Sustainable lending

When we grant loans to our business customers, we enter into a long-term commitment. Because of this, we always carry out a thorough evaluation so that we fully understand the financial situation of each and every business customer. It is in the interest of both the customer and ourselves that we only grant credit when a customer is able to fulfil its obligations to us and when the customer understands the risk connected with taking out a loan.

Our ambition is to help drive the development of sustainability in the societies we operate in. This transition requires investments and funding, and it is here that Danske Bank can play an important role. We have therefore begun to incorporate environmental, social and governance (ESG) factors into our lending process and customer dialogue. As a bank, we want to support our customers in the process of transforming to a more sustainable business model.

Glenn Söderholm

Head of Banking Nordic and Head of Banking DK (interim)

Foundation for sustainable lending

From training our colleagues in sustainability to defining certain sectors that we consider to have an elevated level of risk – we have started to build the foundation for our sustainable lending. We have taken small but important steps, and we know that there is a lot more to be done. By integrating environmental, social and governance (ESG) considerations into our credit processes, we are integrating ESG even further into our core business.

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ESG can be turned into a business opportunity

If companies do not take ESG factors into consideration as part of their business strategy, they may find themselves exposed to risks such as reputational damage and poor financial performance. However, when properly integrated into the business strategy, ESG factors can be turned into business opportunities. 

One example of a potential environmental risk is waste management. If managed improperly, waste management could have a negative impact on a company. Globally, a third of all food is wasted, which is detrimental to the environment. For supermarkets, throwing away food that has passed its expiry date it is costly and it could also damage the supermarket’s reputation with the public. To tackle this issue, several Nordic supermarkets are working to minimise waste by reducing the price of food that is near its expiry date or by using this food in their cafeterias.

The chemical industry is an industry subject to several ESG risks. In this industry, social factors such as product safety and the health and safety of the employees are particularly important ESG factors to be taken into consideration. Companies need to have the relevant environmental permits and processes in place for handling toxic gasses properly. Risk can be mitigated by ensuring that all employees involved in the production of chemicals have received appropriate training and know how to deal with accidents. By doing this, companies can turn risk into a business opportunity, which may ultimately help attract and retain employees.

Bringing ESG into our everyday work

We started incorporating ESG into our credit policy in 2015, and today we are working on integrating ESG into all lending processes for business customers.

This means we have to gain an understanding of each customer’s business model and understand how our customers work with and address sustainability. We also need to understand how a customer would handle any ESG dilemmas or controversies that may arise. By looking at every aspect of a company, and through our normal business interaction, we can evaluate the extent of a company’s own ESG integration. We do this in the same way as we assess the risks and opportunities facing our customers when we lend to them. 

In conversation with Danske Bank Chief Risk Officer, Carsten Egeriis, about how ESG impacts risk management

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Our customers expect us to have a solid understanding of their company and to safeguard their financial interests. When we talk to our customers about ESG, we work on creating a shared understanding of risks and opportunities – and on the impact these risks and opportunities can have for our customers. By doing so, we believe that we can bring value to our customers and help them systematically integrate sustainability into their business. And this will enable them to prosper. 

Christel-Marie Edvardsen

Branch Manager, Business Center
SE

Contributing to the overall sustainability agenda

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Our ESG principles

We do not grant loans to customers who we believe disregard or deliberately violate UN-based principles on environmental protection, human rights, labour rights and anti-corruption. Our credit policy forms the basis for the lending process and includes our principles for ESG. These principles are enforced when we carry out screening and conduct customer assessments.

Policy


Our Credit Policy highlights ESG as one of the key principles in the credit assessment process.

ESG Screening


We screen our loan portfolio according to restrictions based on our position on climate change and on arms and defence. In addition, we screen to identify companies operating in sectors with elevated risk and/or companies that could potentially breach our ESG principles. These customers are subject to an ESG assessment. 

ESG Assessments


We perform in-depth ESG analysis similar to how we assess financial key figures. By gathering information from customers, data providers, publicly available data and others, we are able to examine a company's past performance, regulatory compliance and sustainability commitment.

Training our ESG skills 

Training is an essential aspect of our work with ESG. By building up our ESG skills and knowledge, we are able to create a shared understanding with our customers of their ESG risks and opportunities. We use real cases and dilemmas in our training sessions to encourage good discussions and to improve our own skills. 

Training is just one part of our work to integrate ESG factors alongside financial factors into our lending process. Others elements include developing an IT-supported scoring tool, developing supplementary training and improving our sector guidelines even further. 

Elevated risk sectors

Elevated risk sectors
Arms and defence
Fossil fuels
Forestry
Mining and metals
Elevated risk sectors
We have defined four sectors that we consider to have elevated levels of ESG risk with respect to sustainable lending. When we grant loans to customers operating in these sectors, we have a number of additional expectations, and we address the risks relating to these customers in line with our policy.
Our expectations for customers operating in sectors with elevated levels of ESG risk can be found in our position statements:
Arms and defence 
Fossil fuels
Forestry
Mining and metals

Arms and defence

Arms and defence
We acknowledge the right of nations to use legitimate weapons for national self-defence and legitimate national security purposes, as stated in the Charter of the United Nations. We accept that various types of weapons are necessary for achieving internationally accepted goals, such as peacekeeping missions. 

However, there are elevated risks related to the arms and defence industry, such as when certain types of weapons and the potential use of these violates international humanitarian law or when these types of weapons are used for purposes other than national security and self-defence. 


Fossil fuels

Fossil fuels
The global demand for energy continues to rise, and even with the development of lower-carbon and more efficient energy systems, fossil fuels (oil, coal and natural gas) are expected to remain an important part of power and fuel delivery throughout the world. 

When we work with customers in this sector, we aim to minimise the adverse environmental and social impact, and we aim to support good governance by promoting internationally recognised standards. Activities related to fossil fuels contribute to climate change, and some of the identified ESG risks are cause for concern:
land use
water use
biodiversity
waste
discharges and emissions
health and safety
human rights
bribery and corruption. 


Forestry
Forestry
Well-managed forests are necessary for sustainable local and global development. However, the challenges for the forestry sector include ensuring sustainable management and avoiding illegal logging. The ESG risks that we take into consideration when assessing companies in this sector include:
impact on local communities
pressure on natural resources
impact on biodiversity and endangered species
rights of indigenous people
indirect contribution to climate change due to deforestation

Mining and metals

Mining and metals
The mining and metals industry provides raw materials for everyday use around the world. According to the UN, when mining and extraction are managed effectively and properly, this industry offers an opportunity to stimulate economic development and reduce poverty.

Mining is environmentally invasive and identified environmental risks include:
water and chemical use
biodiversity
mineral waste
emission


Other ESG risks relate to social and governance factors:
bribery
corruption
indigenous peoples’ rights
employee health and safety 
employment terms

Societal Impact

We want to play an active role and make a positive impact in society by driving sustainable progress and using our expertise to make a positive difference.
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Sustainable investment

We integrate ESG into the investment process and active ownership to make better-informed investment decisions.
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Sustainable Finance

We are fully committed to support the market for sustainable bonds, and green and sustainability-linked loans, by providing expertise and advice to issuers and investors.
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