Environmental & Social Risk Management
PNC recognizes that environmental issues, including climate change, are impacting our business, our clients and the communities in which we operate.
We have adopted a framework to assess, mitigate and manage related risks at both the portfolio and individual transaction levels. This framework includes robust and regular portfolio analyses, stress-testing, and the establishment of policies and procedures governing our underwriting and portfolio management practices. This framework is regularly reviewed by senior management and, consistent with our broader CSR governance process, overseen by the company’s Board of Directors. In addition, we remain highly engaged with key external stakeholders to ensure that our practices align with our commitment to corporate sustainability. PNC’s CSR team helps coordinate and oversee Corporate & Institutional Banking’s environmental and social risk management efforts and facilitates regular communication between business partners as it pertains to materiality, renewable energy financing, environmental assessments and socially responsible investing.
Environmental and Social Rapid Risk Screen
In 2017, PNC began developing an Environmental and Social Risk Management (ESRM) Rapid Risk Screen for use across all of Corporate & Institutional Banking. This Rapid Risk Screen, which was introduced in early 2018, will help us better identify and mitigate risk early in the lifecycle of a transaction. It encompasses environmental risk and human rights risk, and expands our focus on both risk domains across all of the company’s wholesale lending activities. Transactions that are identified through this Rapid Risk Screen are escalated to leaders in the business and our underwriting group, who determine whether to pass on the transaction, conduct enhanced due diligence alongside the company’s Corporate Social Responsibility team, or proceed as requested.
In addition to enhanced due diligence resulting from transactions identified through the ESRM Rapid Risk Screen, we subject all Corporate Banking transactions in certain industries to supplemental due diligence. This applies to companies involved in Coal Mining, Electric Power Generation Utilities, and Oil and Gas. This enhanced due diligence, which must be completed as part of the underwriting process, focuses on:
- The borrower’s past and present compliance with environmental laws and regulations
- The borrower’s financial resources, including liquidity and access to public debt and equity markets, needed to adhere to environmental mandates
- The borrower’s internal policies, procedures and resources related to environmental risk management
- The transaction’s compliance with PNC’s credit and underwriting policies related to environmental risk
As part of our commitment to increasing transparency, we now report on the frequency with which we conduct this later-stage enhanced due diligence for potential clients. In 2017, PNC conducted enhanced due diligence on 21 prospects, who were subject to our supplemental due diligence criteria, and ultimately approved all for financing. The limited size of this population reflects our risk appetite within these industries, which has reduced the number of potential clients we evaluate and ultimately underwrite.
In addition to reviewing prospects, we conduct annual reviews for existing clients in these industries that incorporate similar environmental assessments. These reviews facilitate greater client engagement and allow us to identify potential concerns and help clients better mitigate risks.
Real Estate Secured Transactions
The owner of real estate may have direct liability for past and/or present environmental issues associated with the real estate. PNC, if the holder of a security interest in the real estate, could be directly impacted by these issues. Environmental issues may erode collateral value, drain cash flow, or alter construction plans and timeframes. As such, PNC reviews environmental due diligence reports required by bank procedures and supplies sound recommendations to secured lenders based upon specific business transaction needs.
PNC regularly reviews its exposure to various industries across the wholesale credit portfolio. These reviews provide PNC with a better understanding of the current and emerging risks, and help inform the strategy for managing future transactions to stay within our risk appetite. Corporate Banking also incorporates an environmental assessment into its risk-based, customer-level portfolio reviews. These quarterly reviews assess customer relationships across Corporate Banking and enhance our understanding of environmental risks across our existing portfolio.
Environmental Stress Assessment and Analysis
As a part of its portfolio management practice, PNC regularly conducts stress assessments and scenario analysis to better understand how certain credit risks could potentially impact its wholesale credit portfolio. This process involves working groups of business and risk employees who seek to understand the secular and cyclical nature of the risk and who assess the risks according to our environmental framework. Once designated, appropriate scenarios are developed using regulatory stress-testing methodologies and models to assess the magnitude of stress risk exposure in the target credit population(s).
PNC’s designation of environmental risks and the associated stress scenario loss results are presented to PNC’s Credit Portfolio Strategy Committee, which manages the overall risk/return balance of PNC’s loan portfolio. Outcomes from this review may include but are not limited to incorporation of stress results into capital forecasts, enhanced due diligence, changes in origination requirements, or caps and limits on credit exposure.
