ESG opportunities and risks

ESG is an opportunity to convert the sustainability qualities of the projects we finance into funding at the lowest possible cost for our customers. Based on the TCFD recom­men­da­tions, we have concluded that our customers' climate-related risks do not present any financial risk for KommuneKredit. ESG risks primarily concern reputational and operational risks related to ESG.

Opportunities

ESG is an opportunity to throw light on our strong ESG qualities and not least those of our customers and the projects we finance and to convert these qualities into funding at the lowest possible cost.

Providing funding for local public welfare, growth and the green transition in municipalities and regions across Denmark implies that most of KommuneKredits funding is targeted at green or social projects. Kom­mu­ne­Kre­dit's Green Bonds are an example of this.

Our approach guarantees equal opportunities across the country, promoting cohesion and enabling municipalities and regions to maximise growth and development – for the benefit of Danish citizens.

No matter the scale or location in Denmark of the project, we provide financing on equal terms for all qualified customers and appropriate loan purposes.

The map reveals that municipalities with few inhabitants – particularly in sparsely populated peripheral areas of Denmark – take greater advantage of the opportunities we offer. The darker the colours, the larger the lending amounts.
ESGrisks

ESG risks

At KommuneKredit, our approach to ESG and sustainability is guided by the principle of ‘double materiality’. This means that ESG risks are understood in two ways:

On the one hand, ESG risks are seen as external risks driven by environmental, social and governance factors that could impact our customers' ability to meet their obligations to us. An example is climate risks where buildings and infrastructure are flooded. However, as the TCFD assessment also concludes, these risks are not considered to be material risks since all obligations are guaranteed by municipalities or regions. 

On the other hand, internal ESG risks are those where KommuneKredit could directly or indirectly have a negative impact on environmental and social conditions through our direct operations such as business travel and energy consumption, or indirectly through our financing if, for example, we finance activities with a significant 

negative environmental impact. We monitor direct adverse impacts with data, have set a goal for GHG-reduction from direct operations and seek to improve our data on financed adverse impacts. KommuneKredits financed activities are ultimately a reflection of the political ambitions of Danish municipalities and regions for more sustainable communities.    

The increased focus on ESG risks in society adds to our reputational risk. There is a growing expectation that we must account for our ESG risks although we are not subject to the EU's sustainable finance regulations. In turn, the need for data also entail additional operational risks related to collecting, processing and reporting data. We mitigate these risks by having a strong governance in place. It is lead by our ESG committee, ensuring involvement by both Management Board and crosscutting competencies of operations. 

TCFD

TCFD assessment

In 2021, we conducted a high-level assessment of the financial implications of climate-related risks and opportunities for our business and the relevance of reporting in line with the recom­men­da­tions of the Task Force on Climate-related Financial Disclosures (TCFD). The assessment demonstrated that external risks do not turn into financial risks for KommuneKredit.

Clearly, climate change presents financial risks to both the Danish and the global economy. Municipalities and regions in Denmark are – and increasingly will be – affected by climate change, such as storms and flooding. They will also be affected by reforms related to financing, infrastructure etc. as Danish society transitions to a low-carbon society.

Over the past couple of years, our members have been taking up loans with KommuneKredit to finance the mitigation of greenhouse gas emissions and to adapt to a changing climate to protect their communities and businesses.  Consequently, we continue to increase our green funding offerings and have introduced a sustainable finance target towards 2025. 

However, climate risks may result in losses at the local level but will not translate into financial losses for KommuneKredit. In our 125 years as a financial vehicle for local development, we have never suffered losses on loans.

Positive impact on greenhouse gas reduction

KommuneKredit contributes to a positive impact by financing avoided/reduced greenhouse gas emissions through its green bond issuance. By year end 2023, more than 100,000 tonnes CO2e where reduced or avoided through our green bond issuance.

Read more in our Green Bond Impact Report 2024
Limitingadverseimpacts

Limiting adverse impacts on society

KommuneKredit seeks to limit adverse impacts on society from our own operations as well as the projects we finance. We have set an ESG target to reduce the greenhouse gas emissions from our own operations by at least 55 per cent by 2030 relative to 2018 levels. Additionally, we are in the process of mapping the carbon footprint of our financed emissions. Once this mapping process is complete, we will evaluate the possibility of setting reduction targets for the carbon footprint of our portfolios. Our financed adverse impact is limited in the sense that it is regulated by law to whom and for what purposes we are allowed to provide financing, and the proceeds of our bonds are not used for purposes other than those defined by the Danