Materiality Analysis Swedbank Group
Background
In early 2011 Swedbank created a new Group function, Group Sustainability, teaming up a specialist in human rights with a specialist in environmental issues. In doing so the bank took a well-considered first step away from a purely environmental focus and towards a broader position on sustainability which includes social dimensions such as human rights. Group Sustainability seeks to integrate sustainability (human rights, the environment, anti-corruption and working conditions) into the bank's business processes. In addition to the above, the bank also has an operational sustainability organisation.
In association with establishing this new organisation and the new way of working, a materiality analysis was also performed in 2011 to determine which sustainability issues are most important for Swedbank. Swedbank is part of the societies in which it operates. As a bank, and as a part of the financial system, Swedbank helps its customers to succeed but is also affected by their challenges. As such, the bank is indirectly linked to virtually all local and global challenges within human rights, climate change, the environment and business ethics.
Human rights and corruption
The human rights materiality analysis was performed with the aim of determining which issues are the most important to prioritise right now.
At the beginning of 2011 a Human Rights Risk assessment was performed in order to identify and analyse human rights impact in the bank's various processes and to analyse the link between corruption and human rights. This enabled the following to be identified:
• Our largest human rights impact in different processes and markets.
• Which operational and business processes should be prioritised.
• Which factual issues are important in respective branches or segments of the different processes.
• Which countries present the biggest risks for Swedbank and what are these risks.
Based on this work, the following processes and areas were established as being important for Swedbank's sustainability work in the period 2011-2012:
• Purchasing process: Supply chain management with specific focus on requirements specification and assessing suppliers from a human rights and corruption perspective.
• The lending process: Sector specific factual issues within human rights and working conditions have been isolated in order to identify high risk branches in the loans portfolio. These effectively cover the entire catalogue of human rights and as such, include economic, social and cultural rights as well as citizens’, political and children's rights.
• Education and training: Against the background of Swedbank's geographic representation and re-orientation towards a greater focus on social issues, the training of employees and managers within the area of human rights and discrimination has been prioritised.
Social license to operate – human rights and corruption related risks and opportunities
Swedbank is facing a number of short- and medium term human rights related risks and opportunities through its direct operations, and indirectly through customers and holdings. The financial community is sometimes described as the bloodstream of the economy. A corporations “social license to operate” is heavily dependent on the corporate respect for human rights.
Risk management
Swedbank is exposed to almost all sectors in society; this implies that customers and business partner’s challenges and opportunities, in the area of human rights, are Swedbank’s challenges and opportunities. Hence, by having competence in the area of human rights the bank can help its customers mitigate risks and, by doing that, also mitigate its own risks of indirect human rights impact.
Human rights impact assessments give Swedbank the opportunities to know its own risks and thereby also prevent risks. The largest potential human rights impact for Swedbank is through its business relations. However, the bank must understand and prevent human rights impact both upstream and downstream in its value chain.
Infringing on the human rights of others can lead to severe brand- and reputational risks, costs and quality loss. By having a pro-active risk management Swedbank can not only detect and identify existing and/or potential risks but also communicate on progress and adapt to new challenges and opportunities.
Brand and reputation
Globalization, greater ease of mobility and accessibility, and the growing availability of instant communications mean that individuals and organizations around the world are finding it easier to know about the decisions and activities of corporations in both nearby and distant locations. This means that corporations’ decisions and activities are subject to increased scrutiny by a wide variety of groups and individuals. The respect for human rights and a corporations´ brand capital is strongly linked together. Compliance with local laws is not always to be understood as respecting the human rights, since “weak states” often have a weak human rights protection system. Therefore, the importance of a serious human rights approach is important to avoid brand- and reputation risks. In the same manner a pro-active human rights approach can have a strong positive effect on the corporate brand.
Competitive advantage
The integrated respect for human rights can be an opportunity to:
• Reach new customers
• Reach new investors
• Assure a pro-active risk management
• Being ahead of policy development can be a competitive advantage
Community involvement
Swedbank is a part of the societies where it operates. Whiles breaching human rights can imply legal risks, the promotion of human rights can offer a more stable and effective business climates in the societies where the bank operates. In the same manner the fight against corruption is a way of contributing to a more stable business climate.
Transparency and anti –corruption
Financial institutions must be able to identify and understand risks of corruption in order to apply preventive measures. Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) are prioritised focus areas within Swedbank Group. Money laundering and terrorism does not only harm the public as a whole but can also damage the stability and reputation of the financial sectors. It is in the financial industry’s and society's best interests that financial institutions take all reasonable measures to prevent corruption in all its forms.
