Landsbankinn's ESG reports for recent years have focused on development in the Bank’s branches, sexual harassment in the workplace, sale of companies by the Bank, supply chain responsibility, interest margins and pricing. The reports have also focused on changes in the banking environment, the new directive on payment service and data protection laws, challenges relating to human resources, cyber security and increased demand on sustainability from the investor side.
This year’s report will focus on two issues; the measures banks can take to be socially responsible and the sustainability certification of Landsbankinn’s new facilities.
The main challenges banks face in the integration of the ideology and methodology of sustainability in their operation is to identify areas where they can most effectively achieve results through core operations. It is also challenging for companies to practice long-term thinking and apply that vision in business activities. It is necessary to adopt a long-term approach in corporate processes to achieve the best results for the environment, society and operations.
Until recently, banks were considered to have a small environmental footprint as their activities were not thought to produce GHG emissions to any significant degree. As standards evolve and ESG requirements become more sophisticated, it is now generally accepted that banks have a high impact on their environment and produce emissions through their credit and asset portfolios. Banks must contribute to society’s effort to achieve the goals of the Paris Climate Agreement and the opportunities lie in the projects they choose to finance and invest in rather than in direct activity. Such indirect emissions are difficult to identify and measure.
The Partnership for Carbon Accounting Financials (PCAF) is working to develop a harmonized approach to assess and disclose greenhouse gas (GHG) emissions for financial undertakings. The carbon accounting method is intended to allow financial undertakings to measure and analyse emissions from their credit and asset portfolios. Landsbankinn participates in the development of the method. The project originated in the Netherlands and PCAF carbon accounting systems have already been developed for domestic financial undertakings and North-American banks. The PCAF ideology is primarily based on the GHG Protocol, adapting that methodology to the credit and asset portfolios of banks. For more information on the project, click here.
There are several avenues open to banks to measure the impact of their credit and loan portfolios, such as TCFD, CDP and the aforementioned GHG Protocol, but each bank must decide which method best suits its operation. It is nonetheless important to consider the methods and standards selected by other banks and financial undertakings, as investors need to be able to review information that is comparable across financial undertakings.
In addition to environmental factors, banks must consider social factors and governance practices when evaluating the impact of their operation through credit and loan portfolios. This is increasingly done through sustainable financing, whereby funding is systematically channelled to environmentally and socially positive projects. There are indications that investors are prepared to fund environmentally friendly projects on more favourable terms than other projects. In order for sustainable financing to be successful, ESG must be an integral part of a bank’s core operation and daily decision-making. It is key to banks, as to other companies, to maximise their impact by integrating sustainability in core operation.
It is important to review the impact of operation on the environment and society every year and to publish comparable figures to track progress between years. The aim of reporting on sustainability and ESG is to create transparency and build trust.
Various standards have been designed to ensure comparability of reporting from year to year, most notably the Global Reporting Initiative Standards and the Nasdaq ESG reporting guide. Both the GRI Standards and Nasdaq's guide include an index that is comparable between reports to facilitate comparison of disclosure between companies.
Rumours of so-called “greenwashing” tend to follow discussion of corporate sustainability and work to further ESG concerns. This refers to the practice of talking the talk of social responsibility in order to reap the benefits without doing any real work to implement and develop the methods of sustainability. Both the GRI Standards and Nasdaq's guide require verification of ESG reports by a third party to ensure information quality. Investors increasingly insist on independent review of the entire operation of banks to determine their ESG risk. Analysts who undertake such reviews include Sustainalytics, ISS, S&P Global, MSCI, etc. The benefit of obtaining an ESG risk assessment of operations is that good ratings facilitate access to favourable funding.
As interest in ESG and sustainability grows along with the demand for actual engagement, the ways and means by which banks can implement and monitor ESG in their operation become more specific and numerous. This includes the Principles for Responsible Investment (PRI) and the Principles for Responsible Banking (PRB), both under the auspices of UNEP FI (United Nations Environment Programme – Finance Initiative). PRI has been around for several years and the decision was recently taken to rescind the membership of companies who have not shown any development in their ESG reports. The PRBs were launched in fall 2019 as a means of assisting banks to align their operation with the Paris Climate Agreement and the UN’s SDGs. Participants are required to set specific, measurable and time-bound goals based on the Paris Climate Agreement and the SDGs and report annually on their progress. Failure to do so will lead to dismissal from the project. Such projects are a valuable platform for peer-to-peer learning, to share success stories and allow for comparison between banks. By participating in these projects, banks show their long-term commitment to sustainability.
To the general public, it may be difficult to maintain an overview of the commitments and projects available to banks and which projects it is important for banks to participate in to further sustainability and ESG issues. In order to help the public gain insight into such work and track ESG development between years, it is important that banks publish annual reports. One of the main challenges faced by banks when it comes to sustainability is the tradition of prioritising quarterly results over long-term success. As a result, one of the key challenges banks must address is to adopt a long-term vision in their processes to achieve the best possible results for the environment, society and their own operation, for the future.
