Lloyds Banking Group Plc (2024)

Our ESG risk management process continues to evolve and enhance the existing credit assessment process.
In 2024, we launched a consolidated, risk-based qualitative ESG risk assessment for our corporate, institutional, and mid-corporate clients using our ESG tool.
These assessments encompass climate, environmental and nature, social and governance, and reputational risk. Our assessments are risk based, required at origination and apply to both counterparties and transactions where appropriate. They are monitored on an ongoing basis
throughout the customer lifecycle, including at specific risk trigger points.
We have defined ESG risk triggers to identify higher-risk cases, which are then subject to enhanced due diligence by our ESG risk specialists. Examples where enhanced ESG due diligence is required include cases that are within scope of the Equator Principles or where there are potential conflicts with our net zero guardrails or the requirements of our external sector statements. For transactions that fall within the obligations of the Equator Principles, the ESG credit risk team ensures the correct application of our internal ESG credit risk policies and procedures. This includes the review of environmental and social due diligence
reports, or advising on specific requirements of the Equator Principles, and the review of any annual
or ad hoc environmental and social compliance reports as required.
For environmental risk including the Equator Principles we have external retained environmental consultants from whom we can seek additional advice or recommendations at a counterparty or transactional level.
This process is integral to our control framework, ensuring that our lending complies with our ESG commitments.
If concerns are identified during an ESG risk assessment, we will engage with the client or take mitigating actions to ensure the lending remains within risk appetite and aligns with our external commitments.
We continue to integrate outcomes from our risk assessments into our credit risk decision-making processes
and consider these outcomes when setting sector or client-level appetite in certain cases. Where elevated ESG risks are identified in lending applications that require escalation, the ESG credit risk team conduct enhanced due diligence and summarise any findings/recommendations for the credit officer to consider in their credit sanctioning decision. This supports credit officers in ensuring our lending aligns with our appetite and allows them to consider recommendations from the ESG credit risk team, which may also result in the establishment of relevant loan conditions or covenants, such as those for transactions within the scope of the Equator Principles. Further information on the ESG Credit Risk case management process is available on page 129 of our 2024 Group Sustainability Report –Sustainability Report 2024.
Equator Principles performance data is disclosed publicly within our 2024 Sustainability Metrics Data Sheet – https://www.lloydsbankinggroup.com/assets/pdfs/sustainability/reports-and-presentations/2024/2024-lbg-sustainability-data-sheet.xlsx

During the course of 2024, the Group ran refreshed training for all Commercial Banking colleagues on ESG credit risk and The Equator Principles.