK and Europe, and was Chairman of Brit Insurance. He is a former NonExecutive Director of the Prudential Regulation Authority and of Legal & General Group Plc as well as Chairman of the Financial Services Practitioner Panel and the Financial Conduct Authority’s Financial Advice Working Group.
External appointments: Chairman of the board of Reach plc, Chairman of the charity Prisoners Abroad and a member of the board of Opera Ventures.
Appointed: September 2014 (Board), December 2019 (Senior Independent Director), May 2020 (Deputy Chair)
Skills, experience, and contribution: Strong financial leadership and regulatory reporting skills Significant audit and risk experience in financial leadership Strong transformation programme experience Sarah has spent her entire career in financial services with HSBC in finance leadership roles. She was the Group Financial Controller, a Group General Manager, and also Chief Financial Officer for HSBC’s Asia Pacific region. She also spent 8 years as a NonExecutive Director on the board of Hang Seng Bank Limited, a Hong Kong listed bank.
Lord Lupton CBE Independent Director and Chair of Lloyds Bank Corporate Markets plc
Skills, experience, and contribution: Extensive international corporate experience, especially in financial markets Strong board governance experience, including investor relations and remuneration Regulatory and public policy experience Significant experience in strategic planning and implementation Lord Lupton was Deputy Chairman of Baring Brothers, co-founded the London office of Greenhill & Co., and was Chairman of Greenhill Europe. He is a former Treasurer of the Conservative Party and became a Life Peer in October 2015, serving on the House of Lords Select Committee on Charities.
External appointments: Chairman of International Personal Finance plc and of Willis Limited.
External appointments: Non-Executive Director of BT Group plc, Chair of the Remuneration Committee, New College, Oxford and a Trustee of Lloyds Bank Foundation for England & Wales.
Skills, experience, and contribution: Extensive executive experience of international financial institutions Deep experience of risk and transformation oversight Strong focus on culture and corporate governance Catherine is a former Deputy Chair and Senior Independent Director of AIB Group plc where she also chaired the Board Audit Committee. In her executive career with J P Morgan Securities, she was Vice President, European Financial Institutions, Mergers and Acquisitions, and Vice President Equity Research Department, forming the European Banks Team.
External appointments: Non-Executive Director of Beazley plc and Chair of the reinsurance and European insurance subsidiary, Beazley Insurance. Non-Executive Director and Deputy Chair of BlackRock Asset Management Ireland Limited.
Anita Frew – retired from the Board on 21 May 2020.
William joined the Board in August 2019 as an Executive Director and the Chief Financial Officer. Read his biography on page 83
Skills and experience Carla joined in October 2015 and since then has led the Group’s strategic work, as well as the Group’s mergers, acquisitions/disposals and corporate ventures, and oversees the Group’s relationships with shareholders, analysts and the wider investment community. Prior to Lloyds, Carla spent 18 years as an equity analyst at Credit Suisse, JP Morgan and Deutsche Bank. Carla is a Non-Executive Director of Lloyds Bank Corporate Markets plc.
Skills and experience Antonio joined the Group in 2011 and is currently responsible for the insurance, investment and wealth management businesses. Antonio is also Chairman of Schroders Personal Wealth and a Board member of the Association of British Insurers. Prior to his current role, Antonio led Group Corporate Development, Group Strategy and the former Consumer Finance Division. Antonio also led the IPO and divestment of TSB and reshaped the Group’s international presence. Before joining the Group, Antonio was Chief Financial Officer of Santander UK.
Skills and experience John joined the Group in February 2015 as Chief Information Officer for Group Operations, Functions and Enterprise and was appointed as the Group’s Chief Information Officer in September 2017. Over 25 years in the IT industry John has been responsible for delivering large scale IT solutions across enterprise application platforms, infrastructure and data analytics, working as part of global operating environments such as Barclays, Capita and business process outsourcing firms.
Skills and experience Paul joined the Group in June 2017 as Chief Internal Auditor. He joined from Deloitte where Paul was a partner in the UK Financial Services practice and led the UK Financial Services Internal Audit business. Paul has specialised in internal and external audit roles across financial services for over 20 years, including 10 years in various leadership roles in Barclays Internal Audit.
