Sustainable Finance Products in Danske Bank LC&I

Samu Slotte

In this video, Samu Slotte introduces the concept of sustainable finance, detailing how it supports economic growth while minimising negative impacts on environmental, social, and governance (ESG) factors. He covers the important distinction to be made between non-labelled and labelled debt instruments, including use-of-proceeds and sustainability-linked products. He also addresses the risks of greenwashing and highlights Danske Bank’s role in promoting sustainable finance products.

Banking Sector

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Sustainable Finance Products in Danske Bank LC&I

14 mins 26 secs

Key learning objectives:

Understand the concept of sustainable finance and its importance in promoting positive ESG impacts
Outline the differences between non-labelled and labelled debt instruments, and the specific features of use-of-proceeds and sustainability-linked products
Understand the risks of greenwashing in sustainable finance and the measures to mitigate these risks
Understand Danske Bank's role and initiatives in supporting and promoting sustainable finance products

Overview:

Sustainable finance is a critical tool for fostering economic growth while addressing environmental, social, and governance (ESG) concerns. It is crucial to understand that any financing can be sustainable if it supports positive ESG impacts. By understanding the principles, categories and practices of sustainable finance, stakeholders can contribute to a more sustainable future while achieving economic growth.

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Summary

What is sustainable finance?

Sustainable finance refers to financing activities that support economic growth while minimising negative impacts and increasing positive impacts on environmental, social, and governance (ESG) factors. It encompasses any financing that aligns with these goals, regardless of whether the product carries a dedicated ESG label.

Sustainable debt instruments are divided into two main categories: non-labelled and labelled. Labelled instruments are further divided into use-of-proceeds instruments (like green bonds, social bonds, and sustainable bonds) and general corporate-purpose sustainability-linked instruments, which are measured against specific KPIs tracking sustainability performance targets.

What are non-labelled ESG products?

Non-labelled ESG products do not carry an explicit ESG label but can still qualify as sustainable finance based on the ESG impacts of the financed activities. For example, financing a solar park project could be considered sustainable if the project increases positive environmental impacts without causing significant harm to other ESG aspects.

What are use-of-proceeds labelled products?

Use-of-proceeds labelled products, such as green bonds or social bonds, require the borrower to use the financing for specific environmentally or socially beneficial activities. The sustainability of these activities is typically outlined in a Green Finance Framework, which details the use of proceeds, project evaluation, management of proceeds, reporting, and external review.

Use-of-proceeds products, such as green bonds and loans, require the borrower to allocate funds to predefined green or social activities. The issuer's Green Finance Framework outlines the eligible projects and activities, ensuring that the proceeds are used for sustainability purposes. Regular reporting and external reviews enhance transparency and accountability.

How do sustainability-linked products incentivise sustainability?

Sustainability-linked products incentivise sustainability by tying the financial terms to the borrower’s achievement of specific sustainability targets. For example, a loan’s interest rate might decrease if the borrower meets certain KPIs related to carbon reduction or social impact, encouraging companies to pursue and achieve ambitious sustainability goals.

What are the risks of greenwashing in sustainable finance?

Greenwashing involves making false claims about the ESG qualities of a product, project, service, or business to mislead stakeholders. For use-of-proceeds instruments, the risk lies in the actual environmental or social credentials of the financed activities. For sustainability-linked products, the risk involves setting KPIs that are not sufficiently ambitious or relevant. Greenwashing risks can be mitigated by ensuring transparency and credibility in the sustainability claims of financial products.

What is Danske Bank's approach to sustainable finance?

Danske Bank is a leading Nordic bank in sustainable finance, offering a range of products with green and sustainability-linked features. The bank's Project Finance team focuses on transactions with a green angle, ensuring that the financed activities meet stringent sustainability criteria.

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Samu Slotte

Samu Slotte is the Global head of Sustainable Finance at Danske Bank. He is passionate about steering economies towards more sustainable business models and his background is from the debt capital markets, where he has over 20 years of experience. Samu's interest in sustainability began when he worked on green bonds and became really keen to explore the climate impacts of finance. Samu also has a degree in Environmental Sciences and is determined to understand and help tackle the issues we are facing existential threats, from both climate change and the loss of biodiversity.

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