Guest blog: Climate focus in FI’s latest sustainability report

A large number of new EU rules in the area of ​​sustainability are introduced in 2021. Sustainable development has also been added to FI's previous main assignment regarding financial stability and consumer protection. As part of FI's work in sustainability, FI has published the report Sustainability Report 2021 - the climate in focus. Kawin Mårtensson and Lina Sandmark, lawyers at Kompass Advokat, summarize the report.

SFDR and supervision

As regards the Disclosure Regulation (SFDR), large parts of the Regulation already apply (since March 10th this year), while the more detailed rules in the technical standards will not enter into force until January 2022. FI confirms in the report that the presented draft for technical standards can "provide important guidelines" in regulatory compliance.

Regarding FI's supervisory work, clear information is provided in the report that sustainability will become a natural part of the ongoing supervisory work. FI opens up to conduct a dialogue with both individual companies and industry representatives to facilitate companies' compliance with regulations.

FI's focus within three financial areas

In the insurance area, FI informs that during 2021 the authority will continue to work with the risk and effect classification that forms the basis for the work with sustainability-related risks and their effects. For this, FI will continue the work with the so-called Pacta tools used in a pilot study in 2020. FI also announces that it will follow how insurance companies handle sustainability-related risks in the companies' own risk and solvency assessments (ORSA).

In the banking area, FI integrates the sustainability perspective in the review of business model risks and credit risks. In this regard, it is mostly about developing and adapting the methods to assess these types of risk so that sustainability aspects can be captured by them. FI announces in the report that the plan is to include, in the year's ongoing risk assessment of the banks, an assessment of business model risks and credit risks from a sustainability perspective.

With regard to the securities area, FI will in 2021 focus on supervision of the new EU regulations. The Disclosure Regulation and the Taxonomy Regulation are specifically mentioned. In its supervision, FI will monitor green washing, i.e. if companies describe their operations and products as more sustainable than they are in practice. As part of this, FI plans to map funds that use sustainability or similar concepts in names or information to consumers.

Urgings from FI

The report presents some clear urgings from FI:

• It must be easier to understand and compare information about a company's climate exposures and adjustment work.
• More companies should already report according to TFCD.
• Use internal price for carbon dioxide, and report the information externally.
• Refrain from financing activities that are environmentally unsustainable in the long term.
• Refrain from financing activities that do not have a realistic strategy for adaptation.
• Add resources to assess climate risks and understand their consequences.
• Include scenario analyzes that take into account climate-related risks in companies' risk management.
• Insurance companies should include and manage sustainability-related risks in companies' own risk and solvency assessments (ORSA).
• Integrate sustainability into the management of the business in general.

Summary

In summary, it is stated that FI, in the same way as the financial industry as a whole, is in a phase where more and more focus is shifted to sustainability-related issues. It is noticeable that FI wants and works actively to ensure that the Swedish market is at the forefront. This is something that director-general Erik Thedéen has commented on many times. At present, far from all the rules that have been decided on sustainability have entered into force, which means that FI so far has at least partly limited opportunities to exercise actual supervision.

With this sustainability report, together with previous statements and reports from FI, it is reasonable to assume that industry players need to be prepared for FI to prioritize sustainability high on its agenda in the actual supervisory work. When additional sustainability rules continuously come into force, FI will also be given increased opportunities to conduct supervision. It is probably true as FI's director-general Erik Thedéen says: “Some Swedish companies are far ahead when it comes to openness and change. Others are wise to raise their level of ambition and learn from those who are best in class”.