What are banks doing for sustainability? How can you assess the sustainability of banks and investments? How is ESG data transforming financing? To answer these burning questions, Plan A hosted a fireside chat with Swedbank. We had the pleasure to hear from a captivating guest speaker, Fredrik Nilzén, head of Group Sustainability at Swedbank.
Fredrik Nilzén started with curiosity and interest in society, climate and the environment. He spent a couple of years in France studying for his master's degree and then ended in a management consulting company, better known as Accenture. After becoming Accenture's head of Sustainability in 2009, he joined Swedbank as Head of Group Sustainability. He explains: "I have never seen myself in finance, but after a couple of years, you understand that finance has to change and shift towards sustainability. My idea is that finance is the place to be to accelerate change in society. It is not easy, it is a journey, but it is important to be part of it."
How do you steer the sustainability wheel within the banking sector?
I have a mandate to develop sustainability at the core of Swedbank's business strategy. We believe that we need to do this through our customers. At the end of the day, it is the investments that our customers want to make, and we have to enable these sustainable choices. We believe that we are here to help our consumers on this sustainability journey. For example, I work on direct targets and indirect targets (e.g. real estate portfolio, carbon accounting emissions).
We want our corporate customers to survive, and we believe that they need to change, and if they do not do so, they will go out of business. It is through our customers that we can do this. I also meet regularly with investors to change how they spend their money. The trick is that there is a competence lift needed in society, and we are working across the bank to develop tools and processes. But this is also a very immature market what we are talking about.
How do you measure the impact of your portfolio? What about carbon accounting?
The use of Environmental, Social and Governance (ESG) factors can help you measure the impact of your portfolio. You can find ESG data about listed companies, but you would see that they do not come to the same conclusions if you look at it. We need data to systemise and automate our work because it is our framework to support new regulations.
Finance has to change and shift towards sustainability. My idea is that finance is the place to be to accelerate change in society.
On the other hand, we need carbon accounting. At Swedbank, we are starting our journey, and there are lots of data sources that we are using for lending and asset management, and then we apply our own methodology on top of that. For launch corporates, we can afford to spend time knowing the customers and gathering data, and that amount of work is fair. Thus, last year, we recruited a specialised team to accompany our customers towards this sustainable change.
Data is essential to analyse a portfolio's impact and make the right decisions. A couple of years ago, we conducted a pilot with a startup on data sourcing, the whole Nordic is already buying data from this provider, but from an ideology viewpoint, it did not work. And then, we found a Fintech company that could research data without speaking to the companies, but we also concluded that it did not work either. It did not provide the support necessary for our customers, so we are on an ongoing quest. Instead, we are trying to develop internal tools and keep an eye on the market. But one thing is certain: we will work with data for the next ten years.
We believe that having the sectorial approach is a good foundation, but what is missing is the materiality risks, and weighting in these two aspects are hard. Concerning sustainability, we have developed 10 core principles: our objectives shall be aligned with the Paris agreement and fill the UN SDGs. We developed an impact assessment tool that we can use with our customers and investments - where do we have the most positive or negative impact on the environment and society? And then associate targets to these challenges.
Big data, ESG and Sustainable banking
People are fighting like crazy to find a standardised framework. At the moment, we report on 50+ different frameworks, and that is crazy when you think of it. Then you have the transparency regulations, with EU taxonomy and the SFDR. It is the gold rush on ESG data.
All of our assets under management, bonds and equity go through a basic filter, as we cannot have companies that break norms or international law. We have a ban on weapons, tobacco and pornography. We did massive work on our entire portfolio, so you know that everything has been through this screening process. But there are opportunities to go further on the environmental aspect, the big shift for us is that we excluded all amount of connection to fossil fuels. We also have a list of companies that we see are doing the work to change to become more sustainable.
However, the challenge with equity is that if you sell your shares, someone else will come with their money and invest, so what are the effects of your actions? Of course, if you have big shares, it makes a difference, and sometimes we pull all assets owners and managers, and we say, "if you do not do right, we will pull out all assets". But it isn't easy in equity. You have you push companies to shift.
If we have companies solving challenges for society, it goes hand in hand with good business.
It is easy to think, "we have a company that install solar panels", but it does not mean that the company is well-run. It does not mean that owners take good care of their employees and their capital. We need to incorporate more ESG factors, but this knowledge has not been accessible for most people. Now we are seeing that big companies are trying to create resilience in their supply chains. If companies are good in decision making, if they solve things for society, they will continue to attract stakeholders, employees, capital and customers. You know that all investment won't pay off, but there are trade-offs, and you have to give it a long term view.
Building a team of change-makers
Last year, I made a big push to have a legal specialist in my team. It is hard to find people with experience in sustainable finance because it is fairly new. We recruited people that are strong change-makers, that have the capability to work with a business unit, a management team and advance on key topics. We see more and more that we need great technical skills on carbon emissions, biodiversity, and human rights.
Bring in people that you would not have recruited five years ago because they bring different perspectives and skills to the bank.
On another note, if we cannot manage to protect our infrastructure from money laundering, there is more risk in society (weapons, drugs, human trafficking). We need deep technology, deep sustainability, and being able to work with others to advocate and steer for change.
How optimistic are you for the future?
Yes, I am optimistic, and I believe that we need to take 50% of our emissions every ten years, and this is the agenda we have to be on. We see more countries being back in the game: the US rejoined the Paris Agreement, China is showing some interest in it, so we need to be optimistic. We also see momentum in the financial market. So how are we going to build all these good companies? For example, the EU green deal that important budgets spend on sustainability and innovative companies. How are they going to find all these projects? Timing has never been better, and it is time to put big ideas in companies.
Any last words?
There is no planet B, even if Elon Musk is looking for another planet.