Sustainability in banking
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Sustainability Group project
In the reporting year, the LLB Group set up a project to coordinate its sustainability activities. In the first half of the year, the strategic vision and the future organisational structure in the context of sustainability were laid down. In banking, there is an ambition to make traditional banking sustainable in the relevant areas. LLB wants to go beyond this and launch new sustainable products so as to position itself with a strong offering in the market in the medium term. It therefore began already in the reporting year to develop its sustainable investment approach further and to gradually expand its product range of sustainable investment solutions.
LLB also decided to strengthen its support for sustainability, internally and industry-wide. We developed, for instance, a three-stage training concept to increase our employees' knowledge about sustainability. We also signed up to the United Nations Principles for Responsible Investment (UN PRI) in 2020. We will publish a PRI report on our sustainable investment approach for the first time from spring 2022.
In the second half of the reporting year, we turned our focus to regulatory and strategic issues. LLB dealt in particular with political and regulatory developments in the EU, the EEA and Switzerland. For example, it started the necessary preparatory work for the implementation of the future requirements of the EU regulation on sustainability-related disclosures in the financial services sector (SFDR) and the new requirements of the so-called EU Taxonomy Regulation.
The various issues in the context of sustainability will continue to be coordinated within the framework of our Group project until summer 2021. It will then be replaced by a regularly convening Sustainability Council. Group CEO will act as Chair of the Council. Operational project coordination and organisation will be the responsibility of the Sustainability Officer. This position has been created specifically to also anchor sustainability in the LLB Group organisation.
Customer orientation
Banking as an experience for clients
"Integrity" and "respectfulness" are values that are also paramount in the communication and interaction with our clients. Famously, many emotions are associated with financial transactions. We therefore want to make banking an experience that is innovative and pioneering. Only when clients trust their bank, the staff, the products and the technological services and also understand its offerings, do they feel well looked after and respected. This basic philosophy affects all the points of contact with clients. The client's experience is placed centre stage and an emotional value proposition that creates proximity to the client is defined.
Client proximity through systematic surveys
Knowing the needs of clients is the basis for the further development of our channels and offerings. To this end, in spring 2020, we conducted a survey of our clients in all divisions of LLB in Liechtenstein. Our clients gave us top marks for overall satisfaction as well as for willingness to recommend to others and satisfaction with e-banking. The potential for improvement identified in other areas will be analysed in more detail and followed up with high commitment in the individual divisions.
The current survey is part of a customer experience concept, with which LLB wants to anchor customer orientation even more systematically in the company. The aim is to conduct these surveys on a regular basis so as to ensure permanent optimisation and to improve client satisfaction. The next client survey – which includes Bank Linth and LLB Österreich – is scheduled to take place in 2022.
Excellent client advisory services
We also received a particularly good rating from our clients for competence in investment advice and asset management. This very positive verdict was also confirmed by external experts. Liechtensteinische Landesbank achieved a top score in an independent comparison test conducted by the Fuchs | Richter testing body in the reporting year. It was placed fourth overall in the "TOPs 2021" ranking. With regard to the core topic of sustainability, the testers rated LLB's expertise as well above average.
Sustainable products and services
We have offered sustainable asset management mandates since 2015. As part of the Group project on sustainability, the focus on sustainable finance has, however, been strengthened still further. Our aim is to position ourselves with a comprehensive range of sustainable products and services in the medium term. We took our first steps in this direction in the reporting year. In mid-2020, we launched the LLB Gold Fund, the first Liechtenstein fund that invests in sustainably produced and transported gold and is backed by physical gold.
As part of the sustainable orientation of our product and service range, we converted all bond funds to sustainability by the beginning of 2021. Strategy and equity funds will follow in spring 2021.
That we are on the right track with our products where sustainability is concerned has been attested time and again by external experts. LLB Finanz Immo Kapitalanlagegesellschaft, for example, was certified in the reporting year with the Austrian Ecolabel. It is awarded to ethically oriented products and businesses in the financial sector that generate profits through sustainable investments.
ESG integration in asset management
For the LLB Group, sustainability in asset management means adopting a responsible approach to investing that meets high ethical, social and environmental standards. Furthermore, looking at sustainability aspects brings an additional perspective to risk assessment and as such supports long-term value creation for our clients. As a member of the UN Principles for Responsible Investment (PRI) Finance Initiative, we are committed to the goal of responsible investment management. In this way, we contribute to the fulfilment of the UN's sustainable development goals (SDGs). We also expect that broadly diversified, sustainable investments will yield returns comparable with those from traditional investments. In asset management, too, we will therefore continue to integrate sustainability into our product range.
We have opted to apply a methodologically comprehensive approach to the sustainable investment process. We take into account various sustainability criteria for the individual analysis and also offer balanced model portfolios for all relevant markets.
Under the LLB approach to sustainable investments, we invest up to a quarter of the portfolio in special impact themes such as climate and environmental protection and microfinance. The individual securities and funds are subjected to additional analysis. Here we rely on our internal fund analysis and also on the ESG expertise of renowned agencies such as MSCI and we invest in companies and funds with a high ESG rating.
Sustainable investments
In line with its sustainable investment approach, the LLB Group converted not only all bond funds to sustainability by the beginning of 2021, but also all asset management mandates. With these, only securities with a favourable ESG rating from financial services provider MSCI are considered when constructing a portfolio. Certain sectors such as tobacco, alcohol, nuclear energy and armaments can be excluded from the portfolio if a client so wishes. As demand grows, the investment process is being refined ever further. LLB also offers the inclusion of sustainability aspects for its "LLB Invest" investment advisory packages.
