The Climate Principles Final 2008

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CONFIDENTIAL

6th January 2009

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THE CLIMATE PRINCIPLES:

A framework for the finance sector

This document contains:

A) Introduction to Principles

B) Principles

C) Disclosure Requirements

D) Governance Structure



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INTRODUCTION

What arethe Principles

?A set of voluntary principles, with underlying indicators, that financial institutions will publicly

adopt. Although the principles are aspirational, they are designed so companies adopting them

have already achieved or are moving towards fulfilling the commitments.

The principles combine a vision and proactive approach to managing climate change risks and

opportunities and a recognition of the roles that financial services organisations can play.

What is the goal of the Principles ?

The finance sector will play an important role in the transition to a low carbon economy, and is

developing enabling tools, products and services to help meet that goal. At the same time, thefinance sector should manage its own climate impacts to provide a sound platform for working

with its clients.

The principles are designed to provide a standard framework (with built-in flexibility to take into

account differing structures, portfolios and priorities), for all financial institutions to use.

Why are the Principles being launched now ?

The principles demonstrate that the Finance Sector is actively engaged in addressing climate

change. Also, it demonstrates support for the need for a global policy platform as nations

negotiate a post-Kyoto agreement on climate change. Worldwide solutions urgently need to bedefined and developed and financial institutions need to show their readiness to contribute to

those solutions.

Are the principles static ?

Not entirely, as it is anticipated that policy, business and customer demands will continue to

evolve with regards to addressing climate change. For this reason, the principles will be reviewed

regularly in response to changing needs and expectations of the role of the finance sector.

Who can adopt the principles and will adoption be subject to certain conditions ?

Any financial institution that meets the commitments of Section 1.0 of the principles, and has aclear plan for meeting Section 2.0 and 3.0 of the principles can adopt them.

Participating financial institutions must have a robust low carbon strategy or position in place

and are required to disclose publicly how their organisation has addressed and/or achieved,

(progress towards) different requirements of the Principles . A separate document outlines the

initial disclosure requirements for adopting financial institutions.



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What is the process for ensuring adopting organizations adhere to the Principles ?

The Climate Group will work together with the group of adopting financial institutions to develop

a framework for reviewing disclosure against the principles and identifying emerging consistentand best practice. This framework will be publicly available.

Publicly available information from each adopting financial institution will be reviewed by The

Climate Group on annual basis.

Could the principles be adopted only for one of several sections, excluding other parts of the

document ?

Generic principles will apply to all adopting financial institutions. Adopting financial institutions

are required to disclose ALL aspects of the principles applicable to their business activities.

Financial institutions cannot ‘pick and choose’ approach. However, adopting financialinstitutions may make progress at different rates on different components. Where financial

institutions have not fully implemented the principles , they will be encouraged to disclose a

timeframe for achieving full implementation.

Is there a connection between these principles and the Equator Principles ?

The Equator Principles provide guidance for project finance. The scope of the principles is

beyond project financing and covers all relevant business activities undertaken by adopting

financial institutions. The principles cover project finance activities in line with the requirements

of the Equator Principles

Why should Financial Institutions manage their emissions ?

There is an institutional scientific consensus that the greenhouse gas (GHG) emissions from

human activities are contributing to climate change. A failure to reduce emissions will have

negative consequences on the global economy. Early reduction of emissions can limit the costs of

addressing climate change and financial institutions recognise their responsibility to reduce their

operational climate impact.

Will the principles require adopting Financial Institutions to reduce GHG emissions across

lending, investment and insurance portfolios ?

Adopting financial institutions recognize the importance of opportunities for mitigating climatechange and the implications of climate risks as lenders, investors and insurers. By adopting the

principles, they commit to engage with their customers, suppliers and wider society,

implementing their own tools to do so. As understanding of the issues increases and as

regulation on mitigating and adapting to climate risks and managing the cost of carbon evolve, so

too will methodologies for assessing the climate risks of our lending, investment and insurance

activities.



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What is the role of The Climate Group ?

The Climate Group has been facilitating discussions with a group of financial institutions to

develop the principles as a set of best practice requirements that all financial institutions canuse to direct their efforts to address climate change.



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THE CLIMATE PRINCIPLES:

A framework for the finance sector

VISION

There is international scientific consensus that greenhouse gas (GHG) emissions from human

activities are a critical contributor to changes in the world’s climate. Failure to reduce these

emissions is likely to result in widespread, irreversible changes to the climate, which leading

scientists and economists predict will have negative consequences for human society, the global

economy and the world’s natural systems.

