Lloyds Banking Group plc (LLOY) Earnings Call Transcript & Summary

Good afternoon, and welcome to Lloyds Banking Group's Board Corporate Governance event. Firstly, I should apologize for the slight technical delay in starting, but hopefully, everything from here will now be smooth. As most of you know, I'm Douglas Radcliffe, the Investor Relations Director for the Group. Before I hand over to Lord Blackwell, the Chairman, I'd quickly like to run through a couple of logistical points. Firstly, you should all have received a copy of the presentation materials in advance and have access to the slides on the presentation portal. You will see that there will be a number of short presentations with a brief Q&A session after each one as well as a final Q&A panel at the end of the event. You can submit questions at any time during the event through the Q&A box on your screen, and we will then look to ensure they are raised at the appropriate time. Secondly, I should mention that this event will be recorded, and the replay will be available on our Investor Relations web page in a couple of days. I'll now hand over to the Chairman for his part of the presentation.

Thank you very much, Douglas. And once again, thank you to everyone for joining. These are important events for us, both to give you the opportunity to talk to senior non-execs who are chairing our various Board committees, and also to give us a chance to hear directly from you, our investors. So thank you for joining. As you'll see from today's presenters, we will go through each of the committee chairs in turn. Following me, we'll start with Sara Weller, who chairs the Responsible Business committee, which is our committee that shapes as well as monitors our response to the ESG agenda and our purpose as a business. And then we'll go through the other chairs and have a Q&A at the end. But we'll also try and make sure we allow for questions on the way through. As well as the presenters, we have listening into this call a number of the execs who have a couple of responsibilities, governance responsibilities, but also Alan Dickinson, our Senior Independent Director; and Robin Budenberg, who, as you all have heard, is taking over as Chairman from me on January 1 next year. Robin will be listening intently. I know he's been reaching out to many of you. I won't ask him, since he joined the Board only a month ago, to respond to questions today, but I know he'll be very interested in any comments you have to make. So just to move on to the next slide, the agenda, we'll go through, let's say, trying to leave time for questions as we go. But on the next slide, let me just start by -- if we can move -- let's -- on this slide, let me just start by pointing out the reality against in which we operate in, which we are very conscious of the strategic challenges facing the banking industry, Lloyds amongst those, and the fact that, as it says at the bottom on the left there that our share price is currently trading around half of book value. That's not where we or any of our investors would want it to be. But it does reflect, I recognize, the challenges and the questions that investors have about the future of the banking industry and Lloyds' response to that. Those external challenges, I think, you are very familiar with the macro environment. Clearly, at the moment, the short-term uncertainty resulting from COVID in -- which has led to the regulatory constraints on dividends and questions about future distributions, longer term, clearly, the low interest rate environment, which is a difficult environment for banks to operate in. We also have the challenge of the technology shift, not only to digital channels, but now to the cloud and moving our legacy systems as other banks have to do into that new environment. The competitive dynamics that have been opened up by the technology shift, not just from new challenges, but by the potential for the big Internet players to move into our space. Changing customer expectations, as they've got used to digital channels and expect us to behave in the same way and with the same response times and service characteristics as other online organizations. And all of this against background where not only customers and shareholders, but society in general is expecting more of us as an organization, banks, in particular, to play their role in the ESG agenda, but also as banks to be meeting our universal service obligations in terms of access to cash, access to bank branches, access to basic bank accounts and something that we recognize and embrace. But that's all against the back end of this shifting external challenges. And internally, that creates challenges of managing a tremendous pace of change and building a bank that's got the culture and skills to be the agile and swift operator that will be needed to succeed in that new environment. So as a Board, we've been very focused on our response to make sure that we are building a bank that will deliver shareholder value, will be able to sustain a strong competitive position in the future. These are not issues that have come upon us of a sudden. We've been thinking about these for a number of years and developing our strategy to transform the bank to the bank of the future, the core of which is about defending and developing the value of our customer relationships, which are the core on which we build our profitability. We have a number of advantages at Lloyds, we believe, from our unique multi-brand proposition, but also the integration that we're increasingly achieving of the financial services offerings from Scottish Widows in terms of insurance, pension savings, making us a single stop shop for financial services for our customers. We start with leading cost efficiency, which we're determined to maintain. We have, in pursuing the tech migration, the advantage of being the U.K.'s largest digital bank in terms of number of digital customers, which means we have the scale to invest and provide leading edge solutions. We start, of course, with a huge customer franchise and the data that we have from that, which will enable us to personalize our propositions and add that value to the customer relationships. And we're also concerned about ensuring that we continue to grow in the markets that we have opportunities to do so. Notably, of course, as I've said in Insurance & Wealth and Pensions. The opportunity to grow assets under management. There is tremendous meeting and need that customers have, but also the areas such as payments and cards where we have opportunities to grow further within our franchise. So we have a response, which we believe meets the challenges that we face. But we're also concerned to make sure that as we do that, we meet the societal requirements on us. We're integrating our social and business purpose in the way that Sara will talk about in a minute to make sure that this is not an add-on, but integral to the way we run and think about our business and the way we operate. And all of that helps ensure that we became -- become or maintain our position as the employer of choice that we can attract the talent and the new skills that we need to succeed with the culture and skills development suited to that environment, and a motivating purpose or purpose of helping Britain prosper, which has never been more relevant for the next year or 2. It may be more than helping Britain recover, as possibility, but it's a purpose that has been deeply ingrained and helps drive the way the organization operates. All of that, achieving the sustainable competitive advantage in shareholder value that we hope will deliver shareholder returns in the years to come and the governance around that, which we'll now talk about. On the next slide, and just turn to that, the Board's focus, as you would expect, many of the things during the last year that relate to that agenda. Going forward into 2021, we will be continuing to update our strategic review that we're absolutely determined not to have any loss of momentum due to COVID or the leadership changes, but we will be continuing to update that. We're focusing on what support we can give to customers to help them through their recovery from COVID, the growth areas I mentioned. ESG, climate risk, clearly a key issue that's center stage for us. And again, Sara will talk a bit more about that. And the migration of our core banking systems into the new technologies and be an absolutely core focus for the Board, along with the culture and skills transformation that goes along with that. And we have to manage the leadership transition, both in Chairman and as we appointed new CEO -- to a new CEO, so those are key areas of the Board going forward. If I can just move on to the next slide. You saw in the video, we've done tremendous amount to try and be part of the solution to the COVID financial crisis. We're very conscious that in the last financial crisis, banks were seen as part of the problem. This time, we are absolutely determined that we're seen as part of the solution in the way we support our customers and our colleagues and our communities. One of the things, for example, that has been incredibly powerful is proactive calls we've made to vulnerable customers. We've made something like 600,000 calls to customers just to check up how they are doing, whether they're surviving, whether they need support, hugely appreciated by our customers alongside the very practical help from our lending to businesses and the payment holidays. And we're going to continue focused on working with our customers and with the government in the agenda to help it and recover. We also, like many organizations, realizing that the changes we've had in our own organization to respond to the COVID situation have led to some changes in the way we operate, which have been beneficial, reducing bureaucracy, empowering colleagues to take decisions. We've had a high rate of digital adoption. All those things, which, as we build in a more environmentally sustainable working, we can continue to build on and embed in our business in the way we go forward. I should touch on the leadership succession. As you know, I come up to my 9 years next year. And so at the end of 2019, we announced that I would, of course, be standing down by that time, and initiated a search for new Chairman, led by Alan Dickinson, the Senior Independent Director. And I was delighted that in July, we were able to announce the Robin Budenberg would be joining the Board to succeed me. He joined the Board on October 1. And after a period of handover, he will takeover as Chairman from me on January 1. In July, we've also been able to make the announcement that António would be retiring middle of next year and initiate as -- when Robin joined the Board, the search for his successor, who will, of course, transition into working with the Board and Robin to continue to develop the strategy I set out on the previous slide. Meanwhile, though, António will be completely focused with the executive team on delivering the current plans. We're working through the next stage of the strategy in terms of the plans and projects for next year at the moment. And we're determined to make sure that goes forward without any loss of momentum, while, of course, allowing the fact that new CEO, when he joins, well, later, have their own thoughts they want to add to that strategy and priorities. I won't dwell on the next slide on our governance structure, if we can just bring that up. But just to point out, we have the normal range of committees. I spoke about the role of the Responsible Business Committee, and the slide set out how the non-execs are split across those committees and who chairs them. On the following slide, more diversity as well as key skills is critical. We have a range of skills that we try and ensure we cover within execs -- within our non-execs as well as well as our execs. And in all Board appointments, we're looking not only to those technical skills, but also what they bring in terms of diversity of thought, the diversity by gender and ethnicity, is clearly important. We are on target to meet the Hampton ambition of 30% -- 33%, 1/3 female representation in 2020. We have 4 women members of the Board out of the total of 12 at the moment. On ethnicity, we made appointment of Sarah Legg of Eurasian background this year. But we're keen to continue developing our ethnicity at Board level as in the executive. But of course, diversity is also to do with diversity of thought, diversity of ways of thinking and deductive, inductive, intuitive, national, all of those aspects are part of what we look for as we ensure we have a Board with the diversity to bring different thought patterns and different challenges to executive. So that's all I wanted to say by way of introduction, just to give you the way the Board is approaching this. But if I can open up, Douglas, for any questions that people want to raise at this stage, we will, of course, have questions on each of the specific areas of the Board as we go forward, but I'm very happy to deal with any general questions now.

