Environmental, Social Governance and Sustainability Policy
- environmentally sustainable business practices,
- positively impact our customers, colleagues and communities,
- maintaining high standards of corporate governance and business ethics.
At present, the UK has no single ESG law or regulation. Those that exist focus primarily on the reporting and disclosure requirements of firms, and continue to evolve at pace. Below are several laws / policies which have informed the Bank’s approach to ESG.
2.1 The Companies Act 2006
Section 414C of the Companies Act 2006 requires directors to prepare a strategic report to assess how they have performed their duty under Section 172, including information about (i) environmental matters (including the company’s impact on the environment), (ii) the company’s employees, and (iii) social, community and human rights issues.
Amendments in 2016 and 2022 added sections 414CA and 414CB to expand the scope1 of companies required to include a ‘non-financial and sustainability information statement’ in their strategic report, introducing mandatory reporting requirements aligned to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
2.2 The Climate Change Act 2008
Under the Climate Change Act 2008, the UK committed to reduce emissions by 80% relative to 1990 levels by 2050. In June 2019, parliament passed legislation that extended this commitment to a 100% reduction by 2050. The Act requires all companies to be ‘net zero’ across Scope 1-3 emissions by 2050 and sets out milestones to achieve this target.
2.3 The PRA’s Supervisory Statement (SS3/19)
The Prudential Regulatory Authority’s (PRA) Supervisory Statement (SS) 3/19 and Dear CEO letters in 2020 and 2022 set out supervisory expectations related to climate-related risk management. These note it is “important that their Board and senior management team, including the designated Senior Manager Function (SMF) for climate, demonstrate appropriate oversight and control of the firm wide climate agenda”, but acknowledge the need for firms to take a proportionate approach relative to the nature, scale and complexity of their business.
2.4 The FCA’s Sustainability Disclosure Requirements (SDR)
The Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR) regime is the UK’s flagship ESG regime and came into effect in May 2024. The SDR is primarily an product labelling regime, accompanied by entity-level disclosure requirements, a new anti-greenwashing rule and guidance and ESG marketing requirements.
While the SDR focuses on asset managers and distributors of investment products, the anti-greenwashing rule applies to all FCA authorised firms who make sustainability-related claims about financial products and services – and reinforces that such claims must be fair, clear and not misleading.
1 The Regulations apply to a UK-incorporated company which has more than 500 employees and is: (i) a traded company; (ii) a banking company; (iii) an authorized insurance company; or (iv) a company with a turnover of more than £500m. As such, Recognise Bank is not in scope at the time of writing.
This Policy applies to all Recognise employees – full time, part time and contractors – and sets out the Bank’s approach to embedding ESG principles across all our operations.
Everyone at Recognise plays a vital role in integrating ESG principles into our day-to-day operations. This means considering the environmental and social impact of all our decisions, alongside financial considerations. ESG considerations are explicitly included in many Bank policies and procedures, and employees are also expected to embrace the spirit of these principles in all activities.
Recognise is committed to managing the environmental and societal impact we have, both as a standalone firm, and in terms of the third-party suppliers we work with and the businesses that we support through our lending activities. ESG considerations are included
within our Third Party Policy and assessment, and lending parameters and procedures.
Day-to-day responsibility for ensuring that the business adheres to the relevant regulatory rules and expectations is led by the Chief Risk Officer (CRO), in conjunction with:
4.1 Board
The Board is responsible for setting, owning and achieving the objectives of Recognise’s approach to ESG and sustainability matters impacting on its business, the environment and communities in which we operate.
4.2 Executive Management (ExCo)
ExCo is responsible for the successful implementation of this Policy and the associated ESG strategy, ensuring appropriate horizon scanning and monitoring of ESG and sustainability developments and emerging risks. It is critical for ExCo to set the tone from the top in relation to ESG and sustainability and its decision-making should be mindful of the impact on the Recognise business as well as how we impact on the wider environment and communities in which we operate.
4.3 Policy Owner
The Board and ExCo have allocated responsibility for climate change to the CRO, who is SMF4 and will be responsible for identifying and managing financial risks from climate change. This responsibility will also extend to how we as a business will operate to promote positive environmental and social impact. The CRO leads the ongoing development of our ESG strategy, regular reporting to ExCo, the Board and relevant risk committees, and the periodic review of this Policy.
4.4 Responsible Business Group
The Bank has established a Responsible Business Group which includes employees from across the business and support functions with the requisite knowledge and experience to drive forward the delivery of the Bank’s ESG strategy and action plan.
4.5 Employees
Each employee has a responsibility to ensure that they understand their obligations and are required to familiarise themselves with the Policy and associated policies and procedures to ensure compliance.
4.6 Risk & Compliance
The Risk & Compliance function will support the business in ensuring that the Policy meets not just prescribed regulatory requirements but also the spirit. The function operates as a second line of defence with responsibility for validation, challenge and operational risk assurance through undertaking planned reviews, reporting and escalation to ERC and the Board.