In our capacity as advisors, lenders, investors and insurers, we are in a position to play a

stewardship role by assisting the individuals, companies and projects we help finance, andclients that we offer insurance cover to, to understand and manage the risks, opportunities and

adaptation needs relating to climate change. This stewardship role requires us to develop the

expertise, products and services necessary to equip our clients and partners to address these

challenges. We also recognise we must minimise our operational GHG emissions.

We believe that climate change presents a series of risks and opportunities to which:

1. Governments should respond by taking an integrated approach to energy and climate policy;

setting targets for reducing carbon emissions and developing mechanisms to support their

achievement, giving due consideration to action recommended by leading global scientists to

ensure GHG emissions in the atmosphere can be stabilised at safe levels.

2. Businesses should respond by understanding and managing their carbon and climate risks

and seeking opportunities to support the transition to a low carbon economy; and,3. Individuals should take responsibility and change their behaviour and purchasing decisions to

reduce their personal carbon footprint.

The principles contained in this document set out our commitment to:

1. Minimise our operational carbon footprint;

2. Make business decisions that will reduce climate change risks and allow the development of

climate-change related opportunities

3. Develop products and services that enable our customers to manage their climate change

related risks and business opportunities;

4. Engage with our customers, suppliers and wider society to seek opportunities for a low carbon

economy;5. Support the development of sound energy and climate change policy; and,

6. Disclose progress against our commitment.

We believe that taking a proactive approach to climate change will position us as a leading

financial institution in a low carbon economy.



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OUR ACHIEVEMENT

1.0 We have a robust low carbon strategy or position and are managing our operational

carbon emissions

1.1 We have issued a strategy or position that indicates how we undertake our business in

a way that reduces the climate and operational carbon impact of our activities.

1.2 We have board level commitment for the strategy or position and a named senior

executive who has responsibility for implementing it across our organisation and for

ensuring that decisions taken are consistent with it. This executive has the necessary

resources to meet the commitments contained in our strategy or position.

1.3 We have measured a significant proportion of our operational GHG emissions using an

internationally recognised or equivalent domestic standard and we disclose this

information.

1.4 We have issued clear and challenging, yet achievable, targets for making reductionsin our operational GHG emissions.

1.5 We engage our employees on our commitment to addressing climate change and

support them in playing an active role in meeting this commitment.

These initial steps demonstrate our commitment to addressing climate change and managing our

own operational impacts. However, we recognise we must go further, as we have significant

influence on the management of climate change risks and the opportunities for the development

of a low carbon economy through the deployment of capital. We also commit to engaging with our

customers, suppliers and wider society as appropriate to do this.

OUR COMMITMENT

2.0 We will develop commercially viable approaches to ensure climate and carbon issues

are addressed where these apply to our business strategy and activities.

2.1 Research Activities

2.1.1 We will incorporate climate and carbon issues into our research activities and, where

relevant, will utilise the findings to develop products and services that benefit our

customers and clients.

2.2 Asset Management

2.2.1 We will enable our analysts to incorporate carbon and climate risks and opportunities

into their research and investment decisions where relevant.

2.2.2

2.2.3

We will engage our clients to understand the carbon and climate change risks and

opportunities relevant to them and we will develop products and services that support

them in managing those risks and exploiting those opportunities.

Where consistent with our fiduciary responsibilities, we will engage with the

companies our clients invest in to understand how they are minimising the risks and

maximising the opportunities presented by climate change and climate policy. We



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will also encourage these companies to improve their governance and disclosure of

climate risks and opportunities.

2.3 Retail Banking

2.3.1 We will undertake research to understand:

1) The potential impacts of climate change and climate change policy for our

customers;

2) The willingness of our customers to address these impacts;

3) The products and services that customers need to address these impacts and the

barriers to addressing them;

4) The approaches needed to raise awareness of how our customers manage their

GHG emissions and reduce their carbon footprint.

2.3.2 Based on our understanding of our customers, we will develop products, services and

communication and engagement strategies to enable them to address potentialimpacts and reduce their carbon footprint.

2.4 Insurance and Reinsurance

2.4.1 We will develop the necessary knowledge, skills and tools to assess carbon and

climate risks associated with our transactions and the financial implications they

have for our business.

