Sustainability within SpareBank 1 SMN & the Alliance Norway’s path towards sustainability
Funding for Energy Savings Measures (150m High-level panel on Vote in Favour of NOK) sustainable ocean ENERGIX Paris Agreement Emission Programme economy Standards for Gas- Klimaløftet: Fired Power: to Governmental BEEG: Baltic NREAP: National More new EVs sold Six Norwegian reduce imports of campaign for public Energy Renewable than new petroleum- Banks Commit to Efficiency coal-fired Ratification of awareness on climate Kyoto Protocol Energy Action fueled cars UN Principles for electricity change Group Plan Responsible Banking 1999 2000 2003 2008 2014
1998 2002 2007 2012 2017 2019 KLIMAFORSK: ENOVA SF: Norwegian Wind Power National NICFI: Norwegian Large scale Norwegian responsible Climate Act Production Hydrogen Government’s programme on Action Plan for Commission Climate Support: Support International Climate for Implementation of implementing Research scheme for wind and Forest Initiative Biodiversity the 2030 Agenda power production energy efficiency for Sustainable policy and UN-REDD: UN Rainforest Development programmes Collaborative Program Alliance on Reducing Emissions Award from Deforestation and Forest Degradation in Developing Countries
We support Norway’s ambitious target to be a leading sustainable society, given our status as a regional savings bank
2 Sustainability governance within the Alliance
• Ensures all 10 principles of sustainability are integrated in SpareBank 1 Alliance has signed day-to-day operations up for the United Nations • SMN reports annually about corporate social responsibility Global Compact and sustainability efforts based on the guidelines of the of the Global Reporting Initiative
The Sparebank 1 Alliance is a • The Norwegian Green Building Council, a part of the World member of the Norwegian Green Green Building Council, was established in 2010 to drive Building Council sustainability in the Norwegian built environment, primarily through the introduction of environmental rating tools
SMN and the other banks in the Alliance, have developed a joint • The joint policy encompasses all four major areas of policy on sustainability for sustainability, including environmental factors suppliers2
The SpareBank 1 Alliance’s asset • The SpareBank 1 Alliance’s asset manager Odin is a signatory manager and SMN Utvikling are of the UN PRI (Principles for responsible investments) guided by sustainability in their • SpareBank 1 SMN Utvikling invests in projects designed to investments support a positive development of society. NOK 60m has been invested in infrastructure projects and venture funds.(GRI 203-1) SpareBank 1 SMN (Trondheim)
• This is an initiative where over 5400 Norwegian companies, public institutions and other organizations SpareBank 1 SMN is ‘Eco- have become certified and follow certain industry specific lighthouse’ certified in Norway rules and principles to reduce their environmental impact. • The EU recognised Norway’s Eco-lighthouse arrangement in December 2017, meaning it complies with the eco- management and audit scheme (EMAS) in the European Union. 3 2 https://www.sparebank1.no/en/smn/about-us/sustainability/environmen-and-procurement.html At the heart of Central Norway’s community
We are the region’s leading financial group and we are present in 42 municipalities. We want to contribute to society’s value creation through responsible banking operations that give confidence to the people
Savings bank Supporting local business and SMEs • We are a savings bank. This gives us the • We have a responsibility to create growth and opportunity to be in step with people’s lives development in Central Norway and to support and to give back to the local community: every local businesses and small, medium and micro- year we share a portion of our profits with the enterprises in the region local community
Donations Environment and procurement • We have defined donations as a strategic • We work continuously to reduce our priority area and we return some of the profits consumption of energy, paper and resource to the society since 1840. Through the demanding travel. Our procurement policy distribution of social profits, We support requires all purchase contracts to include volunteerism, young talents, sports, theater documentation of CSR
Strong retail focus Ethics and Diversity • We operate following our strict ethical • We develop sustainable banking products with guidelines in terms of human rights, respect of the main purpose of ensuring good banking the environment and anti-corruption. We strive and focusing on developing customers advisers for diversity with regard to ethnicity, religion, especially in the retail area sexuality, gender and age
4 Source: https://www.sparebank1.no/en/smn/about-us/sustainability.html Five strategic priorities for 2020-2023
Increase digitalisation and Exploit the power in our Create ‘One SMN’ Head up the Integrate sustainability use of insight development of ownership model Norway’s savings bank into the business system •Sustainable development • Strengthen the customer • Ensure relevance • Collaboration as a •Reduce risk • The region’s offering and distribution • New digital solutions competitive advantage •Realise business development and value • Simplifications and • New income flows • Growth creation efficiencies • Improved efficiency opportunities • Pride and commitment • Attractive jobs • Strengthened position
5 The bank’s strategi for sustainability shall enable our financial goals and give the business areas guidance and flexibility
Our financial targets 1. Return on equity among the best in the Nordics – currently at 12 % 2. Solid bank with Core Equity Tier 1 Growth Efficiency Simplification ratio at 16.9 %. Distribution around 50 %. 3. Yearly cost growth shall be limited to 2 % within the existing business areas.
