Nordea’s Climate General in Action

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    Stockholm (NordSIP) – At the beginning of the year, Nordea, the Nordic region’s biggest bank, announced the establishment of a new Climate and Environment team. This centralised task force is meant to lead the financial giant’s efforts towards becoming a net-zero bank, ensuring progress and group-wide alignment across financing and investment activities. By mid-March, Nordea had also found the right person to lead the team, appointing Peter Sandahl as Head of Climate and Environment and Deputy Head of Group Sustainability.

    A couple of months into his new role at the bank, Sandahl sounds genuinely excited about the assignment. He also seems extremely busy, even though the Nordics are just emerging from the habitual summer vacation lull. “The honeymoon is definitely over, if there ever was one,” he jokes when NordSIP catches up with him between two meetings.

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    On silos and synergies

    Despite Sandahl’s solid background in sustainable investing, he admits that the new role poses dual challenges for him. “On the one hand, the assignment is much broader than what I was used to, adding on a whole new dimension of banking activities on top of investments,” he reflects. “Yet it is also much more focused, zooming in solely on the bank’s climate and environmental commitments rather than the whole spectrum of sustainability issues I have previously worked with.”

    Speaking of the new team’s narrower scope, Sandahl is aware that such a focused task-force approach might be perceived as exacerbating the so-called climate ‘tunnel vision’. “Working in different silos is counterproductive; that was certainly not why we created this team,” he says. According to him, gathering dedicated specialists from all over the bank in a small expert group has, on the contrary, led to many synergies. “In sustainability, all issues are deeply interconnected,” points out Sandahl. “Take, for instance, the interdependence between climate change and biodiversity loss. We do need to work with both issues in parallel, even though we have come much further in understanding and tackling one than the other. Also, the transition to net zero needs to be a just one, of course, taking social aspects into consideration,” he adds.

    Making the 2050 objective real

    The task that the Climate and Environment team has been entrusted with is to drive the strategic agenda necessary to meet Nordea’s long-term objective of becoming a net-zero bank by 2050. “To reach this ambitious objective, we have set a number of specific and measurable mid-term and short-term goals,” explains Sandahl. An example of a mid-term objective is to reduce carbon emissions by 2030 across the lending and investment portfolios by 40-50% and from all internal operations by more than 50% compared to 2019.

    “Goals aside, it is important that the industry does not get stuck solely on portfolio emissions, as that would risk creating counterproductive incentives to deselection and reallocation,” he says. “We should focus on short-term actions where we can maximise our influence to drive change in the real economy. There will, inevitably, be a lag before such changes are reflected in our portfolios’ emissions.”

    “Short-term, our efforts are two-fold,” explains Sandahl. “Firstly, we want to be a part of the solution by actively financing the transition to a net-zero economy.” To that end, Nordea has committed to facilitating more than EUR 200 billion in sustainable financing by the end of 2025.

    “Secondly, we work with our customers and portfolio companies to ensure that credible transition plans are in place,” continues Sandahl. The bank has pledged to ensure that 90% of its exposure to large corporate customers in climate-vulnerable sectors is covered by transition plans by the end of 2025. Even on the asset management side of the business, the short-term goals are ambitious. In two years, 80% of the top 200 financed emissions contributors in Nordea Asset Management’s portfolios are to be either aligned with the Paris Agreement or subject to active engagement to become aligned. “We aim to drive the transition by engaging with the companies we finance or invest in, urging them along a more sustainable path.”

    Engagement 2.0

    Lately, some institutional investors have expressed certain disenchantment with the engagement method, especially when it comes to swaying the largest GHG emitters. Sandahl, on the contrary, is a firm believer in actively engaging, especially in collaboration with like-minded peers. He understands the disappointment when it comes to the slow pace of the progress. “The low-hanging fruit has been already picked,” he says. “There is a limit to what a bilateral dialogue with a company can achieve. It is also unrealistic to expect that a bilateral engagement can get companies to change radically in a way that is not economically viable for them,” he adds.

    What Sandahl envisions instead is a paradigm shift in how universal capital owners engage with corporates. He calls it ‘Engagement 2.0’. “We need to engage collaboratively and do it more on a system level,” he says. “Rather than just talking directly to the companies, we should also engage with policymakers and standard setters. Furthermore, it is time to redefine the role of capital in the strive towards net zero. Universal owners cannot keep chasing alpha only; we need to demand a shift to system-wide sustainable business practice,” concludes Sandahl.

    Image courtesy of Nordea
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