Virgin Money UK PLC (‘Virgin Money UK’ or ‘the Bank’), together with its subsidiary undertakings (which together comprise ‘the Group’), is an independent banking group operating under the Clydesdale Bank, Yorkshire Bank, and Virgin Money brands. This statement relates to the subsidiaries Virgin Money PLC and Clydesdale Bank PLC.
Building a Brighter Future’ and ‘Straight up ESG’ are two goals of our Sustainability strategy. Our objective is to grasp the longer-term opportunities of sustainability, while mitigating the imminent risks from climate change and social inequality.
The purpose of this Statement is to make it clear who we lend to, and how we view potential clients who are operating in sensitive sectors. We should emphasise that ESG underpins our credit policies (not to mention our entire business) as we move to a low carbon economy.
Virgin Money’s operations are all UK-based, as are most of our business customers’. We allow non-resident lending, and lending to non UK-registered companies whose business activity is typically located in the UK, but it’s subject to additional controls due to the higher credit risks.
The environmental and social impacts of providing financial services to our business and personal customers are mainly indirect. Even so, we’re committed to working with our customers to understand their impacts, as well as their approaches to environmental and social sustainability. This includes customers who are involved in agriculture, a sector in which we’ve long enjoyed an established presence and high relative market share
Partly down to our own ESG-oriented approach, hardly any of our customers and clients operate in sensitive sectors (see below for detail on specific sectors).
We will continue to review emerging sensitive sectors and update this policy statement as things develop.
Effective risk management is critical to the success of the Group’s strategy. A strong business is a fundamental requirement if we’re to succeed in our purpose of making our customers and stakeholders ‘happier about money’.
We control our credit risk by limiting the amount of risk we’re willing to accept while pursuing our strategic objectives. To do this, we first define a set of qualitative and quantitative limits in relation to our credit risk concentrations – whether to a single borrower, a group of borrowers, or within geographical, product or industry segments. These limits become our risk appetite settings, and are reviewed and approved annually by the Board.
Across the Group, credit risk is managed through:
- Ongoing approval and monitoring of individual transactions
- Regular asset quality reviews
- Independent oversight of credit decisions and portfolios
The Group’s operations are UK based and our business customers’ operations are substantiallydomiciled in the UK. Non-resident lending, and lending to non-UK registered companies is permitted but typically business activity is located in the UK. Such lending is subject to additional controls to mitigate the additional credit risks.
Credit Risk supports and encourages the Group’s sustainability commitments and responsibilities. This is reflected in our Credit Risk Policy Statement which is reviewed annually by the Board Risk Committee.
We manage the credit risk associated with lending by applying detailed lending policies and standards. These outline our approach to lending, underwriting criteria, credit mandates, concentration limits and product terms.
The Group takes a flexible approach to credit management. If issues are identified, or if credit performance deteriorates (or is expected to) due to borrower, economic or sector-specific weaknesses, we’ll do all we can to support our customers through these periods.
Roles and responsibilities for the management, monitoring and mitigation of credit risk within the Group are clearly defined. Significant credit risk strategies and policies are approved, then reviewed annually, by the Credit Risk Committee.
When we’re carrying out a customer credit risk assessment, Credit Policy requires that their impact on, and risk from climate change, as well as other social risks are taken into consideration. Such impacts and risks are not usually a material issue for the majority of our business lending loan book, which is almost entirely made up of small to medium-sized businesses located in the UK.
Anticipating tomorrow’s risks is key within our credit assessment process. That’s because our lending will be repaid from future cash earnings. In particular, our assessments seek to:
- Identify relevant legislation and/or regulatory requirements that may affect a customer’s business activities
- Assess the procedures and policies a customer uses to identify and manage any environmental and social risks they face
- Identify sites where the customer may be subject to environmental licensing or regulatory requirements. Plus we look at their current or historical activity which may lead to contamination and environmental liability
- Consider the physical and transition risks of Climate Change
- Predict any changes, negative and positive, in social expectations on a customer’s business. This includes anticipating when engagement with that customer might lead to damage (or enhancement) of the Bank’s reputation
We expect all our customers to comply with applicable conventions, sanctions and embargoes, legislation, and licensing requirements.
ESG risks (including climate change) affect all businesses, or are likely to in the future. We have identified the higher-risk sectors, and have limited (or eliminated) our exposure to them. Lending to businesses which offer support services to these sectors – such as labour supply, equipment, transport, technical and professional services – is permitted.
These sectors are outlined below:
Defence and Armaments
Due to the ethical and social risks, the Bank does not lend to businesses which are involved in the manufacture or sale of weapons which are subject to a treaty or convention, to which the UK Government is a signatory (such as antipersonnel mines and cluster munitions, as well as nuclear, biological, and chemical weapons).
Lending relating to the manufacture or sale of firearms for sporting use, or for personal ownership is permitted, providing all required licensing is held.
Resources – Mining & Minerals
The Bank does not lend to businesses involved in the exploration, extraction or mining of coal, whether on the surface or underground.
Nor does the Bank lend to businesses involved in the wholesale trading of precious metals and minerals including gold, silver, platinum, diamonds, emeralds, and rubies.
Mining, quarrying and extraction of other mineral resources, where all required licensing is held, is permitted.
Lending to the mining and minerals sector is restricted to UK-based businesses
The bank does not lend to coal-fired power plants.
Resources – Oil & Gas
The Bank does not lend to businesses which generate revenue directly from oil & gas extraction (including extracting oil from oil sands, or gas from hydraulic fracturing).
The Bank does not lend towards non-sustainable, large-scale deforestation activities for alternative land use purposes, including food, soya and palm oil production.
The Bank does not lend to carbon-intensive manufacturing industries, or chemical manufacturingassociated processes, unless enhanced diligence checks have been carried out. These include checks of all relevant licensing, a satisfactory carbon transition plan, and an environmental impact analysis.
The Bank does not lend to tobacco farming or manufacturing businesses.
The Bank does not lend to digital currency issuers, including digital currency service providers and dealers.
Adult Entertainment Services
The Bank does not lend to adult entertainment services including escort agencies, sauna or massage parlours, and lap dancing or similar clubs.
The Bank expects customers to comply with legal requirements and voluntary standards related to animal welfare.
The Bank doesn’t lend to businesses trading in:
- Wildlife and endangered species (or products made from them)
- Commercial, non healthcare-related animal testing (including cosmetics testing)
- Fur products and activities (except regulated, commercial farming activities)
The Bank has a continuing and evolving programme of activity to support its ESG strategy and commitments.
- Developing our disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations
- Implementing the expectations set out in the PRA’s Supervisory Statement 3/19: “Enhancing Banks’ and Insurers’ approaches to managing financial risks from climate change” (in proportion to the climate-related financial risk as per our exposures and risk appetite). As well as those expectations set out in a letter from the Deputy Governor, Bank of England, dated 1 July 2020.
- Working with Future Fit Development Council to build the Virgin Money Sustainable Business Coach. This tool allows businesses to measure their progress against UN Sustainability Development Goals. It also identifies actions businesses can take to improve their sustainability
- Enhancing climate risk-related issues in our sector guides, and training for our Relationship and Credit Managers. This will assist them in making informed analysis, as well as in their conversations with customers and clients.