NOVEMBER 2010

CLIMATE ANDENVIRONMENTREPORT

OUR ENVIRONMENTAL AGENDA AT A GLANCE

Lloyds Banking Group is a leading UK basedfinancial services group. Our main businessactivities are retail, commercial and corporatebanking, general insurance and life, pensionsand investment provision.

Our business strategy is to be recognised as thebest financial services company in the UK bycustomers, colleagues and shareholders. Weaim to do this by building deep and lastingrelationships with customers to help themachieve what is important to them.

Managing our environmental impacts, as well asseizing the opportunities and managing therisks of climate change, is directly linked to thesuccessful delivery of our business strategy.

HIGHLIGHTS OF OURENVIRONMENTAL AGENDA:• Smart & Responsible programme launched in

2010 to deliver environmental efficiencies • £5 million invested in 2010 on energy saving

and energy efficiency projects • Top UK bank in the FTSE CDP Carbon Strategy

Index Series • 700 colleagues in our groupwide Sustainability

Network, who help catalyse positive change • Over 300 customer-facing business managers

trained this year in the science, opportunitiesand risks of climate change

• We are one of the leading global financers ofrenewable energy

• We require all business loans to be screenedfor environmental risks

• Equator Principles signatory to help manageenvironmental and social issues in projectfinance

• 18 dedicated London 2012 seminars hosted in2010 for our business customers

• Social, ethical and environmental issues formpart of our standard research process forinvestments in all listed equity funds

• Active member of the Corporate LeadersGroup on Climate Change, May Day Networkand ClimateWise

• We are included in the FTSE4Good EthicalIndex, the Carbon Disclosure LeadershipIndex, the Dow Jones Sustainability Index andwe are Platinum performers in Business in theCommunity’s Corporate Responsibility Index.

• Lex Autolease won Leasing Company of theYear Award 2010 at the annual GreenFleetAwards.

OUR ENVIRONMENTAL STRATEGY ISCENTRED ON: Driving down our use of resources Efficient use of resources helpsreduce our environmental impact, as well as our costs, benefitingour shareholders – including the taxpayer.

Engaging our colleagues Colleagues play a key role in helping usto deliver our environmental agenda. Engaging them in ouractivities also helps build advocacy for the Group.

Collaborating with our stakeholders Working with our suppliers,other businesses and Government on environmental challengessuch as climate change is fundamental to our objective of beingrecognised by them as the leading UK bank on environmentalissues.

Engaging customers on climate change We provide advice andguidance to our business customers to help them respond to thechallenges of climate change. This helps us build deep and lastingrelationships with customers and play our role in facilitating thetransition to a low carbon economy.

Seizing commercial opportunities and managing the risks ofclimate change Seizing the opportunities, such as in renewableenergy finance, helps ensure we establish ourselves as a leadingplayer in emerging market opportunities. Effectively identifyingand managing the risks helps protect us from financial andreputational damage.

CONTENTSForeword from Truett Tate 1

Driving down our use of resources 2

Our Smart & Responsible programme 3

Engaging our colleagues in our environmental agenda 4

Collaborating with our stakeholders 5

Engaging customers on climate change 6

Seizing commercial opportunities 7

Managing the risks 8

Looking to the future 9

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Climate and environment report

FOREWORD FROM TRUETT TATE

Climate change is a huge global challenge, and one that willimpact widely on our business. I, along with the rest of ourBoard, strongly believe that we have an important role to playin facilitating and financing the transition to a low carbon,resource efficient economy. We believe that by leading theway in seizing the opportunities, and managing the risks, wecan gain a significant competitive advantage.

Our starting point should always be reducing theenvironmental impact of our own business operations. Wehave a strong track record: we were one of the first banks tointroduce an environmental policy in 1996 and, over theyears, have achieved significant reductions in our carbonemissions.

SMART & RESPONSIBLEWe recognise, however, that there is much more that we cando. We want to emerge from the financial crisis as a fitter,leaner organisation; one that will be recognised by ourstakeholders as a leading UK bank on environmental issues.We have a great opportunity now, during the integration ofour heritage businesses, to deeply ingrain environmentalconsiderations into the fabric of the new business. That is whywe have launched ‘Smart & Responsible’, our new targetedenvironmental programme which ensures that we maximiseefficient use of resources across our business operations.Through the programme, we aim to deliver significantenvironmental and cost savings, as well as improvingcolleagues’ work-life balance, to support the Group’s overallstrategic aim of being recognised as the UK’s best financialservices organisation.

