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LLB Annual Report 2022 de

Sustainability in banking

Information checkedInformation unaudited Information geprüft Information ungeprüft Sustainability in banking

Since its establishment around 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. 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 “Strategy and organisation”). This is ten years earlier than foreseen by the Paris climate agreement and in line with the UN’s ambitious 1.5°C target (see chapter “Responsibilities for the economy, society and environment”).

Transparent implementation

As we work towards our sustainability goals, we will ensure maximum transparency. In October 2022, we therefore published our first-ever TCFD report based on the internationally recognised standards of the Task Force on Climate-related Financial Disclosures (TCFD). In it, the LLB Group disclosed a catalogue of measures to achieve its climate goals. It also contains information on where it stands on them, as well as how it deals with climate-related risks and what opportunities it sees. Reporting will be on an annual basis.

Sustainable products and services

The LLB Group wants in future to play a pioneering role in the field of sustainable finance. By steering investment in and granting loans to companies that offer innovative technologies, products and services to combat social and ecological challenges and advance sustainable development, we can make a positive contribution to the environment and society. It is therefore important to the LLB Group to integrate ESG criteria, i.e. relating to the environment, society and corporate governance aspects, into its investment process.

LLB Asset Management AG is responsible for the classical and the sustainable investment processes. The aim is to develop a range of products that satisfies both regulatory requirements and client demand. Classical and sustainable investment guideline implementation is assessed by the Investment Compliance department as well as internal and external auditors. The dynamic nature of this topic means that we periodically need to review our approach and adapt it further as appropriate.

Introduction of the ESG+ approach

In addition to the existing ESG sustainability approach, where investment is primarily made in products in the “light green” category under Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR), LLB has, since the 2022 reporting year, also offered its clients the ESG+ approach. Under this approach, a substantial part of any investment is made in products in the “dark green” category in accordance with Article 9 of the EU SFDR (see section “Sustainable investment approach”). All private client asset management mandates and all LLB strategy funds have been duly changed over to ESG or ESG+. Consequently, we already offer our clients only sustainable asset management and advisory mandates as standard.

Following the introduction of ESG+, we launched two dark green LLB Impact Climate funds in accordance with Article 9 of the EU SFDR. CHF 580 million has meanwhile been invested in the LLB Impact Climate Aktien Global Passiv Fund, which is aligned with the Paris climate goals, and CHF 135 million in the LLB Impact Climate Obligationen Global Fund, a green bond fund.

New investment app

We also want to be able to offer our clients a variety of sustainable investing options to suit their particular preference. With this mind, we introduced a purely digital asset management solution, among other things, in autumn 2022. Available in Switzerland, Liechtenstein and Germany, the wiLLBe app consistently implements the Sustainable Development Goals (SDGs) of the UN. Investors can invest in seven topics such as, for instance, education and equal opportunities, climate and environmental protection and clean energy. Investment experts at LLB identify companies that are particularly suitable for sustainably investing in and exert the biggest impact in the selected topic.

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 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 consider various sustainability criteria at the individual analysis level and also offer balanced model portfolios for all relevant markets.

With investments that are based on our ESG and ESG+ sustainability approaches, mainly securities with a favourable ESG rating are considered when constructing a portfolio. Furthermore, companies with serious violations of important international norms or with substantial turnover in industries such as tobacco, gambling, nuclear energy or weapons are excluded from the portfolio altogether. Under the ESG investment strategy, a substantial part of the portfolio is invested in products in the “light green” category under Article 8 of the EU SFDR and at least 5 per cent is invested in products in the “dark green” category under Article 9 or in special impact topics such as climate and environmental protection and microfinance. Under the ESG+ approach, dark green products make up at least 45 per cent of the portfolio.

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.

