Hanken Finance Day: Sustainability Agenda Seen as Crucial in Banking Strategies as Consumers and Investors Go Green
According to the three main speakers, sustainability strategies in the banking industry are clearly no longer merely optional or to be considered window-dressing; modern-day consumers and investors demand “greenness”.
Two of the speakers representing the European Central Bank (ECB) kicked off the event with a presentation of a regulator’s view on “Euro area financial stability – risks, vulnerabilities and supervisory responses to the pandemic”.
In their presentation, ECB Lead Supervisor Magnus Andersson and ECB Senior Supervisor Simon Schulz identified four key risks to the financial stability of the Euro area: growing vulnerability of asset prices to correction, further weakening of bank profitability amid higher credit losses, rising debt servicing challenges for firms, households and sovereigns and fourthly, increasing credit and liquidity risk of non-banks amid renewed risk-taking.
The ECB speakers highlighted that sustainability has to be considered in relation to profitability and equity aspects such as price-to-book ratios. According to the speakers, restoring bank profitability after the “extraordinary shock” and economic fallout of Covid-19 is related to overcoming challenges of overcapacity in some financial systems, diversification of income sources, embracing opportunities from digitalization and general cost-saving measures. Are banks currently provisioning enough in this low-level interest rate environment? This is a topical key question this spring for the ECB, with its central mandate of ensuring price stability.
The third main speaker Veronica Palmgren (in the picture), Head of ESG Analysis, Group Sustainability at Nordea Bank, focused fully on the sustainability agenda.
Palmgren pointed out Nordea’s strong commitment to sustainability and noted the significant growth in four areas of sustainability products during the last years: assets under management in sustainability-enhanced funds, green corporate loans, transaction volumes for sustainability-linked loans and green mortgages – the ramp-up of the sustainability agenda is clear for all to be seen.
History highlights show that that past few years after the Paris Climate Agreement of 2015 there is a flurry of societal activity and a sustainability shift that also is visible in the bank’s launch of various green products; its own bonds, mortgages and green corporate loans (2018), and sustainability-linked loans and green car loans (2o19). Nordea has also worked with other banks to create standards for responsible banking under the auspices of the UNEP’s finance initiative and recently in 2020 launched Sustainable Choice, the new symbol for the bank’s sustainability offerings.
According to Palmgren three key mechanisms accelerate expectations on being a sustainable company; expectations and demands from customers and employees, high focus from investors and rating agencies, and evolving regulations and climate targets.
In Europe, the European Union is a strong factor in shaping and driving the sustainability issue with its aim of carbon neutrality by 2050 and to halve the green-house gas emissions by 2030 compared to 1990. Finland, of course, has even more ambitious aims as it’s striving for carbon neutrality by 2035. Governments and sustainability regulations also play a pivotal role.
The Paris Climate Agreement aim to limit temperature increases is echoed in Nordea’s Climate Action objectives for 2030 and targets for 2023; the financial institute sees itself as an important part of the transition.
To date, Nordea has identified four strategic pillars supporting its journey towards sustainability – climate action, social responsibility, financial strength and, lastly, governance and culture in its efforts to integrate sustainability into savings and lending offerings, culture and people processes, procurement, risk management and funding. The financial institution is set to achieve 50 percent less internal operations emissions and 40–50 percent less emissions in investment and lending portfolios by 2030 and, finally, net-zero emissions by 2050 in alignment with society’s goals.
Hanken Finance Day 2021 was rounded off with a panel discussion where Wärtsilä Associate Professor at Hanken, Emilia Vähämaa and Assistant Professor at Hanken Jesper Haga joined the previous three speakers.
The event was moderated by the Head of Corporate Relations and Outreach at Hanken Camilla Wardi, assisted by Alumni Coordinator Mira Aarnivuo.
Text: Nina Winquist