2.4.2 We will develop risk assessment techniques to assist our clients to understand better

and respond to climate change.

2.4.3 We will develop insurance products and services that encourage our customers to

reduce their carbon and climate risks, assist the development and adoption of GHG

mitigation technologies and strategies and take advantage of the carbon market.

2.5 Corporate Banking

2.5.1 We will develop and implement a process to consistently assess the financial

implications of carbon and climate risks relevant to our clients and will train

employees to implement this assessment.

2.5.2 We will consider practical ways to assess the carbon and climate risks of our lending

and investment activities. Where a feasible and relevant methodology can be found,

we will develop and implement this approach.

2.5.3 We will engage our clients to understand the carbon and climate risks and

opportunities associated with their business. This might include encouraging themto develop a strategy to manage these risks; to measure and disclosure their carbon

footprint; and, to set meaningful targets to reduce carbon emissions.

2.5.4 We will develop financing solutions to facilitate investment in low carbon

technologies and GHG reduction projects.



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2.6 Investment Banking & Markets

2.6.1 Corporate Advisory

We will develop the knowledge, tools and skills necessary to advise our clients of thepotential financial implications of carbon and climate risks and opportunities

associated with their business transactions.

2.6.2 Structured Lending & Venture Capital

We will develop viable financing solutions to facilitate investment in low carbon

technologies and GHG reduction projects.

2.6.3 Trading

We will develop expertise to support emissions trading, weather derivatives,

renewable energy credits and other climate related commodities, and look for ways to

play a constructive role in promoting these.

2.7 Project Finance

For projects that release or are likely to release 100,000 tons CO2 equivalent per year

(aggregate emissions of direct sources and indirect sources associated with

purchased electricity for own consumption), except where justified deviation is

provided, we will request the client to:

2.7.1 Seek opportunities to reduce project-related GHG emissions in a manner appropriate

to the nature and scale of project operations and impacts.

2.7.2 Quantify and disclose direct GHG emissions and indirect GHG emissions associated

with the off-site production of power used by the project.

2.7.3 Monitor and report GHG emissions annually in accordance with internationally-

recognised methodologies.

2.7.4 Evaluate technically and financially feasible options to reduce or offset project-

related GHG emissions during the design and operation of the project.

3.0 We will engage others to support the growth of a low carbon economy, where

consistent with our corporate policies on public engagement

3.1 We will disseminate information through our network of customers, suppliers, staff

and other stakeholders to raise awareness about climate change and the opportunities

for reducing GHG emissions.

3.2 We will engage our significant suppliers on climate change issues and work with themto enable us to reduce GHG emissions throughout our supply chain.

3.3 We recognise that tackling climate change cannot be solved through voluntary action

alone and we support the adoption of effective and efficient regulation and policy to

reduce GHG emissions. Such support may include engaging policy makers and/or key

stakeholders on an individual basis or through relevant industry and multi-stakeholder

initiatives.



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DISCLOSURE REQUIREMENTS

SECTION 1.0:

# Disclosure Requirement Guidance to Disclosure

1.1 Publicly available climate change strategy

or position that outlines how the

organisation is addressing the relevant

items covered by the Principles.

-

1.2 Named senior executive responsible for the

organisation’s strategy or position.

Overview indicating responsibilities for

implementing the strategy or position andfor achieving targets set by the

organisation.

Overview of how climate change issues are

managed across the business.

Named senior executive appointed by

the board to implement the Principles is

disclosed by the adopting organization.

1.3 Public disclosure of operational GHG

emissions

Public disclosure of reduction targets,

revisions thereof and timeframes

Annual reporting of progress towards

targets GHG footprint is verified by an

independent party (e.g. external auditors)

Provide information on the scope of

emissions eg. which operations are

included

Provide information on the disclosure

framework used, eg. GHG Protocol

Best practice for GHG emissionsdisclosure will be assessed on a regular

basis and further guidance may be

developed relating to expectations for

disclosure

1.4 Publicly available quantitative and

qualitative targets for reducing operational

GHG emissions.

Provide information on the scope of

targets eg which operations are required

to meet targets

Provide contextual information for

reducing GHGs emission eg. why an

energy intensity target has been set

rather than an absolute reduction target,

what is the expected trend and why

Explain how and why the targets have

been set

Explain how progress against meeting

targets has been achieved and/or the

reasons for not meeting targets



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# Disclosure Requirement Guidance to Disclosure

1.5 1. Publicly reported employee awareness

raising and/or training programme andmethods to assess success of that process

2. Publicly reported approaches used to

support employees take action on climate

change at work and/or at home

Typical training and awareness

programmes may involve face to face oronline communications

Findings from questionnaires and other

form of feedback from employee surveys

can be shared to provide evidence of

employee engagement

Information on the scope of employees

included in an awareness or training

programme should be provided, eg.