As a leading bank in the home markets Sweden, Estonia, Latvia and Lithuania, Swedbank offers a wide range of financial services and products. Swedbank has 7.8 million retail customers and around 600,000 corporate and organisational customers with 315 branches in Sweden and over 200 branches in the Baltic countries. The Group is also present in the other Nordic countries, the U.S., China, Russia and Ukraine. Swedbank’s global presence implies different risks in different markets. Based on the geographic representation and the bank's business activities, corruption has been identified as a material issue.
Climate change
Research has identified nine planetary boundaries that are critical for keeping our planet in a stable state and thus ensuring our long term ability to meet our basic needs such as access to food, clean water and fresh air. Limits have been identified for areas such as climate change, fresh water, land usage, chemicals and biological diversity. In order for everyone on earth to be able to meet their basic needs in a sustainable way, we need to stay within these limits which define a safe operating space for humanity. Out of these planetary boundaries, Swedbank has identified climate change as a prioritized area in its environmental strategy.
Climate change is exposing Swedbank to new financial, physical and political risks but will also create new markets and business opportunities. Swedbank is exposed to all parts of society with large and small corporate customers, active on both the local and global stage. Many of those will be among the first affected by climate changes and stricter regulations on greenhouse gas emissions. In order for Swedbank to be well-positioned and competitive in this development, the bank needs to better integrate climate considerations into its business strategies and operations.
Swedbank is facing a number of short- and medium term climate related risks through its direct operations, and indirectly through customers and holdings.
Examples of risks:
• Business risks through stricter regulation and higher taxation on carbon dioxide emissions will firstly affect large energy consuming or energy dependent companies. This will affect Swedbank through its customer relationships and holdings.
• Business risks through physical and material damage caused by extreme weather or changes in rainfall leading to floods and droughts. This will especially affect the bank’s customers and holdings in climate sensitive industries such as agriculture, energy, metals and mining, transport, real estate and construction, process industry. Climate change may cause losses in collateral, and lead to increased insurance claims.
• Operating risks. Possible increase in fuel and energy prices will affect our operating costs.
• Reputational risks by inadequate management of sustainability related risks may lead to a loss in trust among stakeholders and customers. NGOs currently campaign against financial institutions for financing carbon intensive projects (e.g. coal-fired power generation, tar sands etcetera).
• Competitive risks. The financial industry has identified climate as a business critical issue, in order to stay competitive, Swedbank needs to address climate change.
The financial community is sometimes described as “the bloodstream” of the economy. Swedbank can enable the transition towards a low carbon society while doing good business.
Responding to the climate challenge will provide opportunities:
• Better risk management in credit and investments through incorporating climate risks in analysis models.
• The transition towards a low-carbon economy will create new markets and new financial products, with possible tax incentives. There might well be an increased demand for sustainability funds, and other sustainability related investment products.
• Taking actions to reduce the emissions from own operations will reduce operational costs, not only through more efficient energy use but also through less material use and more efficient business travel.
• Taking advantage of upcoming businesses opportunities. For example green tech companies that will deliver the transformation in energy systems such as production of renewable energy, smart grids, biomass etcetera.
• Strengthening Swedbank’s brand through an honest and credible communication regarding our approach to climate change.
• Increased customer loyalty if the bank is credible in its climate commitments and it shows in products and services. Swedbank has the opportunity to be the preferred choice of climate conscious customers.
• Employee satisfaction. Motivation and training in sustainability related issues such as climate has shown to lead to increased creativity and loyalty.
• Increased shareholder value. The investment community is increasingly expecting companies to address their climate risks. Examples are the Carbon Disclosure Project, the Dow Jones Sustainability Index and the UN Principles for Responsible Investments.
The following have been identified as primary processes to work with in seeking to reduce the carbon footprint of both the bank and its clients.
• Lending. Swedbank has the possibility of improving its risk assessments on lending by increasing knowledge and capacity in evaluating climate risks for employees carrying out sustainability analysis in lending processes. Swedbank can improve the range of products and services that actively support climate smart solutions such as the already existing energy loans for investments in renewable energy and energy efficient solutions.
• Investments. By investing in environmental technology and renewable energy, Swedbank can support a shift to sustainable energy systems. Swedbank has the opportunity to make a more sustainable selection of companies eligible for fund investments, by including climate risks in investment analyses.
• Supply chain. By specifying energy efficient products, in areas such as office equipment, Swedbank can reduce its own greenhouse gas emissions and help boost demand for climate smart products.
• Own operations. Energy consumption in bank premises, business travel and materials consumption are the biggest direct contributors to Swedbank's carbon footprint. The bank can reduce its own greenhouse gas emissions by choosing more efficient travel and by using resources more efficiently. Ambitious but realistic emission reduction targets will be set.
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