Sustainability in banking
Information checkedInformation unaudited Information geprüft Information ungeprüft Sustainability in banking
Since its establishment 160 years ago, sustainability has been firmly rooted in Liechtensteinische Landesbank’s DNA. The new ACT-26 strategy lends even more relevance to the topic. Sustainability is one of its three core elements. The LLB Group intends to play a pioneering role in the area of sustainability, with its range of products and services front and centre.
Sustainability as a core element of the strategy
Based on the conviction that it is doing the right thing, the LLB Group further strengthened its efforts on the sustainability front during the reporting year. We intend to keep up our efforts through 2022 and beyond. Indeed, with the implementation of the new ACT-26 corporate strategy we have set ourselves ambitious sustainability goals. By 2040 at the latest, we – and this includes our product range – aim to be completely climate-neutral (see chapter “ACT-26”). This is ten years earlier than foreseen by the Paris climate agreement and in line with the UN’s ambitious target to limit global warming to 1.5°C (see chapter “Responsibilities for the economy, society and environment”).
As we work towards our sustainability goals, we will ensure maximum transparency. In summer 2022, we will therefore be publishing our first-ever TCFD report based on the internationally recognised standards of the Task Force on Climate-related Financial Disclosures (TCFD). The LLB Group will be disclosing its catalogue of measures to achieve its goal on climate warming and where it stands on them, as well as how it will deal with risks related to climate warming and what opportunities it sees. Reporting will be on an annual basis.
Sustainable products and services
It is important to the LLB Group to integrate ESG criteria, i.e. aspects relating to the environment, society and corporate governance, into its investment process. Our range of sustainable products is already extensive today. During the reporting year, we forged ahead with the process of making our own bank products sustainable. The lion’s share of our fund range has now been brought into line with LLB’s ESG sustainability approach, which corresponds to the “light green” category under Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR). The aim of the European Union with this regulation is to provide greater transparency on how financial market participants and advisers take sustainability risks into account.
We also offer our clients asset management and advisory mandates based on ESG factors. At the beginning of 2022, we are launching our first-ever “dark green” LLB impact fund. It is considered sustainable under the EU Taxonomy and is aligned with the Paris climate goals (Art. 9 of the EU Disclosure Regulation).
We will be increasing our range of dark green LLB funds. We want to be able to offer our clients a variety of sustainable investing options to suit their particular preference. With this mind, we will be introducing, among other things, a fully digital sustainable asset management service in autumn 2022.
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 responsible investment management. In this way we can contribute to meeting the UN’s Sustainable Development Goals (SDGs). We expect broadly diversified, sustainable investments to yield returns comparable to those from traditional investments.
We have opted to apply a methodologically comprehensive approach to the sustainable investment process. We take various sustainability criteria into account at the individual analysis level 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 as well as on the ESG expertise of renowned agencies such as MSCI and invest in companies and funds with a high ESG rating.
The LLB Group offers its clients strategy funds and asset management mandates that follow its sustainable investment approach. Only securities with a favourable ESG rating are considered for them when constructing a portfolio. Furthermore, companies with serious violations of important international norms and with substantial turnover in industries such as tobacco, gambling, nuclear energy or weapons are excluded from the portfolio altogether. 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 markets 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 as well as be in line with the type of property and the development of the market in the region. In 2021, mortgages accounted for 88.7 per cent (2020: 88.7 %) of loans granted by the LLB Group, corresponding to CHF 12.2 billion (2020: CHF 11.7 billion) (see chapter “Finance and risk management”).
Liquidity assistance during the corona pandemic
The LLB Group is fully aware of the major economic responsibility that it has in Liechtenstein and in eastern Switzerland (see chapter “Economic value creation”). This was crystallised during the coronavirus crisis, which saw LLB and Bank Linth taking on an active role as partner banks to SMEs. Both participated in the governmental COVID-19 bridging loan programmes. These provided companies that had encountered financial difficulties as a result of the corona crisis with liquidity quickly and with a minimum of bureaucracy. The LLB Group approved approximately 750 such applications, providing a total of around CHF 71 million in bridging assistance.
The LLB Group supports its clients in their sustainability efforts. 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.
Ongoing sustainability training for employees
In autumn 2020, we launched a multi-stage sustainability training programme aimed at our client advisers to help them stay up to date in the face of our growing sustainable product range and increased sustainability requirements from the clients’ side as well as the legislators’. The programme was continued and developed further during the reporting year. By the end of 2021, some 400 employees had completed the training. To make the sustainability training courses even more flexible and efficient, we transferred them online into an e-learning programme. This programme is mandatory for all new employees (in part) and client advisers (in full).
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. We regularly conduct surveys of clients for this purpose. In the last one, which was held in 2020, our clients gave us top marks for overall satisfaction as well as for willingness to recommend to others and satisfaction with e-banking.
The surveys are part of a customer experience concept with which LLB wants to anchor customer orientation even more systematically in the company. They are also a means to ensure permanent optimisation and improve client satisfaction. The next survey – which will include 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. For instance, Liechtensteinische Landesbank achieved a top score in an independent comparison test conducted by the Fuchs | Richter testing body in the reporting year. Also on the all-time best list of private banking providers in German-speaking regions, LBB ranks among the top players (see chapter “Private Banking”).
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 on retrocessions received on third-party fund holdings 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 funds: we were one of the first banks to introduce a swap-based model for some fixed-income funds, with pricing being linked to the interest rate.
Financial planning for private individuals and entrepreneurs
The challenging geopolitical and economic environment is making it increasingly difficult for private individuals and entrepreneurs to make the right financial decisions. The need for comprehensive, professional advice is therefore continuing 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 2021, Liechtenstein’s youngest collective foundation managed CHF 1.27 billion (2020: CHF 1.18 billion). The LLB Pension Fund Foundation thus manages one of the largest amount of pension fund assets in Liechtenstein, making it an essential pillar of the domestic pension fund market. At the end of 2021, it had 760 affiliated companies (2020: 773) with a total of 7’866 active insured persons (2020: 7’238) as clients. The liquidity ratio stood at over 110.1 per cent (2020: 107.2 %). The LLB Pension Fund Foundation has a very good structural ratio: as in the previous year, for each pensioner there are twelve 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.
The LLB Group’s risk management process ensures that climate risks are appropriately identified, assessed, managed and monitored. The risk strategy, which is aligned with the climate goals of the LLB Group, provides the framework for this (see chapter “Responsibilities for the economy, society and environment”). Through the strategy we want to promote the transition to a low-emission economy and society and strengthen the robustness of our business strategy against climate risks.
Regulatory development in the context of sustainability
The European Union (EU) promotes sustainable development of the economic system and is committed to 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 – among other things, through incorporating sustainability into investment advice – 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 Union’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);
- Delegated Regulation amending Delegated Regulations (EU) 2017/565 and (EU) 2017/593 in the MiFID II context;
- Delegated Regulations amending Delegated Regulations (EU) 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. They are also relevant to LLB in Liechtenstein through the European Economic Area (EEA), although the date of application may vary depending on the law.
The LLB Group started work on the implementation of the upcoming legislation in the reporting year, so that the regulatory requirements could be gradually implemented. This includes, for example, applying the sustainability-related disclosure obligations and paying increased attention to sustainability risks both in the bank’s own risk management practices and in investment products under the sustainability approach of LLB Asset Management. Along with the expansion of the offering of sustainable investment solutions, we are concerned with providing maximum transparency to our clients on the sustainability classification of products. Here, 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 area of sustainability to create relevant standards and transparency requirements for sustainable finance.