Landsbankinn is currently engaged in constructing a multi-purpose commercial and office building at Austurbakki in central Reykjavík. The new building will be rated under the BREEAM standard. BREEAM is the world’s leading sustainability assessment method for construction projects and the assessment system most used in Iceland, with nigh on thirty domestic projects currently rated or in the process of being rated by BREAAM. The aim is to achieve an “excellent” rating, most notably for design and construction of the Bank’s building, matching the highest ratings given in Iceland.
The sustainability certification of Landsbankinn’s new building supports and aligns with the Bank’s CSR policy. It is the logical continuation of the Bank’s current efforts under CSR and sustainability. The Bank continuously aims to improve its operation and environmental concerns are of high importance.
It is sensible to invest in buildings that support well-being and consume less energy, require less maintenance, have a longer lifetime and utilise less amounts of harmful substances. The health and well-being of the building’s users is vital, regardless of whether a building is for business or residential purposes, and factors that support good in-use and a healthy environment should be emphasised.
The aim of sustainable design is to systematically boost quality and reduce negative impact. The main scope for creating value during the various stages of a building’s lifetime is during the preparation and design phase, where strategic decisions are made. Design of sustainable buildings must consider the impact of their entire life cycle, from resources used and production of building material, to the construction process, operation and, finally demolition and waste treatment.
A sustainable building must be based on the methodology of sustainable development that seeks to fulfil the needs of current generations without reducing the possibilities of future generations to do the same. Sustainable construction is based on eco-friendly methods, effective use of resources and reducing negative environmental impact throughout the entire life cycle of the building.
Sustainability certification of buildings aims to increase quality, reduce the negative impact of construction on the environment, produce health-promoting and safe constructions and reduce the overall cost of buildings during their lifetime. The motivators for choosing sustainable construction are environmental, financial and health related.
Is it not enough to emphasise eco-friendly options in construction projects without seeking official sustainability certification? Certainly, sustainable buildings can be constructed without undergoing formal sustainability assessment. Experience nevertheless shows that a formal rating system removes the risk of relaxing requirements. While initial intentions are good at the outset of many projects, requirements are quite often relaxed during the process and in the end, little may remain of the factors that were intended to result in a sustainable building. As a result, there is real value in achieving recognised sustainability certification.
Such value may be financial and involve more favourable funding terms for the project. Value can also relate to image and marketing, as a sustainability rating allows companies to actively demonstrate environmental and social responsibility.
“Green leases” and sustainable buildings are becoming increasingly popular internationally. Environmental awareness continues to grow and companies, institutions and private parties increasing place value on environmental and social responsibility. Adherence to a recognised sustainability assessment system is an effective and acknowledged method of achieving sustainability goals and reducing the negative environmental impact.
Sustainability certification requires a great deal of documentation. It is vital to analyse and assess projects and their scope to select a certification system that suits each undertaking. Large-scale sustainability certification systems are less suited to smaller undertakings, at least in current form.
|Environmental motivator||Financial motivator||Health-related motivators|
|Reduced energy consumption||Favourable funding||Healthier interior|
|Reduced use of harmful substances||Lower operating cost||More wholesome and secure building|
|Reduced waste||Investment retains its value||Users can manage their environment|
There is little concrete information to be had about the scope and nature of the Icelandic construction sector and there is also a dearth of accessible data and research on the cost of sustainability certification. Available information about the energy consumption of domestic buildings is limited. Attempts have been made to assess the cost of sustainability certification of buildings. The cost involves on the one hand direct expenses linked to documentation, administrative cost and the cost of work by the design team, contractors and owners, and on the other hand, additional costs of building linked to equipment and materials. Increased initial cost of sustainability certification has been estimated at 2-3% of construction cost. Such additional costs can however frequently be gained back through lower operating cost during the lifetime of the building.
Awareness of environmental issues and sustainability has increased greatly in recent years and more demands are made of CSR and responsible investment. The construction sector has undergone a considerable change in attitude, as public authorities place higher demands on designers, contractors and buyers.
The intended benefit of sustainability certification of buildings involves favourable funding, lower operating costs and healthier environments. While certification on its own does not guarantee quality, the process facilitates effective work. Certification systems encourage rigour in design, construction and operation, and guide undertakings and individuals on the right path yet they are no replacement for common sense and realistic assessment of actual circumstances.
Landsbankinn is guided by environmental, social and economic concerns in its operation. By seeking sustainability certification of its new building at Austurbakki, Landsbankinn actively shows responsibility. Landsbankinn aims to contribute, as the environment concerns us all.