ENVIRONMENTAL LEADERSHIP As the Board champion for climate change andenvironmental issues I have a professional, as well as apersonal, interest in ensuring that Lloyds Banking Group leadsthe UK banking sector in facilitating and directly financing thetransition to a low carbon, resource efficient economy. I amproud to say that this year, Lloyds Banking Group was ratedthe top UK bank in the new FTSE CDP Carbon Strategy Index

Series, on account of our performance in managing climaterisks and grasping the emerging opportunities.

I believe it is essential that we work closely with expertpartners, other leading businesses and our large stakeholderbase to drive positive environmental change. We aim topromote greater understanding and capability in dealing withclimate change, natural resource depletion and loss ofbiodiversity in natural ecosystems; as well as enable others tomanage the risks and seize the opportunities. In 2009, wechaired an initiative with Business in the Community and theCambridge Programme for Sustainability Leadership to createa guide for Carbon Management in the Supply Chain. Thisguide has helped inform our own approach in engagingsuppliers to drive down carbon emissions in our own supplychain.

As the Group’s representative on the Prince of Wales’sCorporate Leaders Group on Climate Change, I work closelywith a group of leading businesses to lobby governmentsworldwide to reach an agreement on tackling climate change.We released the ‘Cancun Communiqué’ ahead of the UNClimate Change talks in 2010, calling on governments to re-double their efforts towards securing a comprehensive,international legally binding climate framework.

SUMMARYI strongly believe that international agreement will deliver themarket conditions that are needed to create commercialopportunities on a scale that will drive the necessaryreductions in global CO2 emissions. I also believe, however,that we can make significant in-roads by leading the sector onthese issues, and by acting now. Reducing our ownenvironmental footprint is essential if we want to berecognised as the UK’s best financial services organisation. Bygrasping the emerging opportunities, we can gain acompetitive advantage. In renewable energy, we are alreadyone of the leading global financers. We are also currently theonly major UK bank to help small businesses manageenvironmental risks and identify commercial opportunitiesthat could give them a competitive edge, and are putting inplace a network of several hundred Business andEnvironment managers to support them. I am both personallyand professionally committed to ensuring that Lloyds BankingGroup builds on its strong foundation to lead the bankingsector in tackling climate change and natural resourcedepletion.

This is our first Climate and Environment Report. It sets outour approach, our performance and our future agenda. Ihope you enjoy reading it and welcome any comments.

Truett TateGroup Executive Director, Wholesale

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DRIVING DOWN OUR USE OF RESOURCES

We have a long standing commitment to managing andreducing the environmental impact of our businessoperations. Lloyds TSB was one of the first banks to introducean environmental policy in 1996 and achieved a 31 per centreduction in carbon emissions from its property estatebetween 2002 and 2008.

We are now seizing the opportunity, during our three yearintegration programme, to ensure that environmentalconsiderations are fully embedded into our decision making –both in relation to our integration as well as our business asusual activities, to ensure that we deliver long termefficiencies. Our vision is to be recognised as a leadingenvironmentally responsible financial services organisation.

SMART & RESPONSIBLE This year we launched our new groupwide environmentalaction plan to ensure that environmental efficiencies are fullyingrained in our decision making. The action plan, called‘Smart & Responsible’ is linked to one of our core values of‘acting wisely’. The way we aim to operate as an organisationis articulated by a set of five simple values: ‘we act wisely’ sitsalongside ‘we take ownership’, ‘we make it simple’, ‘we stretchourselves’ and ‘we succeed together’. By acting wisely, we aimto reduce our impact on the environment and reduce ourcosts by making more effective use of our resources. OurSmart & Responsible aims and targets are set out on page 3.

REDUCING OUR CARBON EMISSIONSWith around 3,000 branches, offices and call centres acrossthe UK, our use of energy has our most significantenvironmental impact. We are therefore focused on tacklingthe energy consumption of our large UK estate and areinvesting almost £5 million this year in dedicated energysaving measures across the Group.

