25 May 2018
EUR 20 million
Financial institutions and SMEs
During spring 2018, NIB has revised its mandate rating framework on how to analyse the impact of its loan projects. This has been done in order to adapt to the current business environment and expectations of its stakeholders. The Bank plans to make a summary of this framework publicly available in due time, to further promote sustainability and transparency.
Sustainability is the core of the Bank’s business model; therefore, the Board has considered how the Bank could further increase its relevance in this field. One outcome of these discussions was that the evaluation criteria of the mandate rating framework was refined. A summary of the assessment method is being made publicly available later this spring to promote transparency and to inform the Bank’s stakeholders according to good practice.
“The mandate rating framework is a tool that enables NIB to attain its vision and mission. By revising the framework, we can ensure that it remains relevant and adapts to the current business environment and expectations of our stakeholders”, says Lars Eibeholm, Vice-President and Head of Treasury at NIB.
Every day, the economists and environmental analysts in NIB’s Sustainability and Mandate unit assess the impacts of projects considered for financing. They use the framework to determine the extent to which the projects fulfil NIB's mission of improving productivity and benefitting the environment in NIB's member countries.
Projects that benefit the environment
The environmental assessment of projects has been revised according to the perceived investment needs in NIB’s member region. The previous framework emphasised identifying measurable environmental improvements, whereas the new concept has been extended to recognise environmental benefits in general. The drivers determined to further these benefits are pollution reduction, preventive measures, enhancing resource efficiency, development of clean technology and climate change mitigation.
“The new, broader concept allows us to more widely support investments that foster the green transition and the development of resilient infrastructure in our societies. The environmental benefit of these investments may not necessarily result in immediate, measurable effects, but they can, in the long term, significantly contribute to achieving national and international targets, for instance in the areas of climate change mitigation and adaption as well as circular economy”, says Tiina Salonen, Senior Environmental Analyst at NIB.
The revised assessment methodology includes both qualitative and quantitative reviews of the investments. The qualitative assessment is based on the sector of a project, and the sustainability taxonomy of the EU High-Level Expert Group on Sustainable Finance was considered when developing the tool. In the quantitative assessment, selected indicators are used to describe the impact of a project, such as a change in the use of energy, water or raw materials, or emissions of pollutants.
“Due to the refined rating criteria, we can now, for instance, finance preventive maintenance projects that are necessary to adapt our infrastructure to climate change. One example is loans for projects that improve the capacity of stormwater and sewage systems to handle significantly increased short-term precipitation caused by climate change. Greater amounts of stormwater during heavy rainfall may cause overflows and increase the pollution load on fragile ecosystems such as the Baltic Sea. Upgraded systems with sufficient capacity help to prevent such events”, explains Salonen.
Loans to improve productivity gains
Another cornerstone of the mandate, previously “competitiveness”, is now defined as “productivity gains”. The term has been changed to more accurately describe what the Bank is assessing, even though the focus of the assessment itself has not changed. The Bank’s economists continue to evaluate how projects support technical progress and innovation, development of human capital and equal economic opportunities, improvements in infrastructure, as well as market efficiency and the business environment in the member countries.
The importance of social aspects in the productivity investments was emphasised
when revising the new mandate rating framework. As a result, equal economic opportunities were introduced as a new driver that improves productivity.
“Recognising that the aim for higher productivity has been driving investments and economic development for centuries, our goal is to steer NIB’s lending to projects that bring widely distributed benefits to the member country economies”, says Ville Mälkönen, Senior Economist at NIB.
“The emphasis on wider impacts is important to us, because the social returns on, for instance, investments in innovation processes and education tend to be significantly higher and more broadly distributed than that of an investment in, say, new machinery, where the scope of the return is limited to the company making the investment”, Mälkönen continues.
One important thing about NIB’s loan process relates to screening of all prospective projects. In addition to the mandate assessment, they undergo a sustainability review in accordance with NIB’s Sustainability Policy and Guidelines.
“Projects promoting productivity gains are also reviewed to ensured that they comply with acceptable environmental and social standards”, says Mälkönen.
Besides single projects, NIB also finances investment programmes and loan programmes for financial intermediaries. In these cases, the mandate assessment can look at the programme as a whole, or each allocation can be assessed as an individual project. The focus depends on the objectives, sub-projects or geographical locations of the programme.