Skills and experience Janet joined in 2008 to run the Group’s Savings business. Janet was previously Chief Executive at Alliance Trust Savings and EVP Global Strategy at Visa. Janet held a variety of roles at Standard Chartered Bank including Retail Banking MD for Africa and Non-Executive Director positions at Standard Chartered Bank Zimbabwe, Kenya, Zambia and Botswana. Janet is Chair of the Charities Aid Foundation Bank, a NonExecutive Director of the Banking Standards Board and is the Group’s Executive Sponsor for Sexual Orientation and Gender Identity.
Skills and experience Matthew was appointed as Group People and Property Director in April 2020 and is responsible for the Group’s strategy on skills, culture, and the future of work and the workplace. Matthew joined the Group in early 2017 as Reward Director, Governance and Executive Reward, and was subsequently promoted to Group Reward Director in October 2017. Prior to joining the Group, Matthew held senior positions in specialist reward, finance and broader HR roles across a number of Financial Services companies, including RBS, Nomura International and Merrill Lynch.
Skills and experience Stephen was appointed Chief Risk Officer in September 2017. Stephen joined the Group in May 2011 as Chief Credit Officer for Wholesale and International. In October 2012 he became Risk Director, Commercial Banking Risk. Previously Stephen was Chief Risk Officer at Barclays Corporate, and prior to that Chief Credit Officer UK Retail and Corporate. In his 21-year career, Stephen undertook a variety of roles in the front office and risk. Stephen is the Group’s Executive Sponsor for Gender Diversity and Equality.
Skills and experience Zak joined the Group in 1989 as a Business Analyst in IT and has carried out multiple roles involving Retail Chief Information Office, Head of IT Architecture and leading the Digital Transformation programme. He was appointed Group Director, Digital and Transformation in 2016 and his responsibilities increased in September 2017 as the Group Director, Transformation. He is responsible for the digital transformation of the Group, including all IT and business change, and ensuring we are ready to meet the future expectations of our customers.
Full biographical details of each GEC member or attendee are available on lloydsbankinggroup.com/who-we-are/groupoverview /group-executive-committee.html
5 Simon Henry retired from the Board on 30 September 2020. 6 Sarah Legg succeeded Simon Henry as Chair of the Audit Committee with effect from 1 October 2020 and became a member of the Responsible Business Committee on 1 February 2021. 7 Nick Prettejohn succeeded Alan Dickinson as Chair of the Board Risk Committee on 21 May 2020 and was succeeded in that role by Catherine Woods on 1 January 2021. 8 Sara Weller plans to retire as Chair of the Responsible Business Committee and a Non-Executive Director at the AGM in May 2021. Amanda Mackenzie will take on the role of Chair of the
Our Board meetings in 2020 During the year, there were 13 Board meetings, including three ad hoc meetings called at short notice to consider matters of a time-sensitive nature such as the appointments of the new Group Chair and Group Chief Executive. Details of attendance at Board meetings is shown above.
The Group has a comprehensive and continuous agenda setting and escalation process in place to ensure that the Board has the right information at the right time and in the right format to enable the Directors to make the right decisions. The Chair leads the process, assisted by the Group Chief Executive and Group Company Secretary. The process ensures that sufficient time is being set aside for strategic discussions and business critical items. The Chair and the Chairs of each Committee ensure Board and Committee meetings are structured to facilitate open discussion, debate and challenge.
The Non-Executive Directors also receive regular updates from management to give context to current issues. In-depth and background materials are regularly provided via a designated area on the secure Board portal.
(an Executive Director, who has announced that he will retire from the Group on 30 April 2021) and Sara Weller (who the Group has announced intends to stand down at the Company’s 2021 AGM).
Skills and experience2 Gender diversity Board tenure Age 9 out of 10 9 out of 10 9 out of 10 8 out of 10 8 out of 10 10 out of 10 10 out of 10 10 out of 10 6 out of 10 4 out of 10
The Board is supported by its Committees which make decisions and recommendations on matters delegated to them under the Corporate Governance Framework, including Board appointments, internal control risk, financial reporting, governance and remuneration issues. This enables the Board to spend a greater proportion of its time on strategic, forward-looking agenda items. Each Board Committee comprises Non-Executive Directors only and has an experienced Chair. Each Committee Chair reports to the Board on the activities of their Committee at a subsequent Board meeting.
The Executive Directors make decisions within the parameters and principles set out in the Corporate Governance Framework. However, where appropriate, any activity can be brought to the full Board for consideration, even if the matter falls within agreed parameters. The Corporate
Robin’s induction included: An Induction Pack containing key corporate documents and information relating to the Group covering aspects such as the role of a director (including relevant Group policies such as anti-bribery, conflicts of interest, expenses, gifts and hospitality and share dealing), the Board and its Committees, financials and strategy, governance, risk management, culture, shareholders and training.
Meetings with Senior Management and Board Directors held in October through December 2020 with all GEC members, Board Directors, the Group Company Secretary and other senior managers to discuss aspects including: – The UK banking regulatory framework and corporate governance including ring-fencing requirements, the Senior Managers and Certification Regime, culture and conduct expectations and whistleblowing
– Culture and values – Group Operations – Risk Management (including consideration of operational risk, conduct risk and customer outcomes) – Financials (including meetings with internal and external auditors) – Capital management and liquidity – Inclusion & Diversity – Retail Banking (including Digital Transformation) and Wealth Management – Commercial Banking – Scottish Widows Group Limited and the Insurance sub-group – Lloyds Bank Corporate Markets plc and the Non Ring-Fenced Bank sub-group – LBG Equity Investments and the Equity sub-group
This page 88 and page 89 show the key focus areas of the Board during the year and highlight the link between those focus areas and our strategic priorities. Also listed are stakeholder groups central to the matters considered and decisions taken.
The agenda for each Board meeting is discussed in advance with the Chair, Group Chief Executive and Group Company Secretary and reviewed at Group Executive Committee meetings. Regular updates are provided to the Board by the Chairs of the Audit, Nomination and Governance, Remuneration, Responsible Business and Board Risk Committees as well as by the Group Chief Executive, the Chief Financial Officer, the Chief Risk Officer and the Chair and the Chairs of the Lloyds Bank Corporate Markets plc and Scottish Widows Group Limited boards.
Discussed conduct, culture and values, cultural transformation initiatives and the Group's Society of the Future plans Strategic priorities Stakeholder groups
Considered and discussed climate change risk and pledges Strategic priorities Stakeholder groups
Approved the Group’s diversity policy including a discussion on Black Lives Matter and endorsement of the Race Action plan Strategic priorities Stakeholder groups
Considered retail customer and supplier support during the pandemic including financial, operational and customer treatment Strategic priorities Stakeholder groups
Discussed the Group’s performance against customer dashboard and targets for 2020 Strategic priorities Stakeholder groups
Considered the recovery of SME customers affected by the pandemic Strategic priorities Stakeholder groups
Discussed the Group's approach to customer communications Strategic priorities Stakeholder groups
Approved the income statement, draft results and presentations to analysts Stakeholder groups
Approved funding and liquidity plans and capital plan including capital risk appetite Stakeholder groups
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 89
Considered updates on structural hedging strategy and Group Corporate Treasury’s regular management information report Stakeholder groups
Deep dive sessions The Board regularly holds deep dive sessions with senior management outside formal Board meetings. The purpose of the sessions is to provide the Board with deeper insight into key areas of strategic focus, while providing Directors with a greater understanding and appreciation for the subject matter to help drive better quality of debate and enhance knowledge. The sessions are structured to allow plenty of opportunity for discussion and include presentations and videos.
Received updates on the Senior Managers and Certification Regime Stakeholder groups
Discussed how to hold the Annual General Meeting during the pandemic, approved revised arrangements for it and received an update on voting Stakeholder groups
Reviewed the Chairman’s fee (without the Chairman present) and Non-Executive Directors’ fees (with Non-Executive Directors abstaining)
Discussed Board and executive succession planning and approved the appointment of the new Chair and Group Chief Executive Stakeholder groups
Approved actions in relation to the PRA Periodic Summary Meeting letter Stakeholder groups
The pandemic has had a profound effect on the way we live. The Board has monitored the impact of the pandemic on the Group’s business and its stakeholders and the Group’s response as the situation evolved, seeking to ensure that the risks posed by the pandemic are mitigated. All Board meetings have been held virtually since (and including) the March Board meeting with Board and Board Committee agendas flexed to consider COVID-related matters. The Board considered frequent COVID updates from management (both formally and informally) as events unfolded covering matters such as the impact on customers, colleagues, suppliers and other stakeholders and on funding and liquidity. These pages provide an overview of how the Board has overseen the Group’s response to the pandemic.
UK lockdown measures continued with a three week extension announced and daily testing capacity was ramped up as the total number of recorded deaths passed 20,000
Bank of England made emergency base rate cuts, Chancellor announced furlough scheme and Prime Minister announced UK lockdown measures
19 February – the Board considered an update indicating that the coronavirus outbreak was being closely monitored, including the impact on industry sectors and that a scenario exercise had been undertaken to simulate the Group’s response. The Board emphasised at its Board meeting the need for contingency plans for staff protection and mass absences to be in place, the importance of maintaining IT resilience and the potential impact on the financial systems in terms of cash flow, supply chain and commodities.
29 April – the Board discussed the Government schemes for SME, business and corporate support at its Board meeting and the Group’s operational approach to implementing the schemes and approved the Group’s participation in each of the CBILS, CLBILS and BBL schemes and equivalent Government backed support schemes. The Board approved the Group’s Q1 interim management statement, which, given the significant change in the operating environment and economic expectations, withdrew the Group’s previous guidance in light on the ongoing uncertainty caused by the pandemic.
1 May – the Group announced that its Chief Operating Officer and Director, Juan Colombás, had agreed to delay his retirement and to remain in post and on the Board until 18 September 2020 to enable him to continue to play a key role in the Group's response to the pandemic.
12 May – COVID-compliant AGM arrangements were announced following Board approval.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 91
As restrictions were gradually eased, primary schools and general retail reopened
As England entered a second national lockdown, Pfizer and BioNTech announced a vaccine with the UK vaccination programme starting in early December; a new strain of the virus prompted creation of a new “tier 4”
11 June – informal Board update call held to brief the Board on an analysis of economic scenarios and the key assumptions underpinning them in relation to matters such as the continued closure of the economy, the process for the UK's exit from the EU and the likelihood of a second wave.
28 July – the Audit Committee discussed at its meeting the Group’s draft half-year results news release (including COVID-related disclosures) and recommended that the Board approve the news release. The Board Risk Committee discussed a COVID-specific credit update and the impact of the pandemic and emerging risks across a number of sectors.
25 November – the Board Risk Committee discussed a COVID-specific credit update.
26 November – the Board discussed an update on the impact of the pandemic on the Group and, in particular, on its progress with its strategy at its Board meeting.
27 October – the Board discussed at its meeting the Group’s priorities from a culture perspective post pandemic and areas of focus for the Group on the exit from the pandemic. The Board Risk Committee discussed a COVID-specific credit update and a briefing on the Group’s programme to support Commercial Banking customers.
28 October – the Audit Committee discussed at its meeting the Group’s draft Q3 interim management statement (including COVID-related disclosures) and recommended that the Board approve the statement. The Board approved the Group’s Q3 interim management statement, which included updated 2020 guidance in light of the highly uncertain economic outlook.
The Board supports the Group's aim to develop its values-led culture. Our values and behaviours are the foundation of our culture, providing us with a clear framework to ensure we understand what we expect of each other. During 2020 the Board has sponsored a plan of initiatives led by the Group Chief Executive to accelerate our cultural change across the business, which will be crucial to the delivery of our Group strategy and to ensure we continue to respond to the evolving needs of our customers, colleagues and the communities we serve.
February 2020 The Board reviewed the results of recent colleague surveys.
Performance against key metrics remained encouragingly stable given the circumstances, with scores remaining high and above UK high performing norms; areas of improvement identified with respect to bureaucracy and the requirement to continue to simplify our ways of working.
April 2020 The Board considered progress on the Culture Change Acceleration initiatives.
Increased two-way communication from the Group Chief Executive and broader Group Executive Committee focused on supporting colleagues has been very positively received.
In addition to substantial delivery across our culture change initiatives in 2020, we have also experienced positive cultural impact as a result of the many changes accelerated by the pandemic.
Building empathy, including the rewrite of 60 per cent of our customer communications and new training for colleagues.
Continued embedding of Your Best, our award winning approach to performance management and career development which was rolled out in 2019.
Colleagues reported positive shifts in culture, identifying greater support, collaboration, flexibility and innovation.
The Board agreed that positive cultural changes triggered by the pandemic needed to be permanently embedded within the business.
The Board has encouraged Group Executives and Senior Leaders to role model and pioneer new ways of working and encourage simplicity, facilitated through the rollout of new technology.
Empathetic tone from the top has been adopted in leaders’ communications, with colleagues noticing the change and more human, transparent tone used.
The Board reviewed results from the recent colleague surveys where colleagues reported a more agile working environment with faster decision-making and less bureaucracy.
Since 1 January 2019 UK legislation has required large UK banks to separate personal banking services, such as current and savings accounts, from riskier activities, such as investment banking, in other parts of their business. This is called ring-fencing. The Group’s structure and governance arrangements meet these regulatory requirements. Lloyds Bank plc and Bank of Scotland plc are the banks, within the Group, which have been included within the ringfence (together, the Ring-Fenced Banks). The governance structure focuses on ensuring: Independent decision-making by the Ring-Fenced Bank Boards – on any matters where there might be a conflict between the interests of the Ring-Fenced Banks and the interests of another part of the Group.
Insurance sub-group under Scottish Widows Group Limited (including Scottish Widows Limited).
Board oversight of sustainability and climate-related risks The Board has a key role in overseeing how the Group’s activities affect the environment and the impact of climate change on the Group’s business. The Responsible Business Committee oversees and monitors the Group’s sustainability strategy and the Board Risk Committee oversees and monitors the Group’s approach to managing risks arising from climate change, with both Committees reporting regularly to the Board. Further details of the governance structure for the oversight and ownership of the Group’s sustainability strategy and management of climate-related risks can be found on page 22.
During the year the Board approved: an ambitious goal, working with customers, Government and the market to help reduce the emissions we finance by more than 50 per cent by 2030, on the path to net zero by 2050 or sooner – read more on this Key Board Decision on page 50 and read more on the Metrics and Targets on page 22.
three new operational pledges to accelerate the Group’s plan to tackle climate change – read more on pages 22 to 23.
the creation of a new principal risk for climate risk in the Group’s Enterprise Risk Management Framework and integration of climate risk into all existing principal risks – read more on page 57.
Read more on pages 20 to 31 and in our 2020 Lloyds Banking Group ESG Report.
The Board also approved a target to increase Black representation in senior roles to at least 3 per cent by 2025. This complemented the Group’s broader 2018 Black, Asian and Minority Ethnic representation targets of 10 per cent overall, and 8 per cent at senior roles.
Please refer to page 48 for details of how the Board engages with the Group’s workforce and why the Board considers these arrangements to be effective.
The Chair of the Board, with the support of the Nomination and Governance Committee, leads the Board in considering and responding to the annual evaluation of the Board’s effectiveness, which includes a review of its Committees and individual Directors. Performance evaluation of the Chair is carried out by the Non-Executive Directors, led by the Senior Independent Director, taking into account the views of the Executive Directors.
The Board is in the final year of the three year evaluation cycle recommended by the UK Corporate Governance Code 2018. An external evaluation was last conducted in 2018, facilitated by Egon Zehnder1, an external board review specialist, with internal evaluations being carried out in 2020 and 2019. The 2021 evaluation is currently expected to be externally facilitated, with the Nomination and Governance Committee beginning the search process for the external facilitators in the due course.
2020 evaluation of the Board’s performance The 2020 evaluation was conducted internally between November 2020 and January 2021 by the Group Company Secretary, and was overseen by the Nomination and Governance Committee.
