27 Oct 2020

Pushing the climate challenge: From despair to hope and action

By Ms Tiina Salonen, Senior Environmental Analyst at Nordic Investment Bank

What is the climate impact of your business at present and how do you envision achieving the goals set down in the Paris Agreement? The financial sector is rapidly progressing to integrate climate-related risks and opportunities into their core of operations, engaging with companies to drive this thinking. NIB has joined the movement.

During the first wave of the COVID-19 pandemic this summer, I was eagerly surfing through the news to find clips not related to the disease, just to feel that there was some hope of a brighter future. The headlines screamed, “A heat wave thawed Siberia's tundra. Now, it's on fire.”, “Greenland's ice sheet has melted past the point of no return”... Have you heard about the climate tipping points such as permafrost thaw and ice sheet collapse, where a bit more global warming will cause a dramatic change in the state of the entire system? Scary indeed.

In pursuit of at least a little bit of hope, I selectively continued reading about the latest developments in the European Green Deal with the target of achieving carbon neutrality in the EU by 2050, and the efforts taken by Finland and Sweden to reach this goal even earlier. It was this level of ambition, which eventually turned the positive thinking curve upward in my mind.

Amidst the climate emergency, no bank is an island. In NIB’s business environment, the transition risks are high, driven by ambitious climate policies, development of transformative technologies by best-in-class companies and changing consumption patterns. We also see the physical risks starting to materialise, including large temperature variability as well as an increase in heavy rainfall and flooding. What we finance has an impact on the climate and a changing climate has an impact on what we finance. Both impacts will increasingly affect our business model.

NIB is currently working on implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to better understand our climate exposures and identify any opportunities.

We have built our capacities and learnt from sharing experiences with our peers by participating in the UNEP-FI’s TCFD Phase II Banking Pilot this year.

The regulatory landscape is also developing fast and the draft guide on climate-related and environmental risks by the European Central Bank from May 2020 will provide guidance on future risk management. Further, as an observer in the Network for Greening the Financial System, we are carefully studying the climate scenarios released in June 2020 and exploring their applicability in our business.

Commitment to climate initiatives is good, yet what matters is action. NIB as an international financial institution has assessed the climate impact of its financing at the project level for over a decade and issued green bonds that fund to a large extent investments contributing to climate change mitigation since 2011. This good practice will continue, but to address the challenges of today’s society and properly manage our climate performance, we are transitioning to the next level.

At the end of 2020, NIB will start to assess the environmental, social and governance (ESG) issues of all our lending clients. Special emphasis will be on the climate strategies, targets and governance, as well as the collection of climate performance data, at the borrower level. This will build a more robust basis for managing the risks and opportunities at the portfolio level and establishing an ambitious climate strategy and targets for the bank. We firmly believe in the role of sustainable finance to drive and enable the transition to a low-carbon economy through client engagement, innovative financial products and promoting transparency.

The past two years saw a significant increase in sustainability-linked loans, and this year the Green and Social Bond Principles published the Sustainability-Linked Bond Principles, to which NIB also contributed.

Companies with future-proof businesses have a purpose that helps create value for all relevant stakeholders and are able to attract talented people motivated by meaningful jobs. For me, a meaningful job means a role in an organization where I am able to advance societally important matters, while living by my values. An environmental analyst who has the chance to drive the integration of climate-related issues in the core of responsible banking through cross-functional cooperation seems well placed. In the bigger picture, caring for the climate emergency requires urgent and intensive international collaboration.

National distancing does not work. I would like to believe we have now had enough of this distancing and that the discussions about the green recovery from the coronavirus pandemic will materialise as real joint action.

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