FI Supervision 7: Sustainability perspective in lending to corporates – a follow-up review

The banks give greater consideration to sustainability aspects in their lending to corporates. However, FI sees a need for more transparency and comparability in the area of sustainability.

Summary

Finansinspektionen (FI) has once again reviewed the banks' internal rules for lending to corporates. The purpose of the review was to note if any changes had been made since 2015 in how the banks consider sustainability-related risks.

FI noted that the banks give greater consideration to sustainability aspects in their lending to corporates than they did before. Their internal governance documents also include more sustainability aspects, and they describe their work with sustainability in more detail. Environmental and climate-related aspects still receive most attention. Social and governance-related matters receive less focus. However, FI would like to emphasise the importance of continuous development in all ESG targets for suitable risk management.

The banks normally assess sustainability-related risks as part of the credit and reputational risk. They may choose not to participate in a business transaction if a borrower's operations are considered incompatible with the bank's ethical values or potentially harmful to the bank's reputation. However, the banks rarely choose not to issue loans due to elevated sustainability-related risks – unless the counterparty is blacklisted or statutory restrictions prohibit the transaction. The banks argue that they prefer to influence their borrowers to give greater consideration to sustainability. Although, how this works in practice is not always specified in the banks' internal rules or descriptions.

FI makes the assessment that banks consider sustainability aspects to a greater extent when designing new products, such as green loans. They have also appointed central bodies to support the organisation in sustainability-related matters, in particular for lending to corporates. The banks have also continued to recruit and train staff to develop their work with sustainability.

In its previous report, FI emphasised the importance of transparency in the banks' work with sustainability in lending to corporates. One result from this was the so-called sustainability summary, an industry initiative from the Swedish Bankers' Association . Eleven Swedish banks publish a sustainability summary, in which they show in a uniform manner how they take sustainability aspects into consideration in their lending to corporates. The sustainability summary has helped to improve transparency and comparability of how the banks work with these matters. Another development is that more banks have begun to apply various sustainability-related guidelines since 2015. FI emphasises the importance of communicating what this means for the banks' day-to-day operations.

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