In 2017, our environmental reviews focused on understanding the risks related to the ongoing volatility in the oil & gas industry and developing initial assessments of secular shifts resulting from the growing use of electric vehicles and renewable energy.
Evolving Policies and Procedures
Similar to how we ensure that PNC’s annual environmental stress assessment is relevant to our business and valuable to internal and external stakeholders, we are constantly re-evaluating our existing policies and procedures and identifying opportunities for improvement. For example, we have gradually reduced our lending to coal mining companies and prohibit new lending to coal producers with anything more than a de minimis exposure to mountaintop removal mining. Also, in 2017, we further refined our due diligence policies related to energy companies by prohibiting construction financing of all single-site coal-fired power plants. These changes reflect our stakeholders’ interests and concerns, as well as environmental risks, which, if left unaddressed, could translate into risks for our business.
Additionally, and as discussed above, PNC launched its ESRM Rapid Risk Screen, an environmental and human rights risk screening process that has expanded ESG screening across the bank’s entire corporate lending portfolio.
In an effort to be transparent about our ESG practices, including our management of environmental and social risks, PNC regularly responds to third-party sustainability ratings and rankings. Our disclosures reflect our ongoing commitment to effectively address stakeholder interests and concerns.
|CDP||N/A||A- (Financial sector average: C)||A-||99 -B|
|FTSE4Good||N/A||3.6 out of 5 (Percentile rank: 57)||3.9||3.4|
|JUST Capital||N/A||3 out of 42 banks||19 out of 36 banks||N/A|
|Sustainalytics||60 out of 100 (Relative position: 123/332)||57||53||N/A|
FTSE Russell (the trading name of FTSE International Limited and Frank Russell Company) confirms that PNC has been independently assessed according to the FTSE4Good criteria, and has satisfied the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index provider FTSE Russell, the FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong ESG practices. The FTSE4Good indices are used by a wide variety of market participants to create and assess responsible investment funds and other products.
Effective risk management allows us to better serve our clients.
PNC established a working group to assess the impact and opportunities associated with electric vehicles, as well as the production and use of alternative energy. This group held its first meeting in late 2017 and is working to develop a strategy for how PNC can best identify and pursue the most appropriate lending opportunities in these two spaces.
Corporate Awards & Recognition
- World's Most Admired Companies, FORTUNE magazine (2018)
- 100 Most Sustainable Companies, Barron’s (2018)
- J.D. Power 2017 National Bank Satisfaction StudySM (First-Place Ranking)
- Forbes Global 2000, Forbes magazine (2017)
Employer of Choice
- Top 50 Employers, CAREERS & the disABLED magazine (2018)
- Great Workplace Award, Gallup (2017)
- 50 Happiest Companies in America, CareerBliss (2017)
Diversity & Inclusion
- Bloomberg Financial Gender Equality Index (2018)
- Top Financial Companies, Professional Woman’s magazine (2018)
- The Most Powerful Women in Banking, American Banker (2017)
- Best Places to Work for LGBTQ Equality, Human Rights Campaign (2017)
- Top 50 Companies for Executive Women, National Association for Female Executives (2017)
- America’s 2017 “Best-of-the-Best” Corporations for Inclusion, National Gay & Lesbian Chamber of Commerce (NGLCC) (2017)
- 100 Best Companies for Working Mothers, Working Mother magazine (2017)
- Top Diversity Employer 2017, Professional Woman’s magazine (2017)
- Best Places for Women & Diverse Managers to Work, Diversity MBA Magazine's 50 Out Front Companies for Diversity Leadership (2017)
- Best of the Best for Top Disability-Friendly Companies, DIVERSEability magazine (2017)
- Top Corporation for Disability-Owned Businesses, US Business Leadership Network (2017)
Military & Veteran Support
- 2017 Best Corporations for Veterans Business Enterprises, National Veteran Owned Business Association (2017)
- Sponsor of the Year, Guardian Angels Medical Service Dogs, Inc. (2017)
- Employee Business Resource Group Exemplar Award, Vibrant Pittsburgh (2017)
- Spotlight Impact Award, PRISM (2017)
- Outstanding Community Reinvestment Act Rating
- Corporate Social Responsibility Leadership Award, Financial Services Roundtable (2017)
- Corporate Citizenship Award, Pittsburgh Business Times (2017)
- Leader in Climate Disclosure, Carbon Disclosure Project (2017)