Our vision and role in society The banking group’s role is to stimulate to Responsible financial house a sustainable developoment (of the region).
6 The banking group’s role in society is to stimulate a sustainable development of the central part of Norway Financial house
In these three dimensions the Driver for banking group shall play an green important role in opinion transformation formation in Central Norway «Together we’ll get Partner for things Guide for inclusive done» responsible development of business society culture
Customer offering Society dividend
7 Priorities for SMN in its sustainability strategy towards 2023
Facilitator for green transformation Partner for inclusive societal Guide for responsible business culture development
Priorities in SMN Priorities in SMN Priorities in SMN Financial house (common) Financial house (common) Financial house (common) ● Ethical standards ● Green transformation ● Competence boost ● Data and cyber security ● Sustainable business culture ● Standards for purchasing and responsible marketing Customer offering Customer offering ● Stimulate green transformation ● Enhance social rights in products and Customer offering ● Competence boost services ● Prevent economic crime and corruption ● Stimulate innovation and sustainable economic growth
Society Dividend: Contribute to green transformation adding sustainability to the agenda through initiatives beneficial to society.
8 SMN is clear on roles and responsibilities
GROUP CEO DESIGNATES EXECUTIVE DIRECTORS/MANAGING DIRECTORS AS ‘AMBASSADORS FOR RESPONSIBLE BANKING’
EXECUTIVE DIRECTORS/MANAGING DIRECTORS APPOINT AN ESG MANAGER FOR THEIR RESPECTIVE BUSINESS LINES
SpareBank 1 SMN – ESG MANAGERS OF EACH BUINESS Steering committee LINE CONSTITUE THE GROUP’S ESG for sustainability COMMITTEE
THE ESG COMMITTEE DEVELOPS AND COORDINATES THE WORK ON ACHIEVING AN OVERALL GROUP STANDARD
BUSIINESS REPORTING IS DONE BY THE ACCOUNTING AND FINANCE DEPARTMENT
9 Incorporating Climate Risk in our credit process
• For 2021 our main focus will be on climate risk • Our aim is to further develop, intensify and flesh out this work in step with the increase in knowledge and maturity with regard to this theme in the organisation • We will utilise a risk analysis recommended by the Task Force on Climate- related Financial Disclosures (TCFD) • Credit policy and guidelines will be further developed in the shape of concrete requirements which will in part be industry-specific • We aim to conduct a sustainability classification of our own loan portfolio in the course of 2021
➢ Through the integration of climate risk assessments into loan approvals, customer follow-up and pricing, the bank will ensure good monitoring and management of the climate risk to which the bank is exposed
10 Sustainability is a strategic foundation of SMN Ambition to integrate sustainability into all aspects of the business Good ESG rating – but the ambitions are higher
ISS ESG: C- (2020) 2nd Decile ranking (high relative performance)
Sustainable Brand Index – 2019 & 2020 industry winner in Norway
11 Green Bond Framework SMN 2020 Green Bond Framework Highlights
Rationale for structuring a Green SMN Green Bond Framework Bond Framework Highlights
• Green Bonds contribute to global and • Use of Proceeds: national environmental objectives – Energy efficient residential and • Close alignment with sustainability ambitions commercial buildings (methodology from of SMN’s corporate clients in Central Norway Norwegian building expert: Multiconsult) • Contribution and alignment with the UN Sustainable Development Goals (SDG’s) – Eco efficient and circular economy adapted • Highlighting SpareBank 1 SMN’s sustainability products, production technologies and strategy to capital market participants processes • Green bonds will help to diversify SMN’s Addressing the call for more investor base and to broaden dialogue to sustainable assets – Clean Transportation existing investors • Addressing increasing demand for more – Environmentally Sustainable Management sustainable assets by responsible of Living Natural Resources and Land Use investors • Supporting customers’ environmental – Renewable Energy values • The Green Bond Framework adheres to the latest edition of the Green Bond Principles (June, 2018)1