Excellent. Thank you, Norman. As always, we've got a couple of minutes to take a couple of questions. The first question that's come through is actually on Board diversity and expertise. The question is, what action is the Board taking to improve diversity of the Board and ensure it has appropriate expertise for the current operating environment, particularly around climate change and technology?

Douglas, I will fill a last part of your remarks, but let me address the question for diversity. We are very conscious of, as I said in my introduction, the need to have a Board that has a very diverse range of views, experience, skills. We have, as I said, the matrix that looks at what each Board member brings in terms of their background, their experiences. But we have set out specific target that we want to move towards 40% female representation on the Board, which is our target for the executive population. And we've met the 33% ambition we set out this year, but we'll continue in new appointments. Obviously, we want people who bring the right skills, the right experience, but we'll continue to look to expand female diversity. But ethnic diversity is also important. And as I said, we don't rest on where we are now. We want to continue to expand that. So how do we do that? Well, in every new board non-executive appointment, we ask the headhunters to ensure they bring us a long list. And we whittle that down to a short list that has a good representation of the diversity that we want to see on the Board, and we give every opportunity that we can to ensure that, all other things being equal, we pick those candidates and take forth those candidates who will add to our diversity. It isn't just, of course, as I said, about ethnic and gender diversity. It is about diversity of backgrounds, diversity of ways of thinking, diversify of experience. But gender diversity and ethnic diversity are key parts of that, and we're determined to meet our targets on that.

Thank you, Norman. There's one of the questions that I'd like to take now. We can take any other questions later. It's a question that's come through on the line. Do you think that issues that have occurred over the past decade, such as PPI and HBOS Reading stem from a failing in governance? And what has been done to address that?

I think that you have to say governance must have been part of that. Clearly, there were very different ways of thinking about responsibilities of organizations in earlier decades. There was more of an emphasis on making money out of customers perhaps rather than making money by doing the right thing for customers. So it starts with the values, the purpose of the organization, the ethics of the organization. And over the last decade, and certainly during the time I've been on the Board and being Chairman, we've been very clear about our responsibilities to ensure that we operate in a way that puts customer interest at the heart of what we do, that we're here to serve customers to deliver what's it like for our customers that, that's the way to have built a sustainable franchise and for long-term interest of shareholders, and also to earn the respect and credibility within society at large that we are a responsible organization and have the license to operate. So it starts with the values. And to the extent that things went on previously that weren't in accordance with those values, it was partly maybe because those values weren't as clearly set out on the top of all banks, including Lloyds and HBOS and partly maybe because initially, the governments, therefore, didn't pick up practices that nowadays we would see as unacceptable and want to change.

