“Sustainability is one of the issues we stand or fall by. The world is focused on investing money sustainably and financial institutions that lose the confidence of the public have no future.” So says Hans Beyer, Chief Sustainability Officer (CSO) at SEB. In this article, he talks about the significance of sustainability for the banking business. The article also gives you an insight into the sustainability efforts at Enento Group, which includes Sweden’s largest credit reference agency UC.
Sustainability is increasingly in focus in the banking and finance sector. More and more people – including the head of the UK’s central bank Mark Carney – are pointing to the sector as a key player in the transition to a sustainable society. And recently Finansinspektionen, Sweden’s financial supervisory authority, announced that it will be including a sustainability perspective in its examination of banks’ business models and credit risks.
Hans Beyer believes that sustainability is a business-critical issue, and as CSO he has the ultimate responsibility for implementing it in SEB’s operations.
“Sustainability is one of the issues we stand or fall by. Sustainability aspects of various kinds have a bearing on many of our customers’ daily lives – in different ways and to varying degrees. So they have a bearing on us too. My job is to integrate sustainability aspects into all our operations. It’s a challenge I take extremely seriously, and it’s essential if we are to stay relevant over time,” says Hans Beyer.
How important would you say the sustainability aspect is as a competitive factor?
“The same answer. Extremely important. Take unit trusts, for example. It’s an area in which we’re extremely reliant on having the right products; products that address the issues our customers consider important. That definitely includes climate and environmental issues. If you can’t satisfy your customers’ interest on that score, you’ll lose business to your competitors. It’s all about enabling your customers to choose you. Today we have almost exclusively sustainability-related unit trusts.”
What data is relevant for sustainable credit provision?
“That’s a very interesting question. Traditionally we have relied very much on historical data. Credit decisions have been based on historical income over long periods of time. The problem with sustainability risks is that there is not that much history to go on. We are often talking about the risk of events that have never happened before. That makes it hard to make backward projections.
“How great, for example, is the risk of flooding on the Falsterbonäset peninsula in Skåne in southern Sweden? It’s a highly relevant question for certain credit decisions. To manage this type of risk you need to integrate climate models into the process. We’re having lots of discussions about how to do that,” says Hans Beyer.
Multifaceted risk scenario
There are, of course, a range of other future risks that need to be weighed up in the credit institutions’ assessment models. For example, Hans Beyer mentions how possible future legislation could affect different enterprises and their opportunities for future financing. Or how the attitudes of customers and the general public affect the equation.
“Take gambling companies, for example – or for that matter, tobacco companies. Historically, these types of companies have been investments associated with extremely small risk. Will that continue to be the case tomorrow? And what happens if future legislation makes their business more difficult or regulates it further?
“Or take the fact that few insurance companies now want to insure buildings situated by rivers. That naturally affects the value of the building, and for us that means a higher credit risk. None of this is an exact science, but we need to think a lot more about how different types of sustainability risk will affect both our own investments and the investments our customers make. Not least, we need to find models for how it affects our credit risks,” says Hans Beyer.
What responsibility do you and other operators in the banking and finance sector have to contribute to a better, more sustainable world?
“The same responsibility as everyone else. Our responsibility is neither greater nor less than that of, say, the steel industry. When it comes to providing credit, as we and other banks do, naturally we have a responsibility to take a long-term approach as far as we can and to ensure that we do it as well as possible. And taking a long-term approach involves considering sustainability aspects. Our primary responsibility is to our shareholders. But it’s also in their interest for us to ensure that the business is sustainable long-term. The world is quite simply focused on investing money in a sustainable way. Financial institutions that lose the public’s confidence will die straight away,” says Hans Beyer.
UC prioritises sustainability
For the business and credit reference agency UC, sustainability is a priority area. The company is part of the Enento Group, which is preparing to launch an ESG (environmental, social and governance) report service on the Swedish market. It’s a service that is already offered in Finland.
“Sustainability is an important aspect that we work on at several different levels. It’s partly about our own environmental and climate footprint, but also how we act as an employer and how we contribute to a better society. But of course, it’s also about developing services that help our customers become more sustainable,” says Riku Salminen, Development Director at Enento Group.
A key issue
There can scarcely be any doubt that this type of service is much in demand. When Enento interviewed a large number of representatives of banks and financial institutions in Finland and Sweden in autumn 2020, the importance of the sustainability perspective scored 9.67 on a scale of 1 to 10.
“Overconsumption of natural resources is a reality, and at the same time escalating climate change is the greatest threat to our existence. That’s why sustainability is a key issue for all business enterprises. Customers are demanding that they act sustainably. It’s a case of not just acting sustainably, but being able to show customers that they are doing so and communicating the information to the market,” says Riku Salminen.
Not just listed companies
That’s where the ESG report comes into the picture. At present only listed companies are obliged to prepare a sustainability report. However, the more sustainability is in focus, the more the pressure will increase on smaller companies to report their work on these issues too.
“Other important parts of our sustainability offering are providing our customers with data for measuring sustainability risks. Banks want to have sustainable companies in their portfolios, and this kind of data is also extremely important and relevant in connection with providing credit,” says Riku Salminen.