We have already achieved significant CO2 reductions in ourproperty estate. We are currently working towards achievingthe Carbon Trust Standard for the Group. This standardrecognises organisations that are genuinely measuring and

reducing CO2 emissions on an ongoing basis. Theintroduction of the Carbon Reduction Commitment EnergyEfficiency Scheme (CRC) this year provides further financialand reputational incentives for reducing our energy-relatedCO2 emissions.

The CRC is a new climate change regulation aimed atreducing the CO2 emissions, and improving the energyefficiency of large public and private sector organisations. Itforms a central part of the Government’s commitment toreducing the UK’s carbon emissions by 80 per cent from 1990levels by 2050.

We registered for the CRC in September 2010 and will nowbe required to purchase allowances for each tonne of energy-related CO2 we emit. Our performance relative to otherorganisations will be published in a league table. The CRChas significant cost implications for the Group which providesa further incentive to reduce our carbon emissions.

MEASURING OUR ENVIRONMENTAL FOOTPRINT

Notes:Our environmental data has been independently verified byenvironmental consultants RPS Group plc.

Scope 1 emissions: also known as direct emissions, these occuronsite or from sources that we own and control. They includecombustion of fuels – gas and oil – and our vehicle fleet.

Scope 2 emissions: indirect emissions that result from thegeneration of the electricity we purchase.

Scope 3 emissions: all indirect emissions not covered by scope2. This relates to business travel in vehicles not owned orcontrolled by us – i.e. other car travel, and rail and air travel.

FTEs: Full time equivalent employees

CO2 EMISSIONS (tonnes) 2009

Total UK CO2 emissions 449,895Emissions per £m income 18Scope 1 emissions 69,484Scope 2 emissions 343,026Scope 3 emissions 37,385

PAPER USE (tonnes)

Total paper use 27,614Sustainably sourced or recycled 100%Tonnes paper/person (FTEs) 0.27

WATER USE (m3)

Total water use 1,292,063m3 per person (FTEs) 12.8

WASTE (tonnes)

Total waste 38,712% recycled 54%Tonnes waste/person (FTEs) 0.38

The starting point of ourenvironmental agenda is reducing ouruse of resources. Efficient use ofresources, including office space, energy,paper and water, helps minimise ourimpact on the environment as well askeeping our costs under control.

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SMART & RESPONSIBLE: OUR ENVIRONMENTAL ACTION PLAN

BUILDwiseAIM: to embed sustainability and environmental standards into the construction process for all newbuilding and refurbishment projects.TARGETS: set key performance indicators and targets addressing waste minimisation, recycling andbuilding specifications.

ENERGYwiseAIM: to reduce the energy consumption of our property estate.TARGETS: reduce energy use by 3 per cent by end of 2010; set further reduction targets for 2011 – 2015.

PAPERwiseAIM: to reduce overall paper use across the Group, reduce the amount of paper stored by the Group andintroduce further efficiencies to our printing processes.TARGETS: reduce groupwide paper use by 10 per cent over the next 5 years.

TRAVELwiseAIM: to reduce the growth in business travel by improving travel efficiency, providing alternatives totravel and promoting improved work-life balance.TARGETS: increase the use of virtual meeting technologies to reduce business flights by 20 per centwithin 5 years; investigate ways to measure and demonstrate the positive impact of less travel onwork-life balance and productivity.

WASTEwiseAIM: to reduce the amount of waste sent to landfill and increase the amount recycled and reused.TARGETS: reduce total waste by 5 per cent by end of 2010; increase recycling to 55 per cent of allwaste by end of 2010; set further reduction targets for 2011 – 2015.

WATERwiseAIM: to reduce water use across the Group.TARGETS: reduce water use by 3 per cent by end of 2010; set further reduction targets for 2011 – 2015.

WORKwiseAIM: to reduce our property footprint by introducing new workplace practices to ensure that officespace is used efficiently and colleagues have greater flexibility in their working environments.TARGETS: make more efficient use of office space to reduce the overall amount of space we need torun our business; aim to use 5 desks for every 6 colleagues in 20 per cent of our office estate by end2011; set further reduction targets for 2012 – 2015.