Excellent. Thank you, Norman. We do have some further questions. But given the time, I think we'll now need to move on to the next presentation. Clearly, we can cover some of the outstanding questions in the final Q&A panel. I'd now like to -- if the technology is going to work, I'd like to introduce Sara Weller, Chair of the Responsible Business Committee.

Thank you very much, Douglas, and good afternoon, everybody. I should start with an apology. The technical problems that Douglas referred to were, in fact, mine. You can see I've got a nonstandard background, which I hope you don't find too distracting. No matter how many tests you do, they don't always work. Okay. So all I'd like to do is to just skip you through -- I know you've had this slide, but just talk you through a little bit of the context of our approach of responsible business. If there's anything in detail that you want to think of, we can pick them up in Q&A, if I miss anything on the slide that you really want to talk about. So let's just start. And if we go to next slide. The journey that we've been on with the Responsible Business, the Helping Britain Prosper purpose of the organization has been there for nearly a decade now. But actually, the Helping Britain Prosper Plan of the plan itself starts in 2014. And we have been evolving it with every 3-year group strategic review period. We've been bringing the Responsible Business agenda closer to the core of the business and embedding it more firmly. And as we think about going forward from 2020 into the next round of focus or our strategy, then I think we can almost say we've completed the journey of bedding response business firmly into the core of the operation. You'll be familiar with the 7 basic areas on the right-hand side, which form our -- the current basis of our 2017/'20 plan. And we've made lots of really good progress in all those areas, which I'd say, we can delve into in more detail if you'd like to at any point. But if you move on, then what we'll go on to next is the -- 2021 is obviously the beginning of what would normally be our next round of strategic focus. Given the very unusual circumstances that we find ourselves in both inside the organization and very much in the outside world, then I think our approach for 2021 is really to be focused on some of the really key important components of the plan. And think about what the U.K. economy and society, their need over the year ahead and make sure that we're very focused on those things. So, of course, helping Britain recover, as Norman said, but also changes in the mix of society, the nature of the employment that's available, individuals and businesses who have a lot to do to recover from the current virus. Year that we've had, and hopefully, with news today of a vaccine, which looks more promising, hopefully, we won't have this being drawn out for too much longer. But I think for individuals or businesses, there is a lot of recovery to do. And as Norman said, Lloyds is very much intentioned to be a responsible business operating as very much part of the solution to this recovery. So that's our focus for '21, and we'll talk more about that as we get into the early part of the new year, I think. But then I'd like to just draw out 2 or 3 really key areas for us that I think it would be worth as delving into a little bit more detail. So if we could just move on, we'll, I think, start with talking about racial equality. Lloyds has been a forerunner in equality, diversity and inclusion over the last few years. It was the first major FTSE to announce a 40% target for senior women. And indeed, it has now become the first major FTSE to announce a target for black minorities in senior positions. And we've announced a target of 3%. We're currently at below 1%, so it's a significant step forward. We know 3% is about where the proportion of black minority in the working population is, so that feels like a sufficiently stretching target. And certainly, it's a long way from where we are today. There are lots of things as they were with our gender diversity work, which has taken us substantially forward over the last 5 or 6 years. There are a lot of component parts to the racial equality plan, and I don't intend to go through them in detail. But we have got a short video, which gives you some flavor, I think, of how this issue was received inside the business when António announced the plan for the racial equality plan. I'd just like to show you, it's about 3.5 minutes. This short video gives you a flavor of how people are feeling about it inside Lloyds. [Presentation]

