Climate change has been described by the UK Government as the greatest long-term challenge facing the world today. We recognise that businesses have a role to play in helping to address the risks of climate change. Measures to tackle climate change will have potential implications for regulation, taxation and public policy. As well as physical, financial and market risks posed by climate change, there are also significant potential opportunities.

While our direct carbon intensity is relatively low compared to other industry sectors, we still need to fully understand the potential financial impact of climate change on others that we may lend to or invest in, so that we can manage the risks and identify business opportunities.

In 2007, we set a stretching target to reduce our CO₂ emissions by 30 per cent by 2012 based on 2002 levels. We are very pleased to report that by the end of 2008 we have achieved a 31 per cent reduction in CO₂, meeting our target four years ahead of schedule. We identified specific projects and prioritised investment to deliver significant CO₂ reductions. We have also purchased renewable electricity and electricity from combined heat and power (CHP) sources, which have a lower carbon footprint than standard grid electricity.

During 2008, we have improved our systems for collecting car mileage information and energy consumption data. Using actual mileage and engine sizes rather than fleet averages gives a more accurate travel total. This, allied to a 40 per cent increase in teleconferencing to 422,000 meetings has significantly reduced our travel related CO₂ emissions.

We want to inspire Lloyds Banking Group colleagues to rise to the challenge of tackling climate change. We have put in place a structured communication programme including dedicated intranet site, regular staff magazine and news features, competitions and seminars. In 2008, we established a Group-wide sustainability network for colleagues at all levels to meet, share experiences and ideas and to help fulfil our commitment to reducing our environmental impact. Our staff have responded enthusiastically to our carbon reduction plans and are keen to help with their delivery.

Beyond managing our own immediate impact, Lloyds Banking Group can be part of the response to climate change by engaging customers and suppliers. Lloyds Banking Group provides finance to all sectors of industry and by understanding the risks and opportunities our customers face, we are better able to help them develop appropriate solutions.

Examples of initiatives we have taken include:

• leading the development of the smallbusinessjourney.com website to provide advice and guidance to small businesses on how they can reduce their environmental impact;
• provided guidance to vehicle fleet operators through Lloyds TSB Autolease to help them structure their fleet selection policies to promote more fuel-efficient vehicles; and,
• created an on-line guide to help customers taking out a car loan to select a model with lower CO₂ emissions.

*In 2008 DEFRA introduced changes to the conversion factors to be used for calculating CO₂ emissions from energy consumption and travel. In addition, they introduced new guidelines for the treatment of ‘renewable energy’ in calculating total CO2 emissions. The total CO₂ emissions reported above have been calculated using the old conversion factors to provide a more accurate like-for-like comparison against the baseline. Using the new guidelines, our total emissions for 2008 would increase to 245,385 tonnes. In 2009, a priority for Lloyds Banking Group will be to baseline our environmental impacts across the combined Group.