Smart & Responsible consists of seven key pillars which ensure thatthe environmental impacts of our business operations are managedand minimised.

We have established an Environmental Steering Group, comprisingsenior management with responsibility for each of the pillars, to driveour strategy, set targets and make sure we achieve them. In 2010 wehave introduced some initial targets. As the integration progresses wewill look to introduce more long term targets.

BUSINESS TRAVEL – TRAVELWISE One of the main areas where colleagues can have a realimpact is in business travel. In 2009, we introduced acommon travel policy across the organisation whichsupports a focus on sustainable travel. It helped us deliver areduction of 143,000 journeys compared with 2008. Acrossthe combined Group, the volume of teleconferencesincreased by 40 per cent to over 1.1 million in 2009.

Through TRAVELwise, we aim to build on our initialsuccesses to tackle growth in business travel. We know wemust drive and support behavioural change if we are todeliver our reduction targets. We aim to do this byproviding viable alternatives to travel and by demonstratingthe positive impact of less travel on work-life balance.We will continue to promote virtual conferencingtechnologies to colleagues as an environmentally friendly,cost efficient alternative to travelling. In 2011, we are alsolaunching a car sharing scheme. The scheme will introducean online networking tool to facilitate car sharing byhelping colleagues to find others who need to make similarbusiness travel and commuting journeys.

BUSINESS TRAVEL CARBON EMISSIONS (TONNES CO2) IN 2009

SUSTAINABILITY NETWORKOver 700 Lloyds Banking Group employees participate inour Sustainability Network. The Network was established bycolleagues in 2008 and continues to be run by employees,with support from the Group’s executives. The goal of thenetwork is to provide a forum that can harness members’commitment to reducing the Group’s environmental impactand using resources sustainably. The Network holds events,runs awareness campaigns and provides resources andtools to encourage colleagues to play their part. TheNetwork is now officially supporting our Smart &Responsible programme, and members work to engagecolleagues across the Group in our environmental actionplan.

Over 700 employees in ourSustainability Network

WORLD ENVIRONMENT WEEKWe ran a week long campaign in support of the UNWorld Environment Day on 5 June, to drive awarenessamongst our employees of climate change and naturalresource depletion. We highlighted the steps we aretaking as a Group to reduce our environmental impact,including ways in which individuals can get involved.We also engaged our energy bureau and waste suppliersto host roadshows at key sites.

ENERGY SAVING WEEKAs part of our ENERGYwise programme, we delivered arange of activities and communications during EnergySaving Week on 25 – 31 October. The SustainabilityNetwork collaborated with the ENERGYwise team toproduce a ‘Green Your Routine’ guide – tips colleaguescan follow to reduce the amount of energy we use – and,through a competition, colleagues were challenged tosuggest a viable energy saving project for the Group.

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ENGAGING OUR COLLEAGUES IN OUR ENVIRONMENTAL AGENDA

3

2

1

1 Car travel 34,1062 Rail travel 4,2543 Air travel 19,893

TONNESCO2

Colleagues play a key role indelivering our environmental agendaand are central to driving down ourcarbon emissions and use ofresources across the Group. We striveto engage colleagues and enablethem to make a contribution.

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COLLABORATING WITH OUR STAKEHOLDERS

We proactively identify opportunities to collaborate withexternal partners to drive positive environmental change.We aim to promote greater understanding and capability indealing with climate change, natural resource depletionand loss of biodiversity in natural ecosystems; as well asenable others to manage the risks and seize the emergingopportunities.

Truett Tate, our Board member who leads on climatechange and sustainability issues, represents Lloyds BankingGroup on the Prince of Wales’s Corporate Leaders Groupon Climate Change. This brings together business leadersfrom major UK, EU and international companies whobelieve there is an urgent need to develop new and longer-term policies for tackling climate change.

We are a strategic partner of the Cambridge Programmefor Sustainability Leadership (CPSL) and work closely withthem on a range of initiatives and programmes. Our Headof Sustainable Development in the Wholesale division, PaulTurner, is a tutor on its Post Graduate Certificate inSustainable Business.