Thank you. So I hope that gives you a flavor of the strength of feeling inside the organization, and I don't imagine Lloyds is different from many other organizations in that regard. But I think what we have demonstrated in our work on gender equality is that we have an ability to identify the issue, make sure we've got a clear target and aspiration of what we'd like to be like, and then put together a plan that will help us to navigate from where we are today to where we want to be. And I'm sure that many of those things in that video, I think, will be implemented in the next 12 to 24 months and will make a significant difference. We'll obviously report that as we go along. So if we then move on, I think, from equality and diversity to one of the other really key focuses of the responsible business agenda, which is the one on Environmental Sustainability. And here, I think we can honestly say that the business has made enormous progress in the last 4 or 5 years to come to this agenda and be recognized now externally as one of the leading financial services organizations in this area from a position where we were well back in the pack, if I go back 4 or 5 years, when we first started to make these shifts. So there are some really strong moves that have been made. I think we are delivering a great deal of our internal own sort of inside the glasshouse objectives. So our internal targets for 2030 have already been met and are in the process of being revisited, obviously, to stretch them a bit further. But actually, most importantly now, we're starting to move our focus on moving our leverage outside of Lloyds into the ecosystem that we inhabit across the U.K. of our suppliers and our organizations that we support with finance. And the target of 50% reduction in the emissions that we finance is a very stretching one and one that's now getting planned through into really detailed activity inside the business. But I think that will set a new agenda for Lloyds in this context, and would put us in an addition of significant leadership, I think, when we build the plan to deliver that. One of the key parts of that plan, if you just move on to the next chart, is the sector statements. You'll be very familiar, I think, with the approach that many organizations take to define exactly what it is they want to do sector-by-sector. And I think we can pick one up on the next side, if we could. So we have sector statements as you would expect us to. We are constantly evaluating them, revisiting them and tightening them as the environment around us continues to evolve. For example, the sector statements on coal has recently brought the target for new businesses down from 50% of their activity coming from coal to 30%, and these sector statements are constantly under review. So we would expect these to move, and we'd, obviously, update to you as they do. And I think, probably in the early part of next year, we'll have some further updates to bring back. So if we then move on to the last core bit that I really wanted to talk about, which is on the next chart, it's all about societal impact. So Lloyds has very much had, from even before the Helping Britain Prosper Plan, a long history of supporting its chargeable foundations. In many ways, the Helping Britain Prosper Plan, back in 2014, was very much a communities and charity-based plan focused on our foundations, which we continue to support, and also on colleague volunteering, which is a very, very key part of what we do now. But I think what we've managed to do is move this societal part of our Responsible Business agenda very firmly into the heart of our operations and to think much more actively about the role that things like helping people save, helping people get housing and promoting diversity and inclusion, both within the business and externally, how those things actually play a much wider role. I personally sit on the Board of the foundation for England and Wales. That's the largest of our foundations. And there's a very close link between the work they do for the less advantaged in society and our broader Responsible Business position. I'd also pick out just a couple of other things. And we've done considerable amount of work in digital skills. We have a goal to reach 1.8 million people by the end of 2020 to help with digital skills. We know there are about 10 million or 11 million people in the U.K. who don't have basic digital skills, so that's a big agenda and an ongoing one. And then the other thing, Mental Health. Mental Health is something we've all become very familiar with, I think, as an issue before the crisis, but brought into real focus by coronavirus times. And we've done a significant amount to work with Mental Health U.K., for example, to set up Money and Mental Health support line, first one, because we do know that Mental Health and Money issues go hand-in-hand, one creates the other in both directions, and we've been very active with Mental Health UK in promoting their ability to support people through these times. So I think that's really the 3 things I really wanted to bring out, raise sustainability and the community programs, which are very substantially important to us. So if we just want to go on the last slide, I'm just going to summarize all things together, and as I said, very happy to dig into more detail if we need to. But I think the thing to recognize is that this agenda for Lloyds has been a rapidly developing one over the last decade. We've moved a very long way from having a program, which was sat alongside our core business to one that is increasingly integrated right at the heart of what we do. And our job for the next year or so is very clearly to support the U.K. as it helps to recover and think about what role Lloyds plays in both the economic and the societal recovery of the U.K., and then at the same time, to not lose sight of the very long term, but increasingly immediately important challenges of sustainability and to take the really good work we've done so far and step it up, so we become more of an influencer and a leader within the system. But I would say, we play a part of it very clearly. So those are the key things on our agenda. And it will, as Norman said, to some extent, evolve as we get a new senior leadership team. But equally, I think the platforms that we're standing on are very long rooted and the context of sustainability, society recovery and equality will continue to be very important to us, no matter how we shift the plan in the years ahead. So that's all I wanted to say. Thank you very much. And I'd say, very happy to take any questions that you've got.

Excellent. Thank you very much, indeed, Sara. So we've -- given the time, I think there's a couple of questions that have come through the line. So the first one is, in the context of financial strain on stakeholders as a responsible business and given some historical failures pointed out by regulators on supporting mortgage customers, how is the Board ensuring this risk is monitored and managed at a Board committee level?

Thank you, Douglas. Yes, well, 2 or three levels, I think, of oversight. You see, this has been a matter the Board has given a lot of consideration too, as you can imagine, in Board sessions. But equally, it's a very strong focus in the Risk Committee, in particular, where we pick up not only the lending risk, but also very much the customer and conduct risk. And then below that, a number of us, led by Alan Dickinson, when he was Risk Chairman, also participated in smaller subgroups, which in particular, worked with the management teams to explore the approaches they were taking to look -- give a hard look at the results of those approaches and to provide challenge and support in trying to improve our performance vulnerable customers that we're particularly lending heavily to over the last 12 months and will be a very, very key focus for us going forward. And as they -- although there are committees that look at it very closely, it's also something the Board has been spending a considerable amount of its own time on too.

Thank you, Sara. So the second question, which came in is, what training is the Board receiving on issues like climate Exchange? And are you able to provide any details of how you are trying to change the organization's culture to align with your climate targets?

Yes, of course. Well, you're right. I mean, sustainability and climate change are, for many people -- certainly, I mean, I was an executive leader 10 years ago, and climate change was a member showing, an inconvenient truth to my leadership team back in those days. It was an emerging issue, but not one that we really had much experience of. So when we started to build the sustainability strategy inside, Responsible Business Committee took an extensive session, facilitated the Cambridge Sustainability Leadership group to bring us up to scale, I guess, really on understanding not just how it applies to financial services, but the much broader issues. So I think we have been given very specific input from external organizations. I think it's also fair to say that many of the non-execs sit on the Board of other organizations who are very involved in this agenda. I sat on the Board of Cambridge, who are very, very focused on it, and indeed, on the Board of a water company, who had been a Dow Jones Sustainable Index Gold for the last 10 years. So -- and Simon Henry on the Board of Shell. So there are many, many ways in which people in other environments are also bringing their expertise to the party. So I think that's the most important thing, I would say, is that we're making sure that as this moves, we embed that training and we share our expertise from other areas. And then in terms of bidding it into the organization, then I think there are 2 things I would just draw attention to. One of which is obviously the internal and the whole way we run our organization. As I said, we've exceeded our targets that we'd set for 2030 inside the organization around waste and around water usage and energy source and stuff. And actually, those targets will then be stretched further, but we've obviously seen people very willing adopt those. But also, I think it's about making sure that the external targets we set also continue to move and that we are clear about the opportunity, not just the threat. So bedding -- and Nick may talk about this in his Risk session, bedding the importance of the climate change, thinking into our views of how we associate risk, how we assess risk, is important because clearly, we want to be working with and financing companies who are looking ahead and looking themselves to cope with and benefit from the changes that will come back through climate change. So we do it inside the organization. We do it through things like the risk metrics, and then we do it by bringing in expertise from outside.

Thank you, Sara. There are actually a number of other questions, but given the time now, I think we'll move on to Nick. But then, what we'll try and do is cover some of those additional questions later on in the Q&A summary at the end. So thank you, Sara. So the next presenter is Nick Prettejohn. Nick is Chair of the Board Risk Committee. So over to you, Nick.