50% of employees have received

training or all senior managers havereceived training

‘Approaches’ includes special offers

provided to employees such as loans for

the purchase of hybrid vehicles, loyalty

cards that enable employees to gain

‘credits’ for low carbon purchases

SECTION 2.0 & 3.0

All financial institutions adopting the Principles are required to disclose what has been

achieved on all aspects of the Principles applicable to their business activities.

Where financial institutions have not fully implemented the relevant requirements, they will

be encouraged to disclose a timeframe for achieving full implementation.

Information should be disclosed on an annual basis.

The Climate Group will review disclosure against the Principles on an annual basis using

publicly available information, (eg. Carbon Disclosure Project response, Corporate Reports

and website).

The Climate Group will develop a framework for reviewing disclosure and for identifying

emerging consistent and best practice which will be agreed by the group of adopting

organisations.



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GOVERNANCE STRUCTURE

1. Introduction

1.1 This document provides guidance to financial institutions which have adopted The

Climate Principles (the Principles) at launch and after launch. It covers the processes for

the management and administration of the Principles.

1.2 Section 1 of the Principles is a pre-requisite to all adopting financial institutions.

Adopting financial institutions are required to disclose all aspects of the Principles

applicable to their business activities. Financial institutions cannot adopt a ‘pick and

choose’ approach. However, they may make progress at different rates on different

components.

1.3 This is an evolving document and will be periodically reviewed to take account of changes

in international and national policy, the sector and the group.

2. Adoption of the Principles

2.1 Adoption of the Principles is voluntary.

2.2 Each financial institution which has adopted the Principles will be known as a Member.

2.3 Adoption of the Principles shall be open to any financial institution which meets the

adoption requirements.

2.4 The adoption requirement for a prospective Member entails a written confirmation from a

senior executive of the financial institution in support of adoption of the Principles, sent

to the Administrator.

2.5 Following written confirmation and receipt by the Administrator, the Member will issue a

press release regarding its adoption of the Principles.

3. Disclosure

3.1 Public disclosure of Members’ achievements as per Section 1 of the Principles is required.

The format and timing of disclosure is determined by Members, but should demonstrateclear and direct achievement of requirements delineated in Principles 1.0-1.5.

3.2 Disclosure requirements for Section 2 & 3 of the Principles have not been prescribed at

the time of Principles launch.

3.3 All Members are required to disclose all aspects of the Principles applicable to their

business activities which have been achieved on an annual basis.



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3.4 Where financial institutions have not fully implemented the relevant requirements in

Sections 2 & 3 of the Principles, they will be encouraged to disclose a timeframe for

achieving full implementation.

3.5 Disclosure requirements for Section 2 & 3 are as follows:

The Climate Group will review disclosure against the Principles on an annual basis using

publicly available information, (e.g. Carbon Disclosure Project response, Corporate

Reports and website).

The Climate Group will develop a framework for reviewing disclosure and for identifying

emerging consistent and best practice.

3.6 The Principles website shall provide the List of Members.

3.7 Members may opt to disclose and/or update Section 1 achievements and progress towardsSection 2 & 3 commitments at the same time as other reporting obligations (e.g.

sustainability report, annual report, reporting to the Carbon Disclosure Project).

3.8 Members may opt to disclose Section 1 achievements and progress towards Section 2 & 3

commitments by providing weblinks to pages containing relevant information from the

Members’ corporate website.

4. Steering Committee

4.1 The business of the Principles will be managed by a Steering Committee and supported

by an Administrator.

4.2 Each Member will designate up to two individuals to represent it in the Steering

Committee.

4.3 The maximum number of Members in the Steering Committee is 15. The Steering

Committee will periodically reassess this ceiling as membership grows.

4.4 Any proposal regarding the Principles, either suggested by working groups or individual

Members, shall be submitted to the Steering Committee for consideration.

4.5 The Chair of the Steering Committee will determine whether a proposal is significant or

administrative in nature. Significant issues include, inter alia , matters related todisclosure requirements and scope of the Principles.