We are working together with CPSL and other businessesto lead a programme that aims to mobilise internationalcorporate action to address the emerging risks andopportunities faced by business and society from thedepletion of the world’s natural resources – biological,agricultural and mineral. The outputs of the programme willbe published in 2011 and will ultimately feed into a seminarprogramme to build senior executive skills and expertise.

Susan Rice, Managing Director of Lloyds Banking Group inScotland, is a member of the 2020 Climate Group. TheGroup brings together industry leaders and experts toensure that all sectors of Scotland’s economy and civicsociety contribute fully to achieving Scotland’s target ofcutting carbon emissions by 42 per cent by 2020. Susanalso chairs the Finance sub-group which examines issues

and barriers to financing the low carbon economy andconsiders how finance can be used most effectively toachieve the greatest impact.

COLLABORATING WITH OUR SUPPLIERSWe consider our suppliers’ social, ethical andenvironmental performance as a standard part of oursupplier management processes – from the selection ofsuppliers to supplier audits. We actively encourage ouremployees to build strong working relationships with oursuppliers to help drive continuous improvement andinnovation in our supply chain. Last year, we furtherstrengthened our approach to managing social,environmental and ethical issues in our supply chain bylaunching a dedicated website which provides information,guidance and tools on incorporating these issues in all ofour sourcing activities.

In 2009, we chaired an initiative with Business in theCommunity and the Cambridge Programme forSustainability Leadership to create a Guide for CarbonManagement in the Supply Chain. The guide has helpedinform our approach and, as a freely downloadableresource from www.cpsl.cam.ac.uk, we are alsoencouraging our suppliers and customers to use it to helpmanage carbon risks in their supply chains.

We are on the leadership committee of the Prince ofWales’s May Day Network on Climate Change – the UK’slargest group of businesses committed to taking action onclimate change. A number of our key suppliers are alreadymembers and we will be looking to promote the Networkfurther in the coming year.

We collaborate with expert partnersand our wide stakeholder base tolead the banking sector in the debateand thinking around current andfuture environmental issues, and thesteps that can be taken to mitigate,manage and adapt to the impacts of achanging environment.

TNT distributes much of our internal mail, stationeryand branch marketing materials. In collaboration withLloyds TSB and Barclays, TNT managed a project toidentify how both companies could share the documentand mail delivery service. The shared service has nowbeen implemented and has resulted in a significantreduction in the number of vehicles needed to deliverto Lloyds and Barclays sites. As a result of the service,TNT has reduced its carbon footprint by 2,600 tonnes ayear. The total miles travelled by TNT when deliveringto, and collecting from, Lloyds TSB sites has beenreduced by more than 2 million miles.

Lloyds TSB, Barclays and TNT jointly won the Premises& Facilities Management (PFM) award for Partners inCorporate Social Responsibility in 2009 for thisinitiative. The award recognises collaboration betweenorganisations and their suppliers in meeting theobjectives of their corporate responsibility strategies.

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ENGAGING CUSTOMERS ON CLIMATE CHANGE

GOING GREENIndependent research we published in October showed thatwhilst around 48 per cent of businesses believe that ‘goinggreen’ would result in a positive reaction from customers, 37per cent of businesses say they have not taken steps toimprove their green credentials because they are concernedabout the time and financial burden of doing so and 19 percent of businesses say they do not understand the risks andopportunities. We aim to ensure that we can support businesscustomers seeking to improve their environmentalcredentials. Ultimately, our aim is to become the first choicefor businesses seeking support from their bank in respondingto the challenges as well as the emerging opportunities.

BUSINESS SEMINARSWe delivered over 120 business information seminars in2009, attended by over 10,000 small and medium sizedbusinesses (SMEs). The events focused on key issues affectingSMEs in the current market, including sustainability – focusingon the business risks and opportunities of climate change andnatural resource depletion.

SME CHARTERIn November 2009 we launched our award winning 2012SME Charter setting out a series of commitments that form athree year programme of support for SMEs to help themgrow as the recovery gains momentum. As part of thisprogramme we are running 200 business seminars every yearfor the next three years, providing expert guidance andsupport for SMEs on starting up, employment, exporting,bidding for London 2012 Olympic and Paralympic Gamescontracts, sustainability and finance.