The 2020 review sought the Directors’ views on a range of topics including: strategy; planning and performance; risk and control; Board composition and size; balance of skills, experience and knowledge; diversity; culture; how members work together, and with executive management, to achieve objectives; the Board’s calendar and agenda; the quality and timeliness of information; and support for Directors and Committees. The topics were selected by the Chair of the Nomination and Governance Committee and the Group Company Secretary as being the most pertinent when considering the Board’s effectiveness, and also referenced previous years’ topics to track trends and improvements.
1 At the time of the 2018 review Egon Zehnder provided certain Board and senior management level services from time to time, including in respect of succession planning as detailed on page 67 of the 2018 Annual Report and Accounts, otherwise Egon Zehnder had no other connection with the Group.
November 2020 Detailed online questionnaire issued to all Directors by the Group Company Secretary.
November 2020 to January 2021 Individual meetings held between each Director and the Group Company Secretary or Corporate Governance Director to discuss responses and opportunity for Directors to raise any other matters concerning the Board or its Committees.
January 2021 Draft report discussed by the Group Company Secretary with the Chair.
The key findings and areas for consideration include the following: Theme Findings Areas for consideration
More frequent deep dives were diarised together with free discussion time for strategic discussion of core business activities.
Stricter guidelines on papers and presentations were developed in conjunction with the Chair of the Board and each Committee Chair to permit more time for discussion.
Access to Group IT systems, especially encrypted systems, cumbersome or not user friendly.
All Board and Committee meetings since (and including) March 2020 have been held remotely, with the 2020 Board Evaluation feedback noting how effectively these had operated during the period. In addition, the Non-Executive Director training curriculum was delivered online for the majority of the year.
In establishing and reviewing the risk management and internal control systems, the Directors carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and reputation, the likelihood of a risk event occurring and the costs of control. The process for identification, evaluation and management of the emerging and principal risks faced by the Group is integrated into the Group’s overall framework for risk governance. The risk identification, evaluation and management process also identifies whether the controls in place result in an acceptable level of risk. At Group level, a consolidated risk report and risk appetite dashboard are reviewed and regularly debated by the Group Risk Committee, Board Risk Committee and the Board to ensure that they are satisfied with the overall risk profile, risk accountabilities and mitigating actions. The report and dashboard provide a monthly view of the Group’s overall risk profile, key risks and management actions, together with performance against risk appetite and an assessment of emerging risks which could affect the Group’s performance over the life of the operating plan. Information regarding the main features of the internal control and risk management systems in relation to the financial reporting process is provided within the risk management report on pages 143 to 204. The Board concluded that the Group’s risk management arrangements are adequate to provide assurance that the risk management systems put in place are suitable with regard to the Group’s profile and strategy.
Risk Committee. On an annual basis, a point in time assessment is made for control effectiveness against each risk category and across the 4 sub-groups. The CRR data is the primary source used for this point in time assessment and a year on year comparison on control effectiveness is reported to the Board.
Reviews by the Board The effectiveness of the risk management and internal control systems is reviewed regularly by the Board and the Audit Committee, which also receive reports of reviews undertaken by the Risk Division and Group Internal Audit. The Audit Committee receives reports from the Company’s auditor, PricewaterhouseCoopers LLP (which include details of significant internal control matters that they have identified), and has a discussion with the auditor at least once a year without executives present, to ensure that there are no unresolved issues of concern.
Complying with the UK Corporate Governance Code 2018 The UK Corporate Governance Code 2018 (the ‘Code’) applied to the financial year ended 31 December 2020. The Company confirms that it applied the principles and complied with all the provisions of the Code throughout the year except in relation to that part of provision 36 that provides that the remuneration committee should develop a formal policy for post-employment shareholding requirements encompassing both unvested and vested shares and, in one instance, in relation to that part of provision 15 that provides that additional external appointments should not be undertaken without prior approval of the Board. In relation to provision 36, while the Remuneration Committee has not introduced a formal post-employment shareholding policy, the existing reward structure ensures that Executive Directors will continue to meet the Group’s shareholding requirements for a minimum of two years after leaving the Group. On this basis, the Group believes that it already complies with best practice and with the spirit of provision 36 notwithstanding the fact that a specific formal policy has not been introduced. Please refer to the Directors' Remuneration Policy which is set out in the 2019 annual report and accounts (pages 115 to 123) which is available at: www.lloydsbankinggroup.com/investors/annual-report/ annual-report-archive.html for a more detailed explanation of the Group’s approach to post-employment shareholding requirements. In relation to provision 15, the Chair approved Nick Prettejohn taking on the role of Chairman of the charity, Prisoners Abroad, but due to timing constraints, the Board did not approve the appointment in advance but ratified it after Nick Prettejohn had taken on the role. The role is not considered a significant appointment for the purposes of provision 15 of the Code.
