How do you define “transition finance” internally?
The Group, as a large financial player, has a key role in orienting capital towards a sustainable economy both in the short, medium and long term by addressing, amongst others, the environmental impacts that might derive from its business.
In line with the definition of the NZBA Guidance that identifies Transition Finance as financing that supports and enables a global transition towards a 1.5°C-aligned economy, through a range of means, Intesa Sanpaolo aims to mobilise capital where it is most needed to facilitate the transition. Broadly, this includes financing, advisory and training services for the development of climate solutions offered to retail and corporate customers with a focus on carbon-intensive companies which are gradually transitioning towards net zero but where further acceleration is necessary.
What strategy did you develop for Transition Finance-related goals?
ESG is one of the four Pillars of the Intesa Sanpaolo 2022–2025 Business Plan, with qualitative and quantitative targets set both for social and environmental issues, fully integrated in the Group’s overall strategy. Intesa Sanpaolo pursues the “net-zero” goal for loans and investments portfolios (as well as asset management and insurance) by 2050, as well as for its own emissions.
The new Business Plan also aims at supporting the Green, Circular Economy and ecological transition with €88 billion of new lending, a wide range of training initiatives dedicated to client companies on ESG issues, the offer of sustainable investment products and, on the funding side, the issue of Green, Social and Sustainable Bonds within a broader funding plan.
To correctly address the lending strategy, the Bank has developed a holistic approach for the integration of ESG/Climate factors within the credit framework.
Key elements to the new credit framework comprise:
– a sectoral assessment that includes ESG/Climate risk assessments for each business sector in which the bank customers operate; the ESG Sectoral scoring constitutes one of the methodological drivers for the identification of specific credit portfolio strategies (engagement, selective engagement, disengagement, etc…) identified through a color-code clustering of sectors. Sector strategies also take into consideration risk and opportunity aspects;
– an ESG score defined at counterparty level with nowadays approximately 200,000 companies scored;
– a sustainability attribute to the single product/transaction.
What targets have you set/are you developing?
Intesa Sanpaolo’s 2022–2025 Business Plan provides for a number of targets, from reduction for own emissions and financed emissions, to transition finance objectives, as well as other environmental goals. In particular:
– net-zero aligned financed emissions reduction targets were set for 2030 in the oil&- gas, power generation, automotive and coal mining sectors, representing over 60% of the non-financial corporates portfolio financed emissions in the sectors identified by the NZBA;
– strong support to the green and circular economy, as well as the ecological transition is to be underpinned by €88 billion of new lending made available as follows:
– €76 billion, out of a total of over €400 billion, in relation to the National Recovery and Resilience Plan1 (29 billion already granted in 2021 and nine first months of 2022). A total of 8 billion was specifically dedicated to finance the Circular Economy (2.6 billion disbursed in nine months of 2022)
– €12 billion to individuals2 (mainly green mortgages);
– a commitment was taken to environmental protection, with the planting of 100 million trees, directly and through dedicated financing to clients and the adoption of a specific policy on biodiversity.
Furthermore, in October 2022, as a follow up to the adhesion to the NZAMI and to the NZAOA, the asset management and the insurance companies of the Group published their first targets, along the path of the Group’s “net-zero” commitment.
What stakeholders did you need to engage with internally in order to get sufficient buy-in to make it feasible to meet your transition finance objectives?
Internal stakeholder engagement has been extensive, both to set targets, approved by the Board of Directors, and to ensure correct implementation and monitoring. Transition finance targets were defined involving all Business Units and Governance Areas such as, among others, the Chief Risk Officer, Chief Financial Officer, Chief Lending Officer and Strategic Support.
Within Business Units and Governance Areas, transition finance objectives are also enabled through the role of the 17 Sustainability Managers, one for each Unit/Area, retained by the ESG Control Room, in charge of guaranteeing an overall and integrated supervision of ESG initiatives and contributing to the Group’s strategic proposition on these issues.
Were there challenges in terms of integrating the strategic transition finance-related decisions into ongoing business processes?
Since financial resources alone are not enough to enable the sustainable transformation of businesses, knowledge and culture are among the most relevant objectives on which Intesa Sanpaolo has been working in the recent years.