DEDICATED LONDON 2012 SEMINARSWe run dedicated London 2012 events as part of ourprogramme of seminars for our business customers. Theseevents focus on the environmental risks and opportunitiesfacing small businesses in the UK, and, in particular, thebusiness opportunities associated with the London 2012Olympic and Paralympic Games. Through these events, weaim to ensure that our business customers understand andare able to respond to the environmental challenges facingtheir businesses, and prompt them to think strategically abouthow environmental responsibility can help give them acompetitive advantage.

London 2012 will generate more than £6 billion worth ofOlympic contracts, open to businesses that can demonstrategreen credentials. As the Official Banking and InsurancePartner of the London 2012 Olympic and Paralympic Games,we are leading the way in ensuring that our small businesscustomers can take advantage of the contracts that areavailable. We bank 1 in 4 of all small businesses in the UK and1 in 3 London 2012 Olympic contracts are being won by ourcustomers.

Over 300 Business and EnvironmentManagers trained to guide customerson climate change issues

BUSINESS AND ENVIRONMENT MANAGERSIn 2010 we launched our Business & EnvironmentManager programme. The bespoke training programme,which was developed in association with CambridgeProgramme for Sustainability Leadership, gives colleaguesan in depth understanding of the relevance ofsustainability issues for businesses. It enables ourbusiness managers to guide and support our customersin recognising environmental risks as well as grasping thecommercial opportunities. We are the only UK bank toprovide this type of support to its business customers.Over 300 managers across the country have been trainedso far, with more planned for 2011.

As pressure grows on businesses totake action to address climate change,our business customers are increasinglyseeking knowledge and guidance onthe issues.

We provide guidance to customers onhow to manage the risks and maximisebusiness opportunities of climatechange. Through this, we can supportthem in the transition to a low carboneconomy.

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SEIZING COMMERCIAL OPPORTUNITIES

RENEWABLE ENERGY FINANCE Lloyds Banking Group is a leading renewable energy bankglobally (by debt underwriting capability). Over the past fiveyears we have arranged or underwritten finance for 40 deals,with £2.4 billion committed. This equates to over 6,000MW ofrenewable generation, which is enough to supply over 3million homes.

Significant investment will be required in order to meet theUK Government’s CO2 reduction targets. We are seizing theopportunity to become one of the UK’s leading providers ofrenewable energy finance. We already have a very strongtrack record. Our current renewable energy portfolio stands ataround £1 billion. Given our focus on the UK market, much ofthis finance is directed towards wind power; however we alsohave strong experience in the solar power sector, having

successfully financed several solar photovoltaic and solarthermal plants across western Europe.

In 2009, we won the Project Finance International ‘EuropeanPortfolio Deal of the Year’ Award for support we provided toCentrica in relation to the £340 million refinancing of its220MW Boreas offshore wind portfolio – the first majoroffshore wind project financing in the UK.

ENVIRONMENTALLY RESPONSIBLE INVESTMENTSLloyds Banking Group’s asset management arm, ScottishWidows Investment Partnership (SWIP) is one of the largestasset management companies in the UK. At the end of 2009,SWIP managed £141 billion worth of funds in total. Inaddition to specialist ethical, environmental and sociallyresponsible investment funds – totalling £534 million, as at31st December 2009 – consideration of a company’sapproach to social, ethical and environmental issues formspart of the research process for investments in all equity listedfunds. In the UK, SWIP manages £160 million inenvironmental funds.

SWIP is a signatory of the Principles for ResponsibleInvestment, an investor initiative in partnership with the UnitedNations Environment Programme Finance Initiative and theUN Global Compact, to help investors integrate considerationof environmental, social and governance issues intoinvestment decision-making and ownership practices. SWIP isalso a member of the Institutional Investors Group on ClimateChange.

£1 billion of renewable energy finance

Climate change represents a hugeglobal challenge and one that presentsour business with both risks andopportunities.

We believe banks have a key role toplay in financing the transition to a lowcarbon economy. We are committed toseizing emerging commercialopportunities and firmly establishingourselves as a leading player. Acrossthe Group, opportunities related toclimate change are helping us tosupport our customers.

