How do you define “transition finance” internally?
Transition Finance is not defined as concept in itself, but rather incorporated under Swedbank’s existing policies, such as Swedbank’s Position Statement on Climate Change.
– Point 5.2. of our position statement describes how the bank is supporting customers in their sustainability transition.
– Swedbank advocates that companies we provide financial services to adopt a 1.5°C-aligned climate strategy.
– While Swedbank has a restrictive policy on financing and investing in fossil fuels companies, the bank can finance existing customers that have a Paris-aligned climate strategy.
What strategy did you develop for Transition Finance-related goals?
Following its commitments to the Science-Based Targets initiative (SBTi) and the Net-Zero Banking Alliance (NZBA), the bank has adopted decarbonization targets for its lending portfolio for 2030 in line with the global 1.5°C target. The current targets cover five sectors: Mortgages, Commercial real estate, Oil & gas, Power generation and Steel. We have chosen the sectors based on their contribution to climate change, the bank’s portfolio exposure and data availability.
In our client advisory, we are encouraging all our corporate clients to set transition targets in line with the 1.5°C target. Swedbank provides various sustainable finance products, which can be used by our corporate clients to finance their sustainable transformation journeys. In the context of transition finance, we find that green and sustainability-linked loans and bonds are most relevant for our clients’ transition agendas.
Swedbank has a large exposure to the real estate sector, both in terms of household mortgages and commercial real estate. Therefore, the bank has a particular focus on the real estate sector in terms of developing products and advisory services that support our customers in the transition.
What targets have you set/are you developing?
Swedbank has adopted Group-wide environmental targets, including, but not limited to, achieving net-zero emissions by 2050 at the latest, and aligning our lending and investment activities with the 1.5°C target:
– Targets for Swedbank’s own operations
– Reduce Swedbank’s direct greenhouse gas emissions by 60% in 2019–2030 (Scope 1, 2 and 3*).
– Targets for the lending portfolio:
– For mortgages, the target is to reduce the financed emission intensity (kgCO2 e/m2 ) by 39%.
– For commercial real estate, the target is to reduce the financed emission intensity (kgCO2 e/m2) by 43%.
– For oil & gas (exploration, production and refining), the target is to reduce the absolute financed emissions (tCO2 e) by 50%.
– For power generation, the target is to reduce the financed emission intensity (tCO2 e/MWh) by 59%.
– For steel, the target is to reduce the financed emission intensity (tCO2 e/tonne) by 29%.
All targets have been set against a 2019 baseline, and they have been sent to the Science-Based Targets initiative for external validation. More information on Swedbank’s decarbonisation targets for the lending portfolio can be found on our website.
– Targets for investments:
– Combined fund capital will be aligned with the Paris Agreement’s goal to limit the global temperature increase to 1.5°C by 2025.
– Combined fund capital will be carbon-neutral by 2040.
More information on Swedbank’s climate strategy for investments can be found on our website.
Report on progress will be made annually in the bank’s Annual and Sustainability Report.
Swedbank also has an overall target of increasing the volume of sustainable financing (loans included in the Sustainable Funding Register and sustainability-linked loans). Please refer to our website for metrics on this and other targets.
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?
Sustainability-related objectives and strategies are set following the same process as other strategy development in the bank. The Board of Directors is responsible for group-wide policies such as the environmental policy and the sustainability policy. The CEO is responsible for the bank’s position statements, such as the position statement on climate change.
The decarbonisation targets for the lending portfolio have been approved by the Group Executive Committee. Prior to the approval decision, the different business areas have been involved in the process of developing target levels, assisting with data, and assessing key levers and actions to reach the targets.
Were there challenges in terms of integrating the strategic transition finance-related decisions into ongoing business processes?
– Data availability: In order to set targets (such as GHG targets), measure progress, and follow up on it, large amounts of granular data is needed. Not all data factors are being collected internally, and data available through external providers is often insufficient (especially due to in many cases limited research universe, covering only a small share of our portfolio).
– Culture: Our region is relatively mature in terms of climate-related considerations. While sustainability is generally acknowledged as an important topic, not all stakeholders put climate transition on the top of their agenda (and prioritize short-term financial performance instead).
– Business steering and internal processes: Group-level strategies need to be “translated” by our business areas into specific activities to be taken up. Development of proper incentives for client teams to offer transition finance is also a challenge for a bank. It takes time to develop internal processes that allow proper integration of transition considerations into every-day business activities.
– Competence: Strategy development, such as setting of climate targets, requires specific competence, including general climate expertise, sector-specific knowledge, and detailed understanding of our markets and our clients. Expert knowledge (also sector-specific) is also needed internally in client teams to be able to advise our clients on their transition journeys.
Is there anything specific to your size, business model or geographic region which you’d like to highlight?
– Swedbank’s four home markets, Sweden, Estonia, Latvia and Lithuania, differ substantially in terms of the countries’ energy mix. Decarbonising the real estate sector will therefore depend on different factors in the respective markets.
– In Sweden, energy efficiency improvement measures are important levers. In the Baltic countries, changes towards a greener energy mix will have a substantial effect on the emissions from the real estate sector.
– Data quality on buildings’ emissions is currently insufficient. Improving data availability is of highest importance to be able to limit the use of estimates and hence improve steering and monitoring of the portfolios.
*Excluding Scope 3 emissions related to financing and investing activities
Read more on Swedbank’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.