4.6 The decision-making process for significant issues, except with regards to the key

performance indicators (see 4.7) shall be as follows:

A meeting/teleconference of Members, where an agenda has been circulated to Members

beforehand.

Decisions shall be made by a majority of Members present at the meeting/teleconference

and Members who have submitted their votes by email before designated deadlines.



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Such decisions will bind other Members.

Each Member has one vote, regardless of the number of representatives in the Steering

Committee.

4.7 The decision-making process for determining the key performance indicators for Section 2

of the Principles shall be as follows:

A meeting/teleconference with a quorum of 75% of the Members and where an agenda

has been circulated to Members beforehand.

Decisions shall be made by a consensus of Members present at the

meeting/teleconference, assuming a quorum.



Committee.

4.8 The decision-making process for administrative issues shall be as follows:

A meeting/teleconference of Members, with no quorum requirements, and where an

agenda has been circulated to Members beforehand.

Decisions shall be made by a majority of Members present at the meeting/teleconference

and Members who have submitted their votes by email before designated deadlines.



Committee.

4.9 The position of the Chair will be held by a representative of a Member, supported by twoadditional nominations and elected by 60% of the Steering Committee Members.

4.10 The Chair, representing the Member, will serve for a maximum of two years or two terms.

At the end of each year/term, the position is open for nomination and re-election.

Flexibility of reducing or extending the term will be permitted subject to consensus

decision from Members.

4.11 The role of the Chair is to manage the business of the Principles, providing co-ordination

across the Steering Committee, the Working Groups and the wider network of Members.

4.12 The Administrator will be a designated official from The Climate Group.

5. Working Groups

5.1 Currently, there are three working groups: Governance, Indicators Development and

Stakeholder Engagement.

5.2 The Working Group objectives are:

Governance Structure - To propose a structure for the management of the LCLP,

including criteria for adoption and decision making process of the Steering Committee;



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Stakeholder Engagement - To identify key stakeholders and develop a strategy for

communicating with them;

Indicators Development – To consider the validity of developing indicators for Section

1 at the time of Principles launch; and to develop indicators for Section 2 whennecessary.

5.3 Some Working Groups are likely to be permanent, while others based on specific projects

may be temporary.

5.4 Members may volunteer to participate in any Working Group. There is no limit on number

of representatives from each Member.

5.5 The leader of a Working Group shall be appointed by its participants.

6. Finance

6.1 Each Founding Member shall pay an annual membership fee of £5,000 for the period

from 2 December 2008 to 1 December 2009. The membership fee shall be revised

annually.

6.2 The Steering Committee may suggest extraordinary fees, after group discussion and

agreement of the majority, to meet ad hoc obligations of the Membership.

6.3 Members may decide to outsource administrative tasks to a third party, The Climate

Group, which will designate an official person as the Administrator. The agreed costs will

be borne by membership fees.

6.4 The Administrator shall ensure that invoices for extraordinary fees, once approved by the

majority, are issued to individual Members in accordance with the decision of the

Steering Committee.

6.5 Where possible, costs are minimised by Members providing their resources free of

charge – for example, the provision of meeting rooms or translation services.

6.6 All funds collected from Members shall be payable to the bank account managed by The

Climate Group, directed by the Steering Committee in accordance with this Governance

document. Access to the account shall be by personas with designated account signing

authority determined by the Membership.

7. Membership Conditions

7.1 The member organisation is required to:

Pay membership fees in full within three months of it falling due; or

Disclose in accordance with Clause 4 of the Governance document 12 months after

adoption of the Principles.



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7.2 Where a member fails to meet these conditions the action required will be discussed and

agreed with the group.

8. Confidentiality

8.1 Each Member agrees that it shall not use or disclose to any person information, deemed

confidential by the party concerned, it has or acquires and that it shall make every effort

to prevent the use or disclosure of confidential information.

8.2 Confidential information shall mean all information which relates to the Members, and

which is discussed or shared with other Members (including any information discussed or

shared at Steering Committee meetings or any other meeting of the Members).

8.3 The confidentiality clause (Clause 9) does not apply to disclosure of confidential

information:

To the extent that it is generally known to the public not as a result of a breach of any

duty of confidentiality;

To an employee of a Member whose function requires him to have the confidential

information;

To the extent that it is required to be disclosed by law or by a governmental authority

or other authority with relevant powers to which that Member is subject.

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The Climate Principles Final 2008