Thank you very much, Douglas. If I could have the first slide, please. We've continued to focus on the most important issues facing the group and our customers during 2020. And obviously, since Q2, in particular, COVID has been central to our Risk Committee agenda. A number of issues, operational, business continuity issues, customer treatment issues as well as funding, liquidity and credit questions. But we have also made sure that we continue to focus on other very important issues facing group -- at the group and society, an increased focus during the year on climate risk, management of our conduct risks that Sara just referred to, particularly with customers who are in financial difficulty. Our operational resilience, which is one of the most important nonfinancial risks that the group faces, responding to incidents and preserving our key services to customers. Data risk, which is a big area for us, many dimensions to it. Data governance, privacy, data ethics, compliance with the principles of the Basel Committee on Banking Supervision. And then looking ahead to 2021, on the right-hand side of the chart, we are going to be continuing our cycle of deep dives into particular issues and housing and credit card risk, obviously, because of the macroeconomic outlook. We'll also be doing a deep dive into commercial real estate for the same reason, but also thinking about the longer-term structural changes to that sector in terms of changes to rent models and to particular risks associated with locations such as city centers. And we'll be spending, probably even more time than usual, on the issues coming out of our stress testing of our earnings and our capital position, both because of COVID, but also because of EU exit. Can I have the next slide? Thank you. The credit impact of COVID, I don't intend to go through the detail on this slide. Suffice to say that 82% of customers are now repaying their first payment holidays. Early arrears are indeed low and the cohort of extensions across products is unsurprisingly of lower credit quality. And the Risk Committee has kept a very careful look at this over the course of the last 6 months and other retail credit data, looking for any patterns and trends. And actually, you can see from what we've been saying that it's been hard to glean a great deal while we're in this period where government support is probably distorting the underlying direction of travel. And in the absence of such patterns, we've remained very cautious in our approach. And then on corporate credit, we've spent a great deal of time identifying and thinking about the sector's most exposed to COVID. We've done extensive work to evaluate those sectors. They are a small percentage of our group lending. They are typically areas where we've already been pre-COVID exercising considerable restraint in our lending policy. And we've spent time on individual cases where that's appropriate. Now all of this forms a bottom-up context for judging multiple economic scenarios and our view of impairments. Moving to the next slide. There's been no material change to the cyber threat during COVID-19. In effect, phishing attacks have been rebranded with COVID connotation using the same attack techniques. We've seen -- we've taken a number of actions in terms of staff awareness, heightened monitoring of particular risks and our offshore suppliers, and increased customer communications. We have a subgroup of the Board Risk Committee, a specialist subgroup to think about these risks. And they've concentrated not only on COVID risks specifically, but also on non-COVID risks, whether those are ransomware, distributed denial-of-service attacks and the issues coming out of a move to a cloud-based technology strategy, as well as the risks that have come from working from home for the vast majority of colleagues. Finally, we've been thinking very hard about making sure that we have sufficient and the right sort of investment in this area. That latter point about the right sort of investment is particularly important, given that we face a never-changing landscape. If I could go to the final slide. We've spent a lot of time at Board Risk Committee this year on climate change risk, incorporating climate risk into every aspect of our Risk Management Framework. We've allocated senior management responsibility for this to the Group CRO. Sara has mentioned the dedicated training across the business to senior management. We've instituted climate risk as a new primary risk in our Risk Management Framework, which means also that we're insisting on consideration of the implications of climate change for all of the other risks within our framework. And we'll be putting in new risk appetite metrics in our annual risk appetite refresh. We've been supported in all of this work by some external partners to accelerate our modeling of climate risk, development of scenarios, development of scenarios around transition, risk and physical risk and therefore, financial risk. And we've also been developing and piloting internal tools for our Relationship Managers in our commercial business. And climate risk, it is worth saying, I think, in reference to one of the questions that came through that climate risk is now a mandatory consideration for all credit applications of greater than GBP 500,000, which involves thinking about climate risk, but also supporting our clients through any transition risk that is identified. I'll stop there and take any questions.

Excellent. Thank you very much. So there are a couple of questions that just come in. The first one is very much quite topical. How have the recent pandemic and the government support measures impacted the way you look at risk appetite?

And I was suggesting to measure risk because we've been staring really closely at all of the data to try and see whether there are patterns emerging. And the government level of support has made that very difficult. And obviously, it's against the backdrop of an economy, which has been working on quantitative easing for a period of time pre-COVID. So it has been difficult, and I think it remains difficult, and that's why we have been cautious in our approach. We're also in the unusual position of being exhorted to lend money, rather than preserving and rebuilding our balance sheet.

Excellent. Thank you, Nick. One other question that we received is, how are you ensuring climate change is embedded in lending decisions?

Well, as I said, we've -- what we've done is we have made it mandatory for all credit applications of greater than GBP 500,000. And we're working on a tool for -- an ESG rating tool for our Relationship Managers within the Corporate business, which as well as looking at the risk posed potentially by bad credit, is also -- part of that is taking a forward view of client transition plans and their credibility. So it's being embedded at a very practical level, as indeed, it is within the portfolio of of our Scottish Widows business as well.

Excellent. Okay. Thank you, Nick. I think we should therefore move on to our next presenter. So thank you very much indeed. And with that, I'd like to introduce Stuart Sinclair, Chair of the Remuneration Committee.