Risk-conscious growth in the mortgage lending business
The development of the real estate and mortgage market plays a key role in the economy. In Liechtenstein, LLB has a leadership position in the mortgage lending business with a market share of around 50 per cent. Bank Linth extends mortgages in eastern Switzerland. This makes us an important partner for private individuals and businesses. For the LLB Group, the quality of the mortgage portfolio is key: growth must be sustainable and risk-conscious and in line with the type of property and the development of the market in the region. In 2020, mortgages accounted for 88.7 per cent (2019: 87.4 %) of loans granted by the LLB Group, corresponding to CHF 11.7 billion (2019: CHF 11.3 billion) (see chapter "Finance and risk management").
Sustainable building
We promote passive houses, new builds and renovations with the Minergie or other comparable energy standard through specially tailored mortgages. Our clients benefit from particularly attractive preferential conditions for a five-year term.
Fair competition
As the bank for the country and the people, being able to offer attractive and innovative price models is important to us. Individual prices and flat-rate price models or on request also performance-dependent conditions underpin our claim to guarantee a fair and transparent tariff structure. For LLB funds, we forego retrocessions (portfolio maintenance commissions), which makes our funds significantly cheaper in comparison to the market. We pass retrocessions received on third-party fund holdings on to our clients in full. Thanks to our simple and easy-to-understand tariff structure, the fees and conditions for clients are visible at a glance.
We also have a very fair approach when it comes to fees for our LLB strategy funds: we are one of the first banks to introduce a performance-based model for strategy funds and a swap-based model for some fixed-income funds, with pricing being linked to the interest rate.
Financial planning for private individuals and businesses
Worries about the future of pension funds, the challenging economic environment and changing legal frameworks make it increasingly difficult for private individuals and businesses to make the right financial decisions. The need for comprehensive, professional advice therefore continues to grow. Our answer to this is the "LLB Compass – the 360° advice for your future". Our holistic financial planning highlights all the important topics such as budgeting, asset structuring, pension planning, real estate and financing as well as taxes and estates and provides our clients with a guide on how they can shape their financial future. In the case of entrepreneurs, our advice always takes account of the individual characteristics of the firm.
LLB Pension Fund Foundation for Liechtenstein
With the LLB Pension Fund Foundation, we are the only bank in Liechtenstein with a collective foundation for Liechtenstein SMEs and that since 2005. Owing to its solid financial position, it is gaining popularity. At the end of 2020, Liechtenstein's youngest collective foundation managed CHF 1.2 billion (2019: CHF 869 million), surpassing the one billion Swiss franc mark for the first time. The LLB Pension Fund Foundation thus manages the largest amount of pension fund assets in Liechtenstein, making it an essential pillar of the domestic pension fund market. At the end of 2020, it had 838 affiliated companies (2019: 514) with a total of 7'478 active insured persons (2019: 5'490) as clients. The liquidity ratio stood at 107 per cent (2019: 107 %). The LLB Pension Fund Foundation has a very good structural ratio: for each pensioner there are 12 active insured contributors (2019: 14 active insured contributors).
In order to be able to actively participate in shaping the legal framework, the LLB Pension Fund Foundation is represented on the Executive Board of the Liechtenstein Pension Scheme Association (LPKV). In this way, it is also instrumental in the expansion of the domestic market.
Risk management
Effective risk management, that means permanent and systematic monitoring to minimise risk, contributes decisively to responsible and transparent corporate governance (see chapter "Finance and risk management"). By specifying a future-oriented risk strategy, the Board of Directors of the LLB Group establishes the guidelines for dealing with risks. In addition, it continues to develop corporate governance on an ongoing basis (see chapter “Corporate governance”). The applicable laws, directives, guidelines and market standards as well as supervisory and internal regulations form an essential base. Group Legal & Compliance advises the business areas, identifies and analyses compliance risks, and ensures that all staff comply with the Code of Conduct (see chapter "Strategy and organisation").
Regulatory development in the context of sustainability
The European Union promotes sustainable development of the economic system and has pledged to meet the goals of the Paris climate agreement and those of the UN's Agenda 2030. With its "Action Plan for Financing Sustainable Growth", the EU aims to reorient capital flows towards a more sustainable economy. Integrating sustainability aspects into risk management and fostering transparency are key areas of the action plan. Achieving the European Council's goal of climate neutrality by 2050 will require a significant reduction in CO2 emissions, supported by "green" financing.
Various legislative initiatives following this action plan have been started in the EU. Particularly worthy of mention are:
- Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector;
- Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (Taxonomy Regulation);
- Draft Delegated Regulation amending Delegated Regulations 2017/565 and 2017/593 in the MiFID II context;
- Draft Delegated Regulations amending Delegated Regulations 231/2013 (AIFM) and 2010/43/EU (UCITS).
The subsidiaries of LLB in Austria (bank and investment companies) are directly affected by the EU regulations. The regulations are also relevant to LLB in Liechtenstein through the EEA, although the date of application may vary depending on the law.
The LLB Group started the preparatory work for the implementation of the upcoming legislation in the reporting year, so that the regulatory requirements can be gradually implemented from 2021 onwards. This includes, for example, paying greater attention to sustainability risks both in the bank's own risk management and in investment products under the sustainability approach of LLB Asset Management. Along with the expansion of the product range of sustainable investment solutions, we will be concerned with providing maximum transparency to clients on the classification of products with regard to sustainability. The training of frontline staff began already in 2020.
The LLB Group aims to increasingly integrate the topic of sustainability into its products, its risk management and especially into its client advisory services. We therefore support the efforts of legislators in the sustainability area to create relevant standards and transparency requirements.