SMN updated its Green Bond Framework • Sustainalytics has given a positive opinion to accelerate the environmental on the updated Green Bond Framework transformation, adding new UoP categories
13 1 Published by the International Capital Markets Association The four pillars of the Green Bond Framework
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
The net proceeds of the Green • The Green Bond Committee will • The proceeds of the Green Bond • Reporting will be based on the Bonds will be allocated to a Green oversee the entire Green bond will be managed in a portfolio Eligible Green Loan Portfolio, Loan Portfolio consisting of: process, including the evaluation approach which will be aggregated for all • Green buildings and selection of Eligible Green • SMN will ensure that, at all times, outstanding Green Bonds Loans originated across relevant the balance of Eligible Green • Post issuance disclosures will • Eco efficient and circular business lines economy adapted products, Loans matches or exceeds the cover both allocation and impact production technologies and • SpareBank 1 SMN will in this way total balance of its outstanding reporting processes work on gradually expanding the Green Bonds • Impact reporting available at Eligible Green Loan portfolio • Clean Transportation • SMN will remove from the issuance Eligible Green Loan Portfolio the • Environmentally Sustainable loans that cease to be eligible Management of Living Natural and replace them when Resources and Land Use necessary for the balance, as • Renewable Energy soon as reasonably practicable
14 Use of Proceeds: Eligible Assets (1/2)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
New UoP Category Eco-efficient and Circular Economy adapted Green Buildings Clean Transportation Products, Production Technologies and Processes
• Residential Green Buildings: New UoP Category • Companies must benefit from selected • Loans to finance or refinance production, sustainability certifications on products, establishment, acquisition, expansion, – New residential buildings in Norway (built services or processes: upgrades, maintenance and operation of low after 2009) – Norwegian building codes carbon vehicles and related infrastructures: – Residential buildings in Norway (built before 2009) – EPC labels – Low carbon vehicles: – Refurbished Residential buildings in Norway o Fully electrified passenger vehicles with an improved energy efficiency of 30% such as cars – 2 step improvement in EPC, minimum ‘D’ o Fully electrified freight vehicles such as ferries, vessels, lorrys and trucks • Commercial Green Buildings: – Low carbon transportation infrastructure: infrastructure to support zero emissions – New or existing commercial buildings passenger vehicles and public belonging to top 15% low carbon buildings • Pure play loans only for SME’s & Larger transportation such as charging stations for in Norway – Norwegian building codes Corporates (>90% threshold) electric vehicles, urban and intercity transit – Certifications – LEED Gold, infrastructure BREEAM/BREEAM NOR Excellent, Nordic Swan or equiv. – Refurbished Commercial buildings in Norway with an improved energy efficiency of 30% – 2 step improvement in EPC, minimum ‘D’
15 Use of Proceeds: Eligible Assets (2/2)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
New UoP Category New UoP Category Environmentally Sustainable Management of Living Renewable Energy Natural Resources and Land Use
• Agriculture: • Loans to finance or refinance equipment, development, manufacturing, construction, operation, – Loans to finance/refinance agricultural activities that distribution and maintenance of renewable energy o Apply robust and appropriate management generation sources from: practices and/or environmental standards that avoid or reduce GHG emissions – Solar energy: Photovoltaics (PV), concentrated solar o Are organic e.g. DEBIO certification or power (CSP) and solar thermal facilities equivalent – Wind energy: Onshore and offshore wind energy • Forestry: generation facilities and other emerging – Loans to finance or refinance environmentally technologies, such as wind tunnels and cubes responsible forest management o Forest land certified in accordance with the – Hydropower in Norway: Hydropower in Norway Forest Stewardship Council (FSC) standards (boreal regions), lifecycle emissions of less than 100g and/or the Programme for the Endorsement CO2e / KWh of Forest Certified (PEFC)