Good afternoon, everyone. I'm Stuart Sinclair. I've had a chance to meet a fair number of you before. And I think the best news of the day is that we'll have a chance to meet again soon because along with my colleagues in Remuneration, I'll be coming around to consult with you, albeit, virtually, as we talk about the implementation of the new rent policy, which was approved at our AGM back in May. Before we move to the first of the 3 slides I have today, I just want to take a minute to remind us of where we were a year or so ago and how we got to where we are today. There was a pretty strong theme emerging from investors and other stakeholders, indeed, over the last year as regards to our policy. Number one, it was perceived to be complex. In fact, even people who do remuneration for a living found it to be a bit of a black box. Secondly, insufficient alignment between shareholder experience and management experience. And what people were really getting at there, I think, was that there were periods where total shareholder return was modest, and yet, the operation of cohorts of LTIPs was paying managers a fairly consistent 50%, 60%, 70% year in, year out, and that was deemed to be evidence of the policy having some designed flaws. Third, there's a strong question about whether variable was truly variable. And whether or not, in fact, total comp was managed within a corridor such that management never really experienced a terrible year, even though results might have been disappointing. And finally, the theme, as we would all expect, is pay is just too high. So what did we do? Well, we took all those points on the chin and set out to design something new during our policy year, which was this year. So let's go to the first slide. As you would expect, given what I've just said, down the left were the aims for the new policy and across on the right is, if you like, the proof points of how we've achieved what we set out to do. Let me go down the left. First of all, simpler reward package. I think we have made some good progress here. First of all, we have now one single assessment for short-term and long-term awards. There will be a pre-grant test for the long-term savings award, which I'll talk about in a second, and that will be the test for short and long term. Secondly, we are in the process of simplifying the balance scorecard itself. This is not complete. We will be discussing it with you when we come around to see you in coming weeks. But it has been a subject of criticism. And quite frankly, I would have to accept that what we tried to do over previous years would reflect the scope and the heterogeneity of a very large group, and at the same time, add-in measures, which were worthy measures, such as data integrity, training hours and so on. But the end result was just too complicated. And it was very difficult for you, investors, in particular, to unpick what the results were and what the impact was on compensation. So that work in a way, simplification of the balance scorecard will be happening. And then finally, I would point out pension simplification. We now have moved to alignment of top pensions with the workforce. In our case, that's the 15% level. And I would also remind people that when we were doing that work, we took the opportunity actually to enhance the pension scheme available to a large number, I think, around 35,000 colleagues during that process. So that simplification. It's not complete, but we're definitely moving down that track. If we go to the second green -- not the second slide, but second green bar, please? Yes, clear alignment to purpose. We anchor our purpose and are thinking about pay policy in Helping Britain Prosper, and Sara has spoken about that and has spoken about the fact that we are refreshing that thinking at the moment. Obviously, COVID requires lots of companies like us to step back and ask themselves, what can we really achieve? What is our role in helping Britain get back on its feet in the next year or 2? When that work is complete, I know that we will have something very important, which I would call line of sight. In other words, pay will be linked to Helping Britain Prosper outcomes, and they, in turn, will be linked to the new Helping Britain Prosper plan. It's been a characteristic of our work in the past. But it's still to be said, previously Helping Britain Prosper was merely 1 of 15 components of our scorecard. And I would imagine we'll be upweighting that in coming months as our discussion evolves. That's quite important, and I think it will distinguish us from other companies, many of whom, frankly, are going to struggle, in my personal opinion, to get beyond the new assertion that they have a worthy purpose. We will actually be able to prove through defining the outcomes we're wanting to achieve, evidencing progress on each of those outcomes, and even testing through our first, second and third lines of defense that we are achieving the things that we set out to do. So I think we're going to be in good shape on that. Then finally, on the left, rewarding and driving the right behaviors. We actually started our policy redesign, not by -- as we're tinkering with the mechanical elements of pay, but by standing back to say, look, in the next few years, what sort of outcomes and behaviors do we wish to reward? And what we will be doing in our new remuneration policy is making very explicit judgments in the Remuneration Committee, for example, risk judgments, conduct judgments, which will override occasionally a purely quantitative result, and we will be documenting those discussions. The disclosure, which I have in mind, will be more fulsome, and so that you will be able to understand what was the thought process going on inside the committee when we adjusted a mechanical score of A to an actual score of B. We spent quite a bit of time with the FCA and, indeed, the PRA on this. They are both, as you know, very involved in pay these days, partly because they see it as a proxy for the culture of the company. And they have said, they think we're broadly moving in a good direction there. So again, previously, this was a bit of a black box to readers of DTA in the annual report. I think it will be more transparent in the future. Over on the right, the proof points, I think, are pretty self-explanatory, but I'll draw your attention to the second one. Because of the changes we've been making, there would be a 30% reduction in the expected maximum opportunity in the CEO role. That's a pretty big delta. Also, we will be announcing the first grant of the long-term savings award in March, obviously. RemCo will have to take into account very carefully the situation that prevails in the economy at large and in the bank at large when we are thinking about that award moment. There's another point, which is worth pointing out, third from the bottom, lower and less volatile reward outcomes. I think most of the committee members have felt for a while that if you are running a large mature company in a heavily regulated industry, it seems odd to have spiky erratic rewards from one year to the next. You should be observing reward in a narrower amplitude year-on-year. If there are spiky or idiosyncratic rewards, it's probably symptomatic of you design, not really being reflective of the industry you're operating in. So we are going to, through the long-term savings plan, expect a narrower amplitude of award year-on-year. Final point, mechanical point, right at the bottom is, of course, there is a 3-year underpin test at the end of the third year, which deals with return on total equity, maintaining a normal dividend policy, and also your level of Tier 1 capital. So that -- I'd rather label that first slide, but it does contain a lot of important information on what we are doing with our new policy. If we go to the second slide, we've had market feedback over the summer from a number of people. The first one being that the long-term opportunity now is -- that we proposed is an insufficient discount from the previous LTIP, and we've had a lot of discussion about that. Let me just say, de facto, 150% will be the maximum opportunity norm from now on. There has been debate about 400%, 300%, 150%. Of course, we're aware of the recommendations of the investment association. And by alighting on a norm of 150%, I believe, we need to spare it on the later of that guidance. A second discussion we've been having with some investors, is that second bullet, that the pre-grant test is really unnecessary, and it builds back that very complexly we're trying to take out. Unfortunately, there isn't a lot we can do about that. In the world of CRD IV, which applies to large banks, it is required that there would be a test, both for individuals and at the group level before awards are made. I think that, more or less, deals with that slide. I will say consultation, over on the right, is something I've already talked about. Our normal maximum opportunity will be 150%. There will be a pre-grant test. And as I've said, there is continuing simplification of the balanced scorecard underway. And on the disclosure point at the bottom, I touched on that already with respect to giving you a glimpse of what was going on in the Remuneration Committee when a mechanical outcome was made into a different outcome. If we go to the last slide, 2020 in context, obviously, this is an unusual year in the world. It's an unusual year for RemCo. But we've already taken quite a few things off the table. First of all, no annual bonus awards for Executive Directors or members of the GEC. No softening of performance conditions for LTIPs, which are still running on. I have attended webinars and seminars with other Remuneration chairs, where I've got the firm impression that they were starting to soften LTIP metrics and levels of performance required over the summer. We absolutely decided not to do that, first of all, because we had no crystal ball, but more importantly, because we think a deal was a deal. And once you establish your criteria, you have to live with them. Now at the Committee, on the third point, we'll be looking at all the factors, including shareholder experience, before we make any decisions on the first grant of the LTSP, which will be due March '21. Just to remind you, the current Group Chief Executive, António, is not eligible for an award under that because he will be leaving the company. And then finally, the so-called windfall gain methodology will be disclosed and indeed, discussed extensively at RemCo. We've seen recently, for example, Legal & General making a very strong statement that the methodology you alight on, whether it's in a priority change or an x posttest of so-called windfall gain must be disclosed, and I think that makes perfect sense. So we'll certainly be in-line with that. That's the end of the slide. Let me just try and sum up. Do I think this new policy is perfect? No, I do not. I don't believe that's actually achievable. But in designing and implementing the policy, what we have to do is thread our way through multiple conflicting objectives and multiple conflicting preferences on the part of stakeholders. For example, the mix between short term and long term, the mix between cash and shares, keeping your pay ratios in mind, keeping to the spirit and the letter of regulatory expectations, which these days can be quite complicated actually, being open to the evolving attitudes of broader society, and then finally, being commercial. When you are trying to attract or indeed to retain very senior people in a large complex company, the actual addressable market of candidates can be surprisingly small. So whatever you may wish, the reality is that you have to be commercially attractive in your offering, but at the same time, you're threading your way, as I put it through these various criteria. I think we've made progress with our new policy, and indeed, we did achieve approval with it. But there will be more to go. And I will look forward to having conversations with many of you in the coming weeks and months. Thank you.