REDUCING THE CARBON IMPACT OF BUSINESSVEHICLE FLEETSThe transport sector currently accounts for around 25 percent of the UK’s total CO2 emissions. The sector is beingincreasingly regulated to reduce transport-related CO2

emissions. Lex Autolease, part of the Group’s AssetFinance Division, is the UK’s largest fleet managementcompany with around 300,000 vehicles. It supplies andmanages four of every ten vehicles used by FTSE 100companies. Lex Autolease won Leasing Company of theYear Award 2010 at the annual GreenFleet Awards.

Lex Autolease is helping its customers to tackle thecarbon footprint of their vehicle fleets through its industryleading solutions and consultancy services. On average,its customers have reduced fleet emissions by 18 per centover the past three years, with some customers havingreduced their fleet emissions by 21 per cent in the pastyear alone.

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MANAGING THE RISKS

MANAGING ENVIRONMENTAL RISKS IN LENDING Our groupwide Environmental Risk Policy requires all businessloans to be assessed for material environmental risks as partof the credit sanctioning process. Environmental risksprimarily arise from our association with customers and theirbusiness activities which impact on the environment, or areimpacted by environmental issues. Our policy is supported bya robust process which ensures that there is a consistentapproach to identifying, assessing, mitigating and reportingenvironmental risks. Lending officers are responsible forensuring that environmental risks are assessed and thatappropriate action is taken where a material risk is identified.

Lending officers are trained in environmental riskmanagement on our three day credit risk training course,which includes a highly interactive module on environmentalrisk management. Through case studies and videos we showhow customers’ activities can impact the environment andhow their activities can become credit risks to the bank. In2009, 72 delegates attended our credit risk training course.Lending officers are further supported by a range ofresources, including our detailed Environmental RiskHandbook, and our in-house Environmental Risk team whoreview proposed transactions and advise on methods tomitigate material environmental and reputational riskexposure. Where appropriate, the team also seeks externalinput from a panel of environmental consultants.

PROJECT FINANCE: EQUATOR PRINCIPLESLloyds Banking Group is a signatory to the Equator Principlesto further strengthen our approach to assessing andmanaging environmental and social risks in project finance.The Equator Principles are a benchmark for the financialindustry to manage these risks in all new project financetransactions above US$10 million.

During 2009 we implemented a harmonised groupwideapproach to monitoring and reporting Equator Principlestransactions, and training colleagues on the EquatorPrinciples. Lending officers are responsible for undertaking

initial classification of transactions that qualify under theEquator Principles. Their assessments are subject to furtherreview by our Equator Principles Review Group, comprisingexperts from both our Risk and Project Finance teams, toensure that each transaction is compliant and is consistentwith our Environmental Risk Policy. Over the past year wehave trained over 100 colleagues on our Equator Principlesprocedures.

INSURING CUSTOMERS AGAINST THE IMPACTS OFCLIMATE CHANGEWe were a launch signatory to ClimateWise, a global initiativelaunched by the insurance industry to inform members’approach to climate change risks in insurance. We work withpartners in the insurance industry via ClimateWise, theAssociation of British Insurers (ABI) and the Lighthill RiskNetwork to enhance our understanding of the risks we faceand develop methodologies for addressing these.

We ensure that our home insurance policies are aligned toFSA best practice guidelines in supporting climate awarenessand offer cover for products such as solar panels, windturbines and generators as standard. We also informcustomers about climate change issues throughcommunications to them during the life of their policy, as wellas on our websites. In addition, as recommended by the ABI,when we receive a flood claim, we offer our customers theoption of ‘resilient reinstatement’. This means that we will payfor customers to have flood resilient repairs – where the cost issimilar to like-for-like repairs – on their homes, to help defendagainst future flood damage.

100 colleagues trained in our Equator Principles procedures over thepast year

EQUATOR PRINCIPLE TRANSACTIONS 2009

Notes: Category A is higher risk, category B is medium riskand category C is lower risk.

DEALS A B C Total Completed 0 7 7 14In progress 0 4 1 5Not completed 0 1 0 1GEOGRAPHY OF COMPLETED TRANSACTIONSUS 0 2 2 4Europe 0 4 5 9Middle East 0 1 0 1INDUSTRY OF COMPLETEDTRANSACTIONS No. £m

Renewables 4 £89Infrastructure 7 £376Energy & utilities 3 £72TOTAL 14 £537

We identify and assess environmentalrisks in business lending, projectfinance and insurance to ensure thatwe manage the environmental impactof our commercial activities, and indoing so minimise risks to ourbusiness and our customers.