16 Process for Project Evaluation and Selection
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
The Green Bond Committee will oversee the entire Green bond process, including the evaluation and selection of Eligible Green Loans originated across relevant business lines.
Loan #2 Compliance with the Green Bond Loan #1 Eligibility Criteria Potential Green Loan Ineligible Mitigation loan Alignment with SMN’s environmental Loan #3 Green Loan of ‘DNSH’ Eligible Green Portfolio of and social policies & minimum ‘certified’ Assets Portfolio concerns Ineligible Norwegian/international standards loan Eligible Green Loans Alignment with SMN’s sustainability Eligible strategy loan Eligible loan
17 Management of Proceeds
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
• The proceeds of the Green Bond will be managed in a portfolio approach
• SMN flags green loans through an internal monitoring system
• Eligible Green Loans are already on SMN’s balance sheet at issuance Green Loans Buffer • SMN will ensure that, at all times, the balance of Eligible Green Loans Eligible Green Loan matches or exceeds the total balance of its outstanding Green Bonds portfolio
• SMN will remove from the Eligible Green Loan Portfolio the loans that cease to be eligible and replace them when necessary for the balance, as soon as reasonably practicable Outstanding Green Bonds
18 Reporting - Overview
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
Reporting will be based on the Eligible Green Loan Portfolio, which will be aggregated for all green bonds outstanding We have recently published our first Allocation & Impact Reports
Allocation Reporting Impact Reporting
• The allocation report will provide, on a portfolio basis • Reporting will be based on the Eligible Green Loan Portfolio, which will be aggregated for all green bonds outstanding – The total amount of investments and expenditures in the Eligible Green Loan Portfolio • SMN engaged with Multiconsult to prepare an impact report for the following UoP categories: – The total amount of green funding outstanding – Green Buildings – The proportion of new and existing loans (financing and refinancing) – Clean Transportation – Renewable Energy – The balance of unallocated proceeds • In addition, SMN prepared an integrated impact • SMN also intends to report on the proportion of the SMEs’ revenue from report providing quantitative as well as certified products, services and processes which will be used to match the qualitive impact per UoP category respective proportions for inclusion in the Eligible Green Loan Portfolio.
19 Reporting – Allocation (FY2020)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
20 Reporting – Impact (FY19) (1/5)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
Residential Buildings Commercial Buildings
Green Residential Buildings Portfolio [sq.m] Green Commercial Buildings portfolio [sq.m]
24% 29% 32% 20,235 tons CO2 / year saved (vs. Norwegian average) 5% 76% 34%
Apartments Small residential buildings Office buildings Commercial buildings Hotel buildings Small industry and warehouses
Reduced CO Reduced CO Category Area total [m²] Reduced energy 2 Category Area total [m²] Reduced energy 2 emissions emissions
Eligible portfolio of 11,794 tons / Eligible portfolio of 8,441 tons / 731,981 96 GWh / year 618,042 69 GWh / year buildings year buildings year
21 Source: Multiconsult Reporting – Impact (FY19) (2/5)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
Clean Transportation
Total emissions SMN portfolio of EV vehicles
Number of Sum person km avoided Category Sum km / year vehicles / year (vs. average vehicle with tailpipe emissions) Passenger vehicles 3,173 36.66 mill. 62.33 mill.