Thank you very much, indeed, Stuart. Unsurprisingly, we've received quite a few questions with regards to your presentation and remuneration as a whole. Actually, a number of them are pretty much based around one particular topic, which is ESG measures and climate change, and how they're included within remuneration structures. So I think this question pretty much sums it up. So let's just go into that. On this call, the Board talked about the importance of ESG. But at present, there is limited reflection in remuneration structures. Do you plan to include more performance metrics on climate change and other ESG metrics within the new structures?

Yes, that we would -- we're taking a part. We're disaggregating the current scorecard, and we expect to reassemble it with probably 3 buckets of measures, one of which would be ESG and strategic related. So I think we'll see more presence of it. And as I said in my talk, we will achieve this very important line of sight. The measures will be there for all to see. They will be in, for the most part, quantitative. There will be progress noted on each measure, and that will be one of the things which drives pay. So I think it's going to be a nice tight closed-loop approach, but we have not yet finished that redesign as regards of bringing the right ESG measures into the heart of the scorecard.

And is your view specifically that climate change would be included as part of that as well?

Well, obviously, it has to be in your top list of 3 or 4, as Nick was saying with respect to risk. So I'd be surprised if it has no role. But that work is still underway, and I would hope that we can have some conversations about that when I see investors in the coming weeks and months.

Okay. Excellent. Another question has come in. It's actually related to CEO pay, and actually asking about the new structure. And really saying -- because, obviously, as part of the new pay structure, the actual opportunity has reduced. And the question is coming, has the reduction in the pay opportunity had any impact on CEO or indeed other recruitment?

Well, that's a very interesting question. We're in the middle of CEO recruitment, and there's not much I can really say about that today. Suffice to say, recruitment appears to be proceeding in a very promising way with a rich set of candidates, all of whom are aware of the broad outlines of our policy. So I think it is not proving to be an impediment.

Okay. Good. Good. One other question that's come through, and you did touch upon this in your presentation. But specifically, what is the role of RemCo discretion in the new remuneration policy? And how in-practice does it work?

There's more consistently than change on that topic. We've always had discretion and we frequently exercised it. I think the changes which investors would see from the outside would be, number one, more fulsome discussion of where, how much and why, which is very much in keeping with the whole thinking about opening up the windows as of where over remuneration, so that other stakeholders can understand. Secondly, you would probably be looking at things like conduct and indeed, some aspects of ESG to the degree that they were felt not to be quantitatively sufficiently reflected in pay outcomes to be a major part of the conversation. And indeed, I'm not giving away any confidence as when I say we spent quite a bit of time with the FCA, talking to them about the various ways, including discretion and override, in which conduct matters will be reflected in actually people's pay packets to the degree they may differ from time to time from the -- as it were with quantitative outcome that you would get from a scorecard. So, I mean, I think the real answer to your question, Douglas, is it's always -- there's always been discretion. It's just going to be more explicit and slightly more elaborately described from now on.

Okay. All right. A couple of other questions, if I may. So first of all, how does introducing non-performance-based share plans address any of the concerns that you had set out initially in the beginning of your presentation for the previous arrangements? How do you plan to align your award with shareholder stakeholder outcomes, given no forward-looking targets will be set?

There is a doctrinal dispute rating, isn't there, between long-term share plans and LTIPs, and some people like, some people don't. To me, we do address the questions which were heard when we went around to see investors a couple of years ago. And I suppose, at the end of the day, I subscribed to the view that management should eat its own cooking. And what that really means is, the behavior of the stock price over a long period, and remember, holding periods these days, partly for regulatory reasons, partly because it's just the right thing to do, are quite elongated. They can run 7 years. That the activities management is undertaking, its priorities, its projects will be flushed out into cash flow and investors' assessment of whether or not they've done the right things in the right way. So I feel we actually do achieve things through that mechanism. Now that's a debate that we could spend the rest of the day on, and we've been around the houses with many investors on it. I think at the end of the day, this is one where you sort of have to agree to disagree if you just don't like the direction of travel. I do take comfort from the fact that the investor association, I believe, has said they do think this is the way many remuneration plans are going to go in the future.

