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Climate change is creating greater risk – and may affect the financing of companies

07 July 2021

Climate change and sustainability are becoming a significant element in the development of companies’ risk profiles and profitability in all industries. In response to this, Sparebanken Sør is now strengthening its work on risk assessment and advice relating to environmental, social and governance (ESG) factors as part of the financing services it provides for corporate customers.

Sparebanken Sør has in connection with this also entered into a collaboration with TietoEVRY under which it will use a digital tool to risk assess financial commitments in relation to climate change and sustainability.

From word to action

The transition to greener and more sustainable societies is one of the major changes that all businesses need to undergo in order to meet consumers’ and society’s requirements and expectations. An important part of this is the European Green Deal, in relation to which Norway is playing an active role. The European Green Deal is intended to make Europe the first carbon-neutral region in the world by 2050. In connection with this, there will also be various regulatory requirements in the time ahead to ensure that companies comply so that the Paris Agreement and the UN’s Sustainable Development Goals are met.

“Business and industry need to take climate change seriously and to become sustainable - and the sooner the better. An important criterion for success is for companies to obtain the buy-in of their owners, their board and their senior management so that they can then work in a systematic and targeted way on cutting their greenhouse gas emissions. One of the various benefits of this will be to ensure they make the transition to sustainable solutions in a controlled way and in compliance with the Paris Agreement and other requirements”, explains Geir Bergskaug, the CEO of Sparebanken Sør.

“We at Sparebanken Sør want to be a driver in relation to the climate and sustainability, and in connection with this we are adopting a tool that makes it possible to evaluate business and industry’s ability to adapt to the new requirements. Using governance information of this type and engaging in active dialogue with companies gives you better insight into companies’ risk profiles and enables better adaptation”, comments Geir Bergskaug of Sparebanken Sør.

This approach means Sparebanken Sør will have comprehensive assessments of ESG factors based on its own parameters and governance information.

“Assessing ESG factors is not only about risk but also about opportunities. What measures can companies take to reduce their greenhouse gas emissions, to adapt to the low-carbon society and to adjust to changes in their operating environment and customers’ patterns of consumption are questions of equal importance to the bank and its business customers”, comments Geir Bergskaug.

Digital tools make things simpler

The Norwegian Government has published a proposed new act on sustainable finance in support of the EU’s classification system for sustainable economic activities and disclosure requirements. The new act is intended to strengthen Norway’s transition to a low-carbon economy by directing private investment towards sustainability.

TietoEVRY has developed a tool that supports the new legislative proposals and that will ensure Sparebanken Sør can work effectively in this area.

“Climate change and sustainability will have a major potential impact on individuals, businesses and societies. Mapping and analysing risk is not something new to banks, but digital tools are important for ensuring there is structured support and assessment of ESG factors”, comments Christian Pedersen, Managing Partner, TietoEVRY Norway.

Sparebanken Sør is one of the first banks in Norway to adopt such a tool.

“By using a comprehensive and digital ESG tool, Sparebanken Sør will be able to make systematic risk assessments of climate and sustainability parameters, which are now becoming an integral part of the credit assessment process. This will simplify the bank's work and facilitate high-quality dialogue with the bank’s corporate customers. Through expertise and technology, business and industry will be able to target their sustainability work and thereby reduce their risk exposure”, comments Amalie Eikeland, the product manager for the ESG solution at TietoEVRY.

Many companies are lagging behind

A survey carried out by Sparebanken Sør of 300 businesses in the Norwegian county of Agder indicates that many companies have not yet started working on becoming sustainable. The consequence of this is that they risk seeing the cost of loans and credit increase, and in the worst case, they risk being unable to access financing at all.

37%* of the businesses that took part in the survey had not implemented climate change measures in the last three years. Furthermore, 61%* of the businesses responded that they had not taken any measures in the ESG area, which means that they have not made sufficient progress in documenting or implementing an adequate system in relation to climate and nature, social and governance factors. The World Economic Forum also regards climate risk as one of the biggest threats currently facing the world.

 

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