Impact assessment: Avoided emissions – Electric vehicles
Category Sum person km / year
Scope 1 Scope 2 Total Direct emissions only (Scope 1) 3,518 tons CO2/year Direct emissions Indirect emissions Total Indirect emissions EV’s only (Scope 2) -2,259 tons CO2/year
(tailpipe) (power consumption only) Total Avoided emissions 1,259 tons CO2/year
22 Source: Multiconsult Reporting – Impact (FY19) (3/5)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
Renewable Energy
Total emissions SMN portfolio of run-of-river hydropower plants Estimated Expected Total avoided Capacity production production Category capacity [MW] [GWh / [GWh / (vs. baseline) [MW] year] year]
Run-of-river hydropower 0.1 – 3 16.1 56.4 45.1 plants
Impact assessment
Reduced CO - Produced power 2 emissions compared Positive impact of Category compared to baseline to baseline (tons CO (GWh / year) 2 hydropower assets / year)
is 6 gCO2/kWh Eligible plants in portfolio 45.1 5,866
23 Source: Multiconsult Reporting – Impact (FY19) (4/5)
1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds
Eco-efficient and/or circular economy adapted products, production technologies and processes
Fisheries
% of Stocks at or above Maximum Sustainable Yield (MSY) MSC eligible fisheries in SMN portfolio 100 % 29% 90 % 80 % 70 % 71,00% 66,90% 71% 60 % 94,40% 50 % MSY or Higher Trawl / Whitefish Purse seine / Pelagic 40 % 24 Source: Courtesy of MSC Reporting – Impact (FY19) (5/5) 1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds Eco-efficient and/or circular economy adapted products, production technologies and processes Aquaculture (see qualitative analysis Impact Report) Eco-Lighthouse (see qualitative analysis Impact Report) SMN Eco-Lighthouse Portfolio - by Industry 3 % 1 % 4 % Construction 4 % Public sector 4 % 26 % Retail sales 4 % Other bus.services Farming of salmon is significantly lower in carbon impact Public and social services compared to other on-land livestock. 5 % Transportation & storage Property rental 6 % Manufacturing CO2 intensity CO2 intensity CO2 intensity Indicator avoided vs. avoided vs. avoided vs. Hotels, restaurants etc chicken pork beef Information & Communication Agriculture CO2 intensity of protein 23 % Others avoided (g CO2eq per typical 0.28 0.7 5.32 20 % Other property serving (40g)) 25 Source: Courtesy of ASC, GlobalG.A.P and Eco-Lighthouse External Review 1 2 3 4 Process for Project Management Use of Proceeds Reporting / External Review Evaluation and Selection of Proceeds Sustainalytics is of the opinion that SpareBank 1 SMN’s Green Bond Framework aligns with the four core components of the ICMA Green Bond Principles 2018 • Sustainalytics considers that the eligible categories will lead to Use of Proceeds positive environmental impacts and advance the UN Sustainable Development Goals, specifically SDG 7, 8, 9, 11, 12 and 14. • Sustainalytics is of the opinion that SMN has adequate measures Project Evaluation & Selection to identify, manage and mitigate environmental and social risks commonly associated with the eligible projects funded by the use of proceeds. • Sustainalytics considers the management of proceeds to be in line Management of Proceeds with market practice. • Sustainalytics views SMN’s allocation and impact reporting as Reporting aligned with market practice. 26