Okay. Thank you, Stuart. The final question, I mean, there may be additional -- I'm sure there'll be additional questions in this area, which we can touch upon at the end. But the final question in this section would be, how involved were the RemCo in designing the scheme, rather than off-the-shelf scheme designed by a remuneration consultant? Were any other alternatives considered?

Yes. The answer to that is very easy. We don't have consultants designing remuneration. Indeed, we didn't even have a remuneration consulting firm doing the conventional week-by-week, month-by-month advice. We had an ad hoc arrangement with our consultant, which was perfectly sufficient. We visited, we heard, we listened, we synthesized. We sat down with a blank sheet of paper. And when I say we, it was the committee members, NEDs, principally, but also Matt Sinnott and his reward team, working through ultimately 4 options down to 2, down to 1, which we thought best reflected the concerns, which I began by listing at the beginning of my talk today. We went then, from time-to-time, to speak to our consultant to say, how is this looking as a hypothesis versus where you expect other firms to be going? And that's a very valuable thing, actually, because they do have a sweep across 20 to 40 different clients. But that was the extent of it. They commented, they definitely did not design.

Excellent. Okay. Thank you, Stuart. I'm sure, you'll be receiving more questions later on. But given the time, we'll now move on to actually the last formal presentation of today, and it's from Sarah Legg, who's Chair of the Audit Committee. Sarah?

Thank you, Douglas. I'm really pleased to be able to give you an overview of the work of the group audit committee in 2020, having recently taken over as Chair of Committee from Simon Henry in October, just last months. The committee has continued to focus on the issues relevant to the group's financial reporting, including consideration of key accounting judgments and ensuring the integrity of financial reporting-related disclosures. The committee has also spent a significant proportion of its time considering other related areas, including monitoring of the group's internal control framework to ensure it remains fit for purpose. The source of the information here remain the company's financial control function, the risk function, internal and external audit. So the committee is receiving multiple independent and objective report in support of the insurance -- assurance work that we carry out. If I go to the first slide, I've just provided a quick reminder here, the entity structure of the Audit committees of the group, including the Audit committees of the insurance subsidiaries, that's principally Scottish Widows Group and the Audit Committee of LBCM. The Audit committees of Lloyds Banking Group and Bank of Scotland are run in an aligned manner with the Audit Committee of Lloyds Banking Group. So this ensures both that the appropriate legal entity's discipline is applied as well as consideration of the group as a whole. If we turn to the next slide, just wanted to spend a few minutes reviewing the key areas that we, as a committee, have discussed and considered during the course of 2020. Perhaps we're weighting towards those matters that we see as being important through to 2021 and beyond. The Audit committee has, since the start of the pandemic, spent more time considering the judgments that underpin loan impairment calculations or expected credit losses under IFRS 9. This is a necessitated timely consideration, and challenges economic forecasts and scenarios. The use in output of credit models and the application of so-called post model adjustments or management adjustments. Alongside this, we have reviewed and considered developments in disclosure to enhance transparency in Q1, in the interim reporting at the half year, and recently at Q3. This will continue to be a focus area for the remainder of the year and beyond. It's also an area where the linkage between the work of the Risk Committee, as we heard from Nick, the Audit Committee and the Board as a whole, has and will be important providing timely and diverse inputs and perspectives. As in 2019, we've continued to examine management's assessment of the provisions in respect of conduct and legal matters, including PPI, and to consider disclosures related to the sensitivities that the key judgments made here. We've also considered estimates and judgments related to pension schemes, tax calculations and insurance and assets and liabilities. In addition, the Audit Committee has requested and received report relating to internal controls over financial reporting as well as reports relating to process improvements over regulatory reporting, so for instance, over risk-weighted asset calculations. From a risk perspective, the Audit Committee continues to have oversight of the internal audit function, monitoring effectiveness of group internal audit and its audit program, approving the annual audit plan and budgets, monitoring and assessing the independence of the function and, of course, considering the findings of internal audits and management's response to these audits. I'll also highlight that as we look forward to the end of the year and into 2021, the committee will oversee the transition of the internal audit -- sorry, for the external audit from PWC to Deloitte. So the appointment will be recommended to shareholders for approval at the 2021 AGM. I've added a slide at the end here to note the controls of a non-audit fees paid to the auditor, demonstrating the small scale. Finally, as we look out to 2021, I thought I would highlight matters that will continue to be amongst the focus areas for the Audit Committee. Not a full list, given that the majority of the work carried out around the Audit Committee related to the external reporting cycle itself, so just to give a sense of topical agenda items. Firstly, of course, key judgments and estimates, particularly those that relate to economic forecasts impacting expected credit losses and related disclosure, particularly given the external uncertainties that we've talked about previously: the progress of the internal -- of the external audit transition to Deloitte; internal controls over financial reporting and RWA reporting will continue to take our attention; development of reporting and underlying processes, including climate-related disclosures as described by TCFD; development of the Speak Up processers; and linkage to the subcommittee you have on list; and the new accounting standards, we have some, and here, I am thinking of IFRS 17, as it relates to the insurance business, somewhere off to 2023. I hope this is helpful, and gives you an idea of the work that we have been conducting. Thank you, Douglas.

Thank you, Sarah. We have a couple of questions. So the first one is, has the testing macroeconomic environment resulted in the Audit Committee picking up additional work? And if so, in what areas?

Thank you, Douglas. And we have spent time, as I've mentioned, on the economic scenarios, particularly in relation to impairment charges and ECL. It's been carried out in the course of our meeting -- our agenda and our meetings. We've also supplemented that with meeting in a timely fashion that have included the Board to consider those assumptions, both for base case and for [indiscernible] scenarios. And those have being good and productive discussions that have been held in a time that is commensurate with the work that has to be carried out by the teams produce in a robust fashion.