Climate change will increasingly impact the global economy in coming years. The TCFD recommendations give companies a way to track the financial implications that climate change will have for their businesses and give investors a way to see how companies are addressing the climate issue.
The updated governance model for the bank integrates a climate perspective through scenario analyses as well as new Key Risk Indicators for selected sectors. The scenarios used are New Policy Scenario (NPS, 3°C) and Sustainable Development Scenario (SDS, 1.5°C), both based on the IEA.The PACTA method is used for investments. During the work with scenario analyses climate-related risks and opportunities were identified and documented. An important lesson from the scenario analysis work in the pilot project was that the cross-functional working groups were a success. This has been confirmed in the process now being established for implementation in the future. The sustainability group will coordinate the work that the business areas perform, with expertise and support from Group functions such as Risk, Credit and Finance.
A number of strategic positions have been identified for the sectors that have undergone scenario analysis, one for the energy sectors for example is to further investment in renewable energy sources.
The bank is also working actively with a strategy for companies that are seriously embracing the transition, in order to be a proactive facilitator.
In the Credit Risk Outlook, an internal, forward- looking report that the risk department produces and shares with the business areas for use in their business plans and credit strategies, a climate perspective is integrated by identifying both transition risks and physical risks in various sectors.
Transition risks are especially apparent in shipping and offshore, energy, manufacturing and transports.
Physical risks, over a longer horizon, have been singled out in real estate management as well as agriculture, forestry and fishing. In the investment portfolio an elevated risk has been identified for assets owned by manufacturers that produce for customers in CO2-intensive sectors.
Targets, metrics and monitoring
Swedbank has been monitoring direct emissions for many years and working actively to reduce them. The efforts to understand the indirect emission exposure are intensified as the TCFD project progress.
Among other things Swedbank has tested its portfolios of commercial properties and mortgages with the Science Based Target Initiative, where we are collaboratively developing credible methods for defining future climate goals. Lessons from this work will be used to define targets in coming years in order to realise the transition to a climate-neutral society.