The engagement of all Group employees is crucial. For this reason, a large number of learning tools have been made available through multimedia platforms, of which 180 dedicated to the environment. These include learning tools on the Circular Economy, CO2 Market, Green Bonds, the Challenge of climate change, and environmental protection.
For the development of a new business culture focused on sustainability, client engagement is also needed. The ESG Lab initiative was launched in 2021, consisting in physical and virtual meeting points to guide Italian businesses through the sustainable transition; it provides for the gradual implementation of 12 Labs (6 of which already operational) in the 12 operating areas of the Group.
Customer training at different levels of seniority may be obtained by subscribing to the Skills4ESG Platform, specifically created for enterprises, an initiative aimed at promoting awareness of ESG topics through a single access point and dedicated contents (468 learning objects available, of which more than 100 dedicated to ESG issues).
Action to raise awareness of environmental issues and related to data collection is ongoing. As an example, in 2021 a wide Climate Change Survey was launched mainly for SMEs though this also covered corporate customers. The goal was in particular to analyse issues such as exposure to climate change, adaptation strategies and mitigating actions, the positioning of companies at a national level, as well as other quantitative data, to identify solutions to accompany companies in their management of climate issues. The results show that 30% of companies believe that the integration of climate change into their business model will significantly impact their operations over the next three years, and 45% declare they aim to increase their investments in climate solutions.
Questionnaires are also used as a mean of collecting data from customers, both to be integrated in the counterparty ESG Score and within the Bank’s procedures, and, on the other hand, to understand customer needs in the definition of the product offer.
The importance of monitoring actions is paramount in determining whether strategic transition finance-related decisions are successfully carried out through the ongoing business processes. ESG Business Plan targets are monitored over more than 180 KPIs (28% closely related to climate/environment) many of which subject to quarterly reporting.
All ESG initiatives within the Group are overseen and coordinated since 2019 within the ISP4ESG programme, a wide-ranging and high impact initiative led by the CFO area in coordination with the Strategic Support Department, which involves all the different Group structures and aims to integrate ESG logics into the Bank’s business model and strategy.
Is there anything specific to your size, business model or geographic region which you’d like to highlight?
Two of the distinctive drivers of Intesa Sanpaolo’s role in the green and environmental transition are:
– the promotion of the Circular Economy, fundamental for an economic development that generates positive environmental and social impact
– the support to Italian SMEs
Since 2015, Intesa Sanpaolo Group fosters the spread of the Circular economy business model, drawing on the support of the Ellen MacArthur Foundation, the main promoter of the global transition towards the Circular Economy. The collaboration with the Foundation, of which Intesa Sanpaolo is Strategic Partner, continues through a three-year agreement renewed again for 2022–2024. Intesa Sanpaolo will continue to redefine business strategies in an innovative way, ensuring financial support for investments to facilitate the redesign of the industrial system. The activity is considered of distinctive and of primary importance also in the 2022–2025 Business Plan.
On the other hand, one challenge Intesa Sanpaolo is facing concerns how to engage with, and support, SME clients in the context of their transition strategy. SMEs represent an important part of the real economy in Italy, the country where the Group mainly operates, and more than 20% of its loans to customers.
Therefore, Intesa Sanpaolo, within an articulated offer of lending products (including those for the development of renewable energy, green mortgages, etc.) devised a specific line of ESG-linked loans for SMEs, the S-loans (~€3.2 billion granted since the launch in July 2020). These offer subsidized interest rates subject to the annual monitoring of two ESG KPIs, to be reported in the borrower’s financial statements. This highly successful line of products, which fosters the transition of SMEs towards a sustainable economy, now offers a range of six different options with different ESG KPIs for companies to choose from, and includes environment related S-loans such as S-Loan Climate Change, S-Loan Tourism and S-Loan Agriculture.
Read more on Intesa Sanpaolo’s net-zero targets here.
This case study was originally published in the Net-Zero Banking Alliance Transition Finance Case Studies report (January 2023).
Disclaimer: NZBA shares case studies to promote member banks’ awareness of new approaches, tools, products, services, and transactions related to financing the transition to net zero. Featuring a case study naming a particular bank does not represent an endorsement of all actions from that bank.