Sustainable investments

In line with its sustainable investment approach, the LLB Group solely offers its clients sustainable strategy funds and sustainable asset management mandates that are in accordance with ESG and ESG+ criteria (see section “Sustainable investment approach”). As demand for sustainable products grows, the investment process is being refined ever further. The inclusion of sustainability aspects is also possible for “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 2022, mortgages accounted for 89.2 per cent (2021: 88.7 %) of loans granted by the LLB Group, corresponding to CHF 12.9 billion (2021: CHF 12.2 billion) (see chapter “Finance and risk management”).

Sustainable building

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 associated increased requirements from the clients’ side as well as the legislators’. The programme was continued during the reporting year. Its attendance is mandatory for all new employees and client advisers. Some 470 employees have completed the programme since it was introduced. In 2022, a new programme for client advisers on the new client profiling system in accordance with MiFID II was set up. Some 380 employees have now successfully completed the programme.

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.

The success of the LLB Group is closely related to client satisfaction. By focusing on our clients, we can be rest assured that our financial products are aligned with their wishes. The challenge is being able to continually evolve our offering to satisfy new client needs in what is a fast-changing environment. For instance, our user figures show that over-the-counter transactions are steadily on the decrease, while the use of digital channels is sharply on the increase. Our aim is to achieve an ideal balance between physical and digital channels, whereby our clients are always central. Our omni-channel strategy therefore entails investing in digital channels on the one hand, and refurbishing our bank branches to accommodate the changed needs of our clients on the other. The classical transaction business is becoming less important and making way for personal services.

Besides its bank branches, LLB also maintains a wide network of ATMs. This makes us the only bank in Liechtenstein to offer this vital service, which is still actively used in spite of digitalisation. Bank Linth also has numerous ATM locations.

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 client experience concept with which LLB wants to anchor client orientation even more systematically in the company. They are also a means to ensure permanent optimisation and improve client satisfaction. A survey that would have included Bank Linth and LLB Österreich had been planned for the reporting year, but was deferred because of the introduction of wiLLBe. We now plan to carry it out in 2023.

Excellent client advisory services

The LLB Group makes sure that, through continuous training and education, client advisers offer apt products and services during consultations with clients. All employees with client contact in Liechtenstein and Switzerland are certified in accordance with the standards of the Swiss Association for Quality (SAQ); in Austria, certification is based on the European Investment Practitioner (EIP) label, which is recognised throughout the EU.

In a personal consultation, a four-step process ensures that the clients and their situation, needs and goals are analysed in detail and that they are ultimately presented with a solution that is tailored to their profile. For our asset management and investment advisory services, clients can decide for themselves how comprehensively they want to be advised by their client adviser. When it comes to the investment strategy, too, various options ensure that the clients’ interests are central. Our approach not only takes account of the applicable EU MiFID II directive, but also the Swiss FinSA regulation.

We also received a particularly good rating from our clients for competence in investment advice and asset management. This extremely positive verdict was also confirmed by external experts. For instance, Liechtensteinische Landesbank performed very well in an independent comparison test conducted by the Fuchs | Richter testing body in the reporting year: in the TOPS 2023 list, LLB Vaduz was placed 9th with 77 points out of a total of 79 banks and asset managers that were tested. On the all-time best list, it ranked 7th; LLB Österreich came in a splendid 3rd with 85 points. Also on the all-time best list of private banking providers in German-speaking regions, LBB can be found among the top players (see chapter “International Wealth Management”).

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 funds: we are 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 2022, Liechtenstein’s youngest collective foundation managed CHF 1.10 billion (2021: CHF 1.27 billion). The LLB Pension Fund Foundation thus manages one of the largest amounts of pension fund assets in Liechtenstein, making it an essential pillar of the domestic pension fund market. At the end of 2022, it had 856 affiliated companies (2021: 808) with a total of 7’691 active insured persons (2021: 7’757) as clients. The liquidity ratio stood at 94 per cent (2021: 110.1 %). The LLB Pension Fund Foundation has a very good structural ratio: for each pensioner there are eleven (2021: 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.

Risk management

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 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 EU’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, establishing clients’ sustainability preferences, 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. Courses on our sustainability approach and our sustainability offering, all the while taking into account clients’ preferences, were held in 2022.

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.