Responsible lending and risk management
One of a bank’s primary contributions to a sustainable society is responsible credit granting, meaning not lending more than the customers have the capacity to repay. SEB’s principle as regards risk is that we take on risk only to create customer value and long term shareholder value.
Our risk culture is based on long experience, strong customer relations and sound banking principles. By including environmental and social factors in our business decisions and discussions with customers, we are long-term better equipped to mitigate risks and seize opportunities. Long-term relations and good knowledge and understanding of the customer and repayment capacity remain the core aspects of SEB’s credit culture.
Position statements and sector policies
SEB has taken a position on three specific sustainability issues – climate change, child labour and access to fresh water – and established policies for six industry sectors – arms and defence, forestry, fossil fuels, mining and metals, renewable energy and shipping.
The purpose of these statements and policies is to establish a common framework for a pro-active and future-oriented dialogue on key issues with our clients, as well as for internal guidance. The sector policies and position statements are included in the regular business review as well as in the annual credit review for large and medium-sized corporates since 2011.
Shifting away from coal
During 2015, SEB revised and thereby strengthened the Climate Change Position Statement. As a consequence we have decided to gradually shift away from coal. From now, we will not enter into new business relations with companies with major business in coal mining, nor provide finance for new coal power plants. The latter will only be considered for new coal power plants using special technologies, which substantially reduce greenhouse gas emissions. We can support legacy clients in making beneficial improvements in their transformation away from coal.
These statements and policies form an integral part of the Credit Policy for Corporate Sustainability, which was further strengthened during the year. Read more about the policies here.
Review of energy related credit portfolio
In line with SEB’s updated position statement on climate change, SEB’s energy related credit portfolio is gradually shifting to include more renewables, infrastructure and district heating and less fossil fuel related, with coal only 1 per cent. Renewable energy covers wind, bio-energy, hydro, waste disposal and solar. The portfolio, which is monitored on a regular basis from both a business and risk perspective, represents about 6 per cent of the total credit portfolio, or about SEK 130 (125) billion.
The Equator Principles (EP), adopted by SEB in 2007, are a voluntary set of guidelines used by financial institutions to assess the social and environmental impact of large projects and to help their customers to manage them. SEB has during the year taken part in the EP annual meeting and in workshops intended to streamline the implementation of the EP as well as further develop the understanding of the principles among international financial institutions, development agencies and private banks.
In 2015, SEB had four project finance transaction under the Equator Principles, one category A (projects with potential significant adverse environmental and social risks) two category B (projects with potential limited adverse environmental and social risks) and one category C (projects with minimal or no adverse environmental and social risks). As regards project related corporate loans, SEB was involved in one category A transaction.
The green bond concept was developed in 2007/2008 by SEB and the World Bank as a response to increased investor demand for engagement in climate-related opportunities. Since then, the market has grown and is now an established part of the global capital market. Companies and organisations seek funding for specific environmental investments, and investors integrate sustainability into their daily portfolio allocation.
Altogether, over 500 green bonds were issued until year-end 2015 at a value of nearly USD 100 billion of the approximately 100 issuers, in all continents, in over 20 different currencies and structured in a variety of ways.
In 2015, green bonds were issued to a value of USD 43.2 billion, according to data from Bloomberg. Since its inception, SEB has been involved in the issuance of 10.8 per cent of all green bonds globally. SEB’s share in 2015 was 7.6 per cent. 40 per cent of the total volume of green bonds has been issued on the basis of frameworks where SEB has been the structural advisor.
In 2015, the green bond market infrastructure was further strengthened. SEB launched a dedicated Green Bond Fund to private individuals to finance environmental and climate-friendly investments and a sustainable future without compromising on performance.
Four multilateral development banks (AfDB, EIB, IFC and the World Bank) launched an initiative for the harmonisation of environmental reporting and in July our cooperation partner the World Bank published a Green Bond Impact Report for the 77 projects they have funded with green bonds. Also during 2015, CICERO launched its Shades of Green methodology to offer investors better insights to the “greenness” of their Second Opinions.
The climate conference in Paris last year pointed out the direction for how global capital flows must be reallocated towards environmental and climate investments. Green bonds is an vital instrument to realize this.
Read more about Green Bonds.