Sustainable finance

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 offers low-interest consumer and business loans for installation of solar panels, which has a positive impact on the sustainability of the customer's finances and on society’s energy transformation. Green mortgages and car loans are also available. Swedbank sees this as the right way to address the opportunities and risks of sustainable finance. Swedbank also evaluates our loan portfolio according to the TCFD recommendations based on related climate risks and opportunities.

Swedbank performs detailed sustainability risk analyses in connection with business loans of more than 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 their obligations to the bank, known as a 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 value is generated in the company and how cash flow and earnings are generated in day-to-day operations is central. Our assessment is also based on an understanding of the owner's purpose for the company, their competence in the area, their private finances as well as historical actions and future plans. Additional aspects of the analysis include ESG-related issues such as business ethics, environmental impact and so on. Thus, sustainability risks relating to 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. We also evaluate 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 engaging in dialogue with the customer, we can also identify new opportunities, such as investment needs tied to the specific sector’s sustainable development. The overall objective is to promote long-term sustainable development for our customers and for the bank.

For our large corporate 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 to 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 these risks.

• 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 a low emission vehicle that meets certain environmental criteria. Customers are offered interest discounts if the car fulfils such criteria.
• Green car leasing: Financing hybrid, electric and small engine vehicles with low emissions. Through this  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.

• Green, Social and Sustainability bonds
  As a capital market participant, Swedbank provides advice to corporate customers seeking finance in the capital market in terms of Green, Social and Sustainability bonds. This is done by Swedbank’s Sustainable Capital Markets team, in the business area Corporates and Institutions. These bonds have been available in the capital market for more than ten years to finance or refinance specific green or social projects/investments.
  
  Swedbank also offers funding advice on sustainability-linked bonds, which were introduced in the capital market in 2019. Their structure differs from traditional green, social and sustainability bonds, as 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 sustainability-related bonds favour both issuers who are seeking ESG financing, and investors who want sustainable investments, e.g., insurance companies, pension managers and fund managers.
  

• 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 issue 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.
• Green equity
  To date, the equity side of sustainable finance 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-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 can instead be raised, resulting in a higher financing cost.