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LOOKING TO THE FUTURE

We are committed to managing and reducing our environmental impact, and have astrong track record. We also recognise that we have a key role to play in addressingclimate change; from financing renewable energy to helping our customerstransition to a low carbon economy. Here, we set out our commitments for the future.

OUR COMMITMENTS

DRIVING DOWN OUR USE OFRESOURCES • We will continue to invest in environmental

efficiencies, and identify opportunities to saveenergy, to help reduce our use of energyacross our UK property estate.

• We will launch a detailed five year plan,including challenging targets, to reduce ouruse of energy, water and waste, covering theperiod from 2011 – 2015. We will disclose ourfive year plan in our 2010 CorporateResponsibility Report.

• We aim to achieve the Carbon Trust Standardfor the entire Group by mid 2011.

• We will continue to promote virtualconferencing technologies to colleagues as anenvironmentally friendly, cost efficientalternative to travelling.

• We will work to identify environmentalefficiencies in our supply chain and collaboratewith our suppliers to deliver these.

ENGAGING COLLEAGUES IN OURENVIRONMENTAL AGENDA• We will seek to embed our Smart &

Responsible approach into the way that wework across the Group.

• We will continue to engage colleagues in ourenvironmental agenda by regularlycommunicating our environmental aims andobjectives, and updating them on how we aredoing.

• We will continue to promote our Business &Environment training to strengthen knowledgeand understanding of these issues amongstour employees.

• We will facilitate colleagues’ contributions toour environmental agenda by providing themwith the information and tools they needthrough our Sustainability Network.

SEIZING COMMERCIAL OPPORTUNITIES AND MANAGINGTHE RISKS• We will continue to support the renewable energy sector and

maintain our position as a leading global financer of renewableenergy.

• We will use our position as a leading financial services organisationto lobby for greater understanding of the impacts of climatechange on insurance.

• We will continue to build relationships with leading researchgroups and data providers to ensure we deepen ourunderstanding of climate change and its impacts on our customersand our business.

• We will improve our disclosure of our process for managingenvironmental risks in our lending activities and publish ourEnvironmental Risk Policy.

• We will launch an online screening tool which will enable lendingofficers to screen corporate and commercial transactions forenvironmental and reputational risks to replace our existing paper-based process.

CLIMATE CHANGE LEADERSHIP• We will continue to identify opportunities to collaborate with

external partners to develop and deliver initiatives that promotegeneral knowledge and understanding of climate change, and theassociated opportunities and risks, across the UK.

ENGAGING CUSTOMERS ON CLIMATE CHANGE• We will build on our Business & Environment training programme,

making available over 500 business managers around the countryby early 2011 to support our customers.

• We will expand our Business Mentoring programme for emergingleaders in our Wholesale division. Through the programme, ourleaders will use their professional skills and experience to providededicated support for social enterprises – not for profitorganisations with a social or environmental mission.

• We will continue to run dedicated sustainability events as part ofour business information seminar programme, focusing on the risksand opportunities for businesses in an environment of increasingclimate change regulation and natural resource depletion.

Lloyds Banking Group is recognised by

CONTACT USWe would like to hear from you. Please get in touch withany feedback and queries at the following address:

Lily HeinemannCorporate Responsibility Lloyds Banking Group25 Gresham StreetLondonEC2V 7HN

You can also send email toLily.Heinemann@lloydstsb.co.uk

This report is printed on Cocoon Silk 100 which is FSC-certified and contains 100 per cent recycled paper. Thisreport was printed by an FSC- and ISO 14001-certifiedprinter.

FSC – Forest Stewardship Council. This ensures that there isan audited chain of custody from the tree in the well-managed forest through to the finished document in theprinting factory.

ISO 14001 – a pattern of control for an environmentalmanagement system against which an organisation can beaccredited by a third party.

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To find out more about our corporate responsibility strategy, visit www.lloydsbankinggroup.com/cr/report2009