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Time to introduce our ESG and Climate Risk Assessment tool to support the credit process

21 June 2021

We speak to Amalie Eikeland, TietoEVRY Loan Processing Product Manager, to find out why the new ESG and Climate Risk tool it so popular in Norway, what the key capabilities are, and what it means for the market now that it is being launched throughout the Nordic region.

Hi Amalie, TietoEVRY recently launched an ESG and Climate Risk Assessment tool, can you tell us about it.

Yes absolutely. It’s a standalone module for financial institutions and companies that want to assess their risks from an Environmental, Social, and Corporate Governance (ESG) and climate perspective – now a key element of the credit risk assessment. Many banks typically rely on spreadsheets, which isn’t efficient. We wanted to provide them with a more systematic approach, that can be integrated with an existing credit granting system.

Basically, the tool enables a bank or non-financial institution to assess their customers’ ESG and climate risk exposure by rating them from high to low risk using questions pertaining to everything from the inherent risks of an industry, to individual sustainability strategies. With a complete record of customer data gathered in one secure system, it is much easier to analyze a risk portfolio, while having the necessary data for regulatory audits.

Why have you launched the tool now?

There are multiple reasons. Climate risk is very real for society and businesses. The World Economic Forum’s top five ranked risks were climate-related in 2020. In 2015, there had been just one climate risk in the top five. Regulations – particularly those relating to the EU’s Sustainable Action Plan – are also driving the need for banks to a) assess the credentials of customers and b) provide evidence that they are doing this. Our software gives them the platform to do this and the data to support their actions.

How has the market reacted to the launch?

We’ve had a fantastic response since launch – which highlights the need for a tool like ours that provides structured support. To date, 28 Norwegian banks have started using the system. The uptake has been so positive that we are now rolling it out throughout the Nordic market, so I hope to see many more banks integrating it into their risk analysis operations.

Why are so many banks interested in using the new tool?

Again, there are multiple reasons. If a bank uses spreadsheets, it’s not viable long-term, and it’s not resource- or user-friendly on a large scale. As I mentioned, more and stricter regulations are also a big factor. Additionally, both investors and consumers are becoming more demanding of the banks. Banks may face reputational risk if their portfolios are significantly oriented towards “brown” carbon-intensive activities. I expect that we will see more and more consumers choosing banks that have proven green credentials in the future. And then there is the improved ability to identify risks. As a bank, you don’t want to invest in an industry that will become irrelevant in ten years or a business that is highly susceptible to climate risks. The financial sector actors are also becoming increasingly aware of the competitive advantage that can be derived from understanding and utilizing opportunities created by the transition to a green economy.

All these reasons point to using a tool that allows you to assess, disclose and manage ESG and climate risk. And that’s our new tool. The fact that it is standalone, makes it even more attractive.

Can you briefly talk us through how it’s used?

There are six key steps to the tool, which cover both the ranking of a company as well as the potential opportunities for improvement.

  1. General industry risk
    You can choose to categorize customers by industry, for example, oil production, forestry, retail, etc., and rank the industry per se, as part of a general guide. However, this won’t impact the overall ranking unless the bank chooses to assign plus/minus points to the industry.
  2. Structured ESG and climate analysis
    This is where the initial risk groups and questions are created and allocated weights. Answers regarding each customer are then logged in the module and an ESG and climate rank can be generated based on conclusion logic, i.e., low, moderate, or high risk.
  3. New opportunities
    Additional questions can be created that do not relate to current risk, but rather potential opportunities. For instance, you may identify that there will be profitable opportunities for agriculture as some farmers may see longer growing seasons and new crop varieties due to climate change.
  4. Overall Conclusions
    Case handlers may decide to nuance the assessment and issue a different ranking than the conclusion logic suggests. In this instance, the tool will show both the system and the case handler’s ranking.
  5. Climate-friendly action
    This is where the challenges are turned into incentives. As an example, the bank can choose to set a goal for the company to reduce energy consumption by 15% in one year. In exchange for achieving the goal, the bank may offer the company better terms for their loan agreement.
  6. Green financing
    Finally, we have base scoring factors for whether a loan purpose or activity meets the criteria for green financing. We expect to expand this section in the near future to meet regulative requirements related to the EU Taxonomy.

How easy is it to integrate the system into a company’s architecture?

Since the module is built as a standalone tool, it’s pretty much plug-and-play. For companies and financial institutions outside of TietoEVRYs infrastructure, some technical iterations and adjustments will be needed to integrate the module with their own credit system. Thanks to the loose integration with other systems, these adjustments can be carried out in a short integration project.

Finally, why should a bank get started now?

The regulations are coming. We may not know the full scope of them, but the consequences of not meeting them will be very real. The benefits they bring however are equally strong, and there will be a lot to gain from taking a leading role in this transition. I think the Bank of England’s Mark Carney put it best when he said “Firms that align their business models to the transition to a net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist.” Strong words, but words that should be heeded. I’m just very happy that we can provide a proven solution for banks to act on this.


Pictured: Amalie Eikeland, TietoEVRY Loan Processing Product Manager


To learn more about the ESG and Climate Risk Assessment tool, get in touch with Amalie

Interested to know more? Get in touch!

Amalie Eikeland

Product Manager ESG and Climate Assessment

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