Lending is the core business of a bank. For the bank to be well-functioning and sustainable, it is critical that the lending is made responsible. A key objective for Swedbank is to provide credit and lending facilities, as well as advisory services or access to capital markets, to enable the transition to a low-carbon economy and to help clients manage transition risk. To enable this, we continuously integrate environmental, social and governance (ESG) criteria into our lending process.
Integrating ESG criteria in our business processes
For Swedbank, lending to individuals and businesses is a long-term responsibility. In corporate lending, Swedbank’s credit policy requires the borrower to be sound and sustainable and the loan to be based on familiarity with the company, its business, future prospects and an assessment of its social impact. It is important that Swedbank’s customers are financially sustainable and prepared for unforeseen events with the right amortisation and debt levels.
Swedbank encourages sustainable business models and plans to continue to develop financing products and services that contribute to the transition to a more sustainable society. Swedbank is offering low-interest consumer and business loans for installation of solar panels, which is positive for the sustainability of their finances and for society’s energy transformation. Green mortgages and car loans are also available as well. Swedbank sees this as the right way to address the opportunities and risks of sustainable finance. Swedbank also evaluates its loan portfolio according to the TCFD recommendations based on related climate risks and opportunities.
Swedbank continues to perform detailed sustainability risk analyses in connection with business loans of over SEK 8m in Sweden and EUR 0.8m in the Baltic countries based on social and environmental aspects. The analysis includes sustainability-related issues such as human rights, the environment and climate change, taxes and corruption. For principles and guidance, Swedbank also has Group-level policies, sector guidelines and position statements. When sustainability risks and dilemmas arise, Swedbank’s Sustainability Committee provides further recommendations.
A key factor in our general lending processes is to verify the identity of our customers and analyse the customer's ability to fulfill its obligations to the bank, a so-called Know Your Customer (KYC) analysis. For corporate customers, the analysis should create an understanding of how the customer's business operations create the conditions for fulfilling the commitments that the credit entails on an ongoing basis. Creating a good understanding of how values in the company are created and how cash flow and earnings are generated in the day-to-day operations is central. Our assessment is also based on an understanding of the owner's purpose with the company, its competence in the area, the owner's private finances as well as historical actions and future plans. Further aspects that are incorporated in the analysis are ESG-related issues such as business ethics, environmental impact, etc. Thus, sustainability risks at the bank's credit decisions are regarded as an integral part of the bank's risk analysis.
The corporate loan application process at Swedbank includes a special assessment of sustainability risks. Using an analysis model, we look closely at a company’s impact on human rights and the environment as well as how it handles corruption. We also look at what the company is doing to guarantee respect for human rights in its supply chain, among employees and in the local community. And we find out whether there is structured environmental work going on and analyse how the company delegates responsibility, its routines and how it follows up issues. The aim is to see how risks related to these areas could impact the customer’s profitability and reputation, as well as our own. By dialoguing with the customer, we can also identify new opportunities, such as investment needs tied to the specific sector’s sustainable development. All in order to ensure long-term sustainable development for both our customers and for the bank.
For our large customers, we have integrated a specific ESG risk rating into the KYC process using an external rating provider. The ESG risk rating is designed to help identify financially material ESG risks within portfolio companies and understand how those ESG risks could affect long-term performance. The ESG risk rating is a valuable tool in our corporate lending, as it enables us to measure a company’s exposure to industry-specific material ESG risks and how a company is managing those risks.
We engage with our clients on ESG-related risks and opportunities
It is important for Swedbank to engage with our clients on ESG-related risks and opportunities. We have developed extensive internal guidelines for thirteen sectors that we consider to be high-risk from a sustainability standpoint. The guidelines are a tool to provide better insight into the sustainability problems facing various industries, as well as suggestions and advice on which aspects should be addressed by the customer. In addition, Swedbank has created a checklist for real estate-related sustainability risks. The checklist serves as a tool to dialogue with customers on property-related risks. Because real estate accounts for nearly half of Swedbank’s lending, this is a strategic sector to maximise the impact of the bank’s sustainability risk management.
Sustainable Products and Services
To support a sustainable economy, Swedbank has developed wide and diversified offers of sustainable financing products and services as follows:
Sustainable Products and Services – Private Customers
• Green mortgage loans: Swedbank wants to promote sustainable housing and offers customers who live in green housing a discounted mortgage rate.
• Green car loans: Swedbank wants to encourage private customers to choose environmentally friendly cars, to lower the total emissions. Thus, customers are offered interest discounts if the car fulfils certain criteria.
• Green car leasing: financing hybrid, electric and small engine vehicles with low CO2 emissions. Through this eco-friendly leasing, our customers are offered discount conditions.
• Solar panel loans: Discounted interest rate on loans for solar panels, which produce renewable energy and reduce electricity costs.
• Energy loans: Energy loans are available to customers in Sweden and used to finance residential energy savings.
Sustainable Products and Services – Corporate Customers
• ESG-related bonds: Swedbank is active in the green bond market, both as an issuer and as an issuing institute. for capital market customers have been used for over ten years to finance or refinance specific green or social projects/investments. Swedbank Sustainable Capital Markets, in business area Large Corporates and Institutions, offers green, social and sustainability bonds. Swedbank also offers sustainability linked bonds, which were introduced in the capital market in 2019. Their structure differs from traditional green, social and sustainability bonds in that this type of debt instrument is used for general business purposes and the coupon rate is linked to meeting specific sustainability targets by a deadline. All types of ESG-related bonds favour both issuers that are seeking ESG financing, e.g. companies and municipalities, and investors who want sustainable investments e.g. insurance companies, pension managers and fund managers.
• Green loans: Green loans, which are part of Swedbank’s total financing offer, promote the environment and sustainability. They offer a flexible form of financing for specific purposes to support positive climate impacts and create solid and sustainable companies. Green loans are flexible in terms e.g. of tenor and volume, and specific terms and conditions are customised for each borrower and the underlying purpose of the financing.
• Sustainability linked loans: Sustainability Linked Loans differ from green loans in that they can be used for general business purposes rather than a specific purpose. They are tied to the borrower’s sustainability targets and strategy, and are monitored through social, ethical or environmental indicators. The borrower’s sustainability performance is tied to the loan’s
pricing in relation to predetermined performance targets. Improved performance reduces the financing costs. If the targets are not reached, the interest rate caninstead be raised and result in a higher financing cost.
• Green equity: The equity side of sustainable finance to date has not received as much attention as the debt side. To facilitate equity finance that supports the climate transition, Swedbank has begun offering green equity. For a share to be classified as green, the majority (> 50%) of the company’s revenue and investments must also be green. Green equity is available through IPOs, new share issues or public recognition that all the company’s outstanding shares are green (without any specific transactions).
• Sustainability-related advisory: Swedbank Sustainable Capital Markets offers sustainability- related advice to both issuers and investors in the capital market. This includes ESG Risk Rating peer reviews based on data from external sources, evaluations of compliance with the EU taxonomy, and weekly newsletters. Swedbank also offers analysis and advice on practically any sustainability question through our partnership with Kepler Cheuvreux. Swedbank Macro Research continuously updates national sustainability indicators, which measure the progress of the Nordic and Baltic countries in meeting the UN Sustainable Development Goals.