Swedish regulator to monitor Paris-alignment of country’s investment portfolios and loan books

The Swedish Government has told its financial regulator, Finansinspektionen, to monitor the Paris-alignment of loan books and investment portfolios, in another display of ESG leadership from the country.

Finansinspektionen is Sweden’s Financial Supervisory Authority. It told RI in January that it was exploring climate scenario analysis and stress testing as part of an investigation into how companies should manage and report on climate change.

But now, a statement from the office of Per Bolund, the Minister for Financial Markets, says the Government has “instructed” Finansinspektione “to monitor climate reporting by financial market actors and how loans and investments relate to the Paris Agreement’s 1.5-degree target”.

Bolund, a biologist and politician with a well-established reputation in green finance, said he was “looking forward to gaining a good overview of how banks and fund managers are exposed to climate risks and the extent to which these actors are contributing to achieving the Paris Agreement’s 1.5-degree target”.

“The analysis of the Swedish Financial Supervisory Authority will constitute important background material for taking further measures,” he continued in the statement.

Finansinspektione has also been tasked with helping to develop tools and techniques for measures and reporting on climate for the finance industry. The Government says it must “actively engage in international cooperation and work for increased and improved measurement and reporting of climate risks and climate effects internationally”, and implement “appropriate measures” to help the government meet its commitment to enhance transparency and align private capital with the Paris Agreement.

It will present its report to the Government next March.

Earlier this month, Finansinspektionen announced that its Director General, Erik Thedéen, would head up a Taskforce on Sustainable Finance at the International Organization of Securities Commissions (IOSCO). Thedéen is former CEO of KPA Pension, an asset manager for the local government sector. 

In a statement at the time, Finansinspektionen said the group will look at how investors can assess companies' approaches to climate risk and sustainable development, and how to make sure information is comparable.  

“It will increase consumer protection, mean that investors can better manage climate-related risks, and counteract the problem of beautifying companies (so-called green painting) that is happening today,” it added.

The new group comes on the back of another IOSCO network, set up by Thedéen in 2018 to look at developments on sustainability by different securities supervisors around the world – particularly reporting requirements.

“One conclusion of the network's work is that the lack of uniform reporting and the lack of common definitions make it more difficult for consumers and investors to identify sustainable investments and increase the risk of green painting,” reflected Finansinspektionen this month. “Another conclusion is that there is a demand and expectation, both from financial market players and regulators, that IOSCO will pursue change work in this area. That will be the task of the new working group.”

Earlier this year, the regulator said it was already planning to explore “the possibility of promoting, at both national and international level, that companies increasingly report an internal price for carbon dioxide emissions”, as well as looking at scenario analysis and stress tests.

“The fact that companies report internal prices for carbon dioxide emissions can help investors, for example, identify the degree to which a company is exposed to transition risks and can act as a driving force for sustainable development in the business sector,” it said, highlighting the possibility that companies could report the internal carbon price they use when they calculate the value of new investments.

“If the price is low, it sends a signal that the company does not fully take into account the socio-economic costs of emissions and that its business model may be vulnerable to future climate risks,” it explained.

Alecta, Swedens biggest pension fund, told RI earlier this year that it has been engaging with Finansinspektionen on climate and sustainability, as well as Nasdaq Nordic. CEO Magnus Billing told RI today that he "welcomed all steps towards finding common methodology to calculate climate risk". 

"In our latest climate risk report, we dug deep into the question of a global price on carbon dioxide emissions. The recommendations from the IEA and IPCC report vary enormously. We see prices spanning hundreds of dollars per CO2e. On top of this, the reporting of scope three data, which is important for us as an active investor, is lacking. We would like to see these two specific issues introduced in IOSCO’s work, in combination with a recommendation that more companies should stress test their portfolios for a higher CO2-cost. This is something that we already in January 2019 communicated to Finansinspektionen," he said. 

"As capital starts flowing from “brown” sectors to green ones, transparency in climate-related disclosure is key. We, as investors, need to be able to compare data and calculate investments as objectively as is possible in order to procure the achievement of our objective to establish a portfolio compliant with the Paris Agreement. To align sustainability related data globally is a major stepping stone to reaching this."