The Code is publicly available at www.frc.org.uk. This page and the following page, together with the rest of the Corporate Governance Report, explain and illustrate how we have applied the principles and related provisions of the Code during the year. The alphabetical references in the paragraphs below correspond to the principles, and related provisions, of the Code. The Group has adopted the UK Finance Code for Financial Reporting Disclosure and its 2020 financial statements have been prepared in compliance with its principles.
Robin Budenberg succeeded Lord Blackwell as Chair on 1 January 2021. The Chair leads the Board and promotes the highest standards of corporate governance. He leads in building an effective and complementary Board, and sets the Board’s agenda. The Chair also leads Board succession planning and ensures effective communication with shareholders.
As Deputy Chair, Alan Dickinson supports the Chair in representing the Board, and acts as a spokesperson for the Group. He deputises for the Chair and is available to the Board for consultation and advice. The Deputy Chair may also represent the Group’s interests to official enquiries and review bodies. As Senior Independent Director, Alan Dickinson is a sounding board for the Chair and Group Chief Executive. He acts as a conduit for the views of other Non-Executive Directors and conducts the Chair’s annual performance appraisal. He is available to help resolve shareholders’ concerns and attends meetings with major shareholders and financial analysts to understand issues and concerns.
The Group Company Secretary advises the Board on matters relating to governance, ensuring good information flows and comprehensive practical support is provided to Directors. The Group Company Secretary maintains the Group’s Corporate Governance Framework and organises Directors’ induction and training. Both the appointment and removal of the Group Company Secretary is a matter for the Board as a whole.
A. The Group is led by an effective, committed Board, which is collectively responsible for the long-term, sustainable success of the Group, ensuring due regard is paid to the interests of the Group’s stakeholders, with its effectiveness assessed annually, discussed further on page 94 to 95. The Group’s Corporate Governance Framework, which is reviewed annually by the Board, sets out the key decisions and matters reserved for the Board’s approval, which includes matters relating to the Group’s long-term strategy and priorities. Further details of the Corporate Governance Framework can be found on page 99. B. The Board assumes responsibility for establishing the purpose of the Company, setting its strategy, establishing its culture, and determining the values to be observed in achieving that strategy. Central to this is the Company’s role as a trusted and responsible business, with the Board’s Responsible Business Committee overseeing the Group’s ambitions in this regard. The Group’s approach to acting as a responsible business is discussed in detail on pages 20 to 31, and in the report of the Responsible Business Committee on page 110. C. The Board retains ultimate responsibility for ensuring adequate resource is available to meet agreed objectives and strategy, and ensures such resources are responsibly and effectively deployed. The effective management of risk is central to the Company’s strategy, supported by the Group’s enterprise risk management framework, as discussed in the risk management report on pages 144 to 204.
O ther inform ation Lloyds Banking Group Annual Report and Accounts 2020 97 2. Division of Responsibilities
G. The balance of skills, experience, independence and knowledge on the Board is the responsibility of the Nomination and Governance Committee, and is reviewed annually or whenever appointments are considered. Having the right balance of skills and experience helps to ensure Directors discharge their duties effectively. The Nomination and Governance Committee monitors whether there are any relationships or circumstances which may affect a Director’s independence. Following the most recent review of independence, the Committee concluded that all Non-Executive Directors are independent in character and judgement, as shown on page 99. As of 1 February 2021, Sara Weller had spent nine years on the Board and will retire at the AGM in May. In relation to the period from 1 February 2021, being the ninth anniversary of Sara Weller’s appointment to the Board, to retirement at the AGM in May, the Board considered and agreed the continuing independence of Sara as a Non-Executive Director of the Company for that period. The decision was based on a number of factors including the continued challenge and oversight Sara provides in the role and the other external roles she holds, while noting the benefits of enabling the transition of her responsibilities as Chair of the Responsible Business Committee during this short period. More information on the annual Board evaluation can be found on pages 94 to 95 and information on the Board Diversity Policy can be found on page 100.
H. Non-Executive Directors are advised of time commitments prior to their appointment and are required to devote such time as is necessary to discharge their duties effectively. The time commitments of the Directors are considered by the Board on appointment and annually thereafter, and, following the most recent review, the Board is satisfied there are no directors whose time commitments are considered to be a matter for concern. External appointments, which may affect existing time commitments relevant to the Board, must be agreed with the Chair, and prior Board approval must be obtained before taking on any new external appointments. The Chair approved Nick Prettejohn taking on the role of Chairman of the charity, Prisoners Abroad, but due to timing constraints, the Board did not approve the appointment in advance but ratified it after Nick Prettejohn took on the role. The role is not considered a significant appointment. During 2020, Stuart Sinclair was appointed a Non-Executive Director and subsequently Chairman of each of International Personal Finance plc and Willis Limited and Sara Weller a Non-Executive Director of BT Group plc. The Board considered the time commitments and potential conflicts involved in Stuart and Sara taking up these significant roles prior to them accepting the roles and were satisfied that they would continue to have sufficient time to commit to their respective Group Board and Committee appointments. No Executive Director has taken up more than one Non-Executive Director role at a FTSE100 company or taken up the chair of such a company. More information on Directors’ attendance at meetings can be found on page 86.
I. The Chair, supported by the Group Company Secretary, ensures that Board members receive appropriate and timely information. The Group provides access, at its expense, to the services of independent professional advisers in order to assist Directors in their role. Board Committees are also provided with sufficient resources to discharge their duties.
K. The Chair leads the training and development of Directors and the Board regularly reviews and agrees with each Director their individual and combined training and development needs. The Chair personally ensures that on appointment each Director receives a full, formal and tailored induction. The emphasis is on ensuring the induction brings the business and its issues alive, taking account of the specific role the Director has been appointed to fulfil and their skills and experience to date. More information on the new Chair’s tailored induction programme can be found on page 87. Directors who take on or change roles during the year attend induction meetings in respect of those new roles.
At the 2021 AGM all Directors will seek re-election or election save for António Horta-Osório, who will be stepping down with effect from 30 April 2021 and Sara Weller, who will be stepping down at the 2021 AGM. The Board believes that all Directors continue to be effective and committed to their roles.
L. An internally facilitated Board evaluation was completed in 2020, with an externally facilitated evaluation last having taken place in 2018. Individual evaluation is carried out by the Chair on behalf of the Board. Performance evaluation of the Chair is carried out by the Non-Executive Directors, led by the Senior Independent Director, taking into account the views of the Executive Directors. More information on the 2020 Board evaluation can be found on pages 94 to 95, along with the findings, actions, and progress made during the year.
N. Requirements that the Annual Report is fair, balanced and understandable are considered throughout the drafting and reviewing process and the Board has concluded that the 2020 Annual Report meets this requirement. The Board is supported in this by its Audit Committee and a sign off process involving different sections of the annual report being approved for inclusion by senior management, with additional review by the Group Disclosure Committee. The Directors’ and Auditor’s Statements of Responsibility can be found on page 114 and page 206 respectively. Related information on the Company’s business model and strategy can be found on pages 1 to 59.
Q. The Remuneration Committee seeks to ensure all remuneration policy, including that relevant to executive remuneration, is fair and transparent. The work of the Remuneration Committee during the year is discussed further in its report on page 115.
R. The Remuneration Policy seeks to ensure all remuneration decisions made by Directors fully consider the wider circumstances as relevant to that decision, including, but not limited to, individual performance. The Remuneration Committee’s decision-making in respect of remuneration outcomes is discussed further in the Directors’ Remuneration Report on pages 115 to 142 which includes additional confirmation of the use of remuneration consultants, including where any such consultant has another connection to the Company.