4.7 Finance
The Finance team will be responsible for appropriate and adequate ESG and sustainability reporting in Recognise’s Annual Report and Accounts and Financial Disclosures obtaining the relevant approvals for the content.
4.8 Internal Audit
As the third line of defence, the Internal Audit function is responsible for providing independent assurance of implementation of the Policy including the oversight of the appropriateness and effectiveness of systems and controls.
5.1 Transition to Net Zero
The Bank recognises the key role which financial services organisations must play in supporting the UK economy to achieve net zero by 2050. The Bank’s climate strategy aims to support the transition to a sustainable economy by focusing on
5.1.1 Financing the transition
We recognise that the majority of our environmental impact comes from our financed emissions – indirect emissions attributed to lending or investments – which represent more than 95% of the average bank’s overall emissions2. The Bank is taking steps to estimate and disclose our Scope 3 financed emissions, and identify where reductions can be achieved.
Recognise will make efforts to encourage positive environmental or societal impact through its lending and deposit products, which may include the development of ‘green’ products for our customers who positively contribute to sustainability or the environment. We also aim to support customers in their own sustainability journey through educational content, partnerships, and community engagement.
This policy will inform our already established policy that was implemented to ensure that we do not lend to borrowers in certain sectors that do not align to our environmental, social or ethical principles, as detailed in our Commercial Lending Parameters.
5.1.2 Reducing our operational impact
Recognise is seeking to minimise its carbon footprint by reducing our environmental impact and continually improving our environmental performance. Focus areas in which we ask employees to actively consider sustainability will include (but is not limited to):
• Premises
• Energy and Water Use
• Recycling / Waste Management
• Office Supplies
• Printing
• Maintenance and cleaning
• Travel
The Bank has committed to measuring our Scope 1-3 emissions and setting reduction targets. These measurements and our progress towards reductions will be added to internal management information (ESG metrics) and the financial reporting required in Recognise’s Annual Report and Accounts and Financial Disclosures.
The Bank acknowledges that the impact of the third parties and suppliers with which we engage represents a significant proportion of our overall impact. We therefore aim to work with third parties and suppliers who align to ESG principles, and asses this commitment during our onboarding due diligence and periodic supplier reviews.
5.2 Climate Risk Management
Climate change and society’s response to it presents financial risks which may emerge now or crystallise in full over longer time horizons. Financial risks arise through two primary channels – i) Physical Risk (weather related or climate shifts), and ii) Transition Risk (process of adjustment towards a low-carbon economy).
The PRA expects a firm’s Board and executive management to understand and assess the financial risks from climate change that affect the firm, and to address and oversee these risks within the firm’s overall business strategy and risk appetite. The approach should demonstrate an understanding of climate-related financial risks and a sufficiently long-term view of these risks that extends beyond standard business planning horizons.
Recognise has developed its climate change risk appetite defining the level of risk it is prepared to accept and this already forms part of the Board Risk Appetite Statement. We have undertaken a review of our lending policies and underwriting approach to incorporate climate risk impact and will continue to periodically review and enhance as our knowledge and experience grows.
The activities of some business sectors and/or businesses can have adverse environmental, social and ethical impacts including the potential for human rights infringements. As mentioned above, our Commercial Lending Parameters now include an Environmental, Social, Ethical Excluded Sector List to which we will not knowingly lend.
5.2.1 Scenario Analysis
In 2023, the Bank engaged Deloitte to provide third party assurance and conduct a climate change scenario analysis and stress test. This analysis considered the Bank’s exposure to physical and transition risks across three CBES scenarios and time horizons, and concluded that at present there is limited impact on the Bank arising from the financial impact of climate change.
Nevertheless, the Bank has identified the continuing need to undertake regular climate change stress testing and will reconsider the impact on capital, taking into account regulatory guidance for climate change financial risks and market practice as it emerges.
2 Accenture Research Report “Rising to the challenge of net zero banking”, 2024
This section of the Policy outlines our commitment to positive social impact. We recognise that our success is intertwined with the well-being of our colleagues, customers and the communities we serve. Here, we detail our approach to fostering a diverse and equitable workplace, promoting responsible customer practices, and contributing meaningfully to the communities in which we operate.
6.1 Colleagues
The Bank is committed to providing a safe, positive and rewarding work environment for all colleagues. We have implemented a comprehensive range of policies that prioritise colleague safety and well-being, promote an inclusive and diverse workforce, and flexible culture where colleagues are empowered and fairly rewarded for their work.
These include (but are not limited to) our: Health and Safety; Diversity, Equality and Inclusion; Harassment and Bullying; Anti-Racism; Modern Slavery; Time Off; Maternity Leave; Paternity Leave; Shared Parental Leave; Adoption Leave; Career Break; Agile Working; Flexible Working; Training and Competence; and Remuneration Policies. The Bank monitors employee satisfaction and engagement through regular surveys, which inform ExCo and employee-led team action plans.
6.2 Customers
We are committed to putting customers at the heart of our business to deliver good customer outcomes through the products and services we offer to our customers. We have adopted the FCA’s Consumer Duty and embedded its principles throughout our business, for both retail and non-retail customers. For full details on our approach to delivering good outcomes for customers, please consult our Consumer Duty Policy, alongside our policies for Complaints Management, Vulnerable Customers, Data Protection, Data Retention, Code of Conduct, Product Approval, Direct Marketing, Commercial Lending, Arrears Management and Debt Recovery, Commercial Property Lending Parameters, Provisions and Debt Write Off.
6.3 Communities
The Bank is committed to positively impacting the communities in which we operate through targeted lending, colleague volunteering and charitable fundraising. All employees are entitled to an additional two days of paid leave per year to be used for volunteering on community projects or charities. In addition, we aim to support the active role many colleagues play in their local communities as school governors, sports coaches, charity board members, etc. through our flexible working practices. We also have a scheme in place which enables employees to donate the pennies from their monthly salary to our chosen charity.
The Bank is committed to maintaining the highest standards of corporate governance, ethical standards and regulatory compliance.
7.1 Corporate Governance
The Bank has a well-established corporate governance framework. The Board sets the purpose, strategy and risk appetite of the Bank and is the ultimate decision-making body for strategic, financial, regulatory and reputational matters.
The Bank clearly sets out those matters reserved to the Board, the ExCo and their various sub-committees within their associated Terms of Reference, and monitors performance of these Committees through regular effectiveness reviews.
7.2 Conduct and Ethics
The Bank has in place a Code of Conduct and Ethics Policy which documents the specific principles of ethics and conduct which shall be followed by the Bank’s directors, officers and employees in the performance of their responsibilities related to the Bank’s business and activities.
All employees are made aware of their responsibilities under the Senior Managers and Certification Regime (SMCR) and the Conduct Rules with senior management responsible for their respective prescribed responsibilities under their assigned Senior Management Functions (SMF).
The Bank’s company values and behaviours serve as the guiding principles that shape our culture, decisions, and the actions we take. They provide a shared understanding of what is important and desirable in how we work together, fostering a positive work environment,
enhancing employee engagement, and aligning everyone towards our strategic goals. In addition, the Bank has specific policies which define its approach to: Conduct Risk; Conflicts of Interest; Anti Bribery and Corruption; Whistleblowing; Gifts and Hospitality Policy; Share Dealing and Market Abuse.
7.3 Data Management and Security
The Bank recognises that failure to protect personal data poses a risk to employees and clients and to the reputation and good standing of the company, as well as the risk of incurring financial penalties.
This Bank’s Data Protection Policy details how Recognise will manage data protection and data security and ensure a consistency of approach within Recognise and adherence to the Data Protection Act 2018 (DPA). The policy helps to deliver good consumer outcomes by avoiding foreseeable harm to customers which may arise from our failure to process and control data appropriately.
7.4 Operational Resilience
The Bank has established its approach to operational resilience and business continuity in alignment with relevant regulatory expectations to ensure that it is well prepared to manage any impact from unexpected events that may disrupt its operations.
It is the responsibility of all employees, directors and senior managers to understand this approach, as set out in our Operational Resilience, and Business Continuity Policies.
7.5 Third Parties
In line with the FCA and PRA rules and guidance on outsourcing, the Bank is required to establish, implement and maintain appropriate and effective arrangements to supervise all outsourced functions.
The Bank’s Third Party Policy sets out the firm’s obligations and approach to entering, managing and monitoring all outsource and critical suppliers (“third parties”) arrangements. This includes our approach to assessing the ESG credentials of any third party with which we work in alignment with this Policy.
The Chief Risk Officer is responsible for periodic reporting to the Board, Board Risk Committee (BRC), ExCo and Executive Risk Committee (ERC). Reporting takes place quarterly or sooner if material developments emerge that should be escalated sooner and is
centred on the progress against our ESG strategy and action plan, climate related risk management and horizon scanning activity. The Responsible Business Group will coordinate the creation of relevant Management Information for inclusion in these quarterly updates to
ERC and BRC.
The Finance team is responsible for appropriate and adequate ESG and sustainability reporting in Recognise’s Annual Report and Accounts and Financial Disclosures obtaining the relevant approvals for the content. The Financial Disclosures will be based on the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) but proportionate to Recognise’s business model.
Internal Audit reports will be submitted directly to the Board Audit Committee (a Board sub-committee) to promote independence.
The Policy will be readily accessible at all times in SharePoint. Appropriate training will be provided to all employees during induction followed by more detailed training including periodic refresher training and knowledge testing via our training platform.
Targeted additional training by employee or group of employees will be provided more frequently as informed in part by the results recorded from training MI as well as ongoing monitoring activity by first, second and third lines of defence.
Further training and communication will take place in the event of a regulatory change to ensure that employees remain up to date. Where necessary the Chief Risk Officer and the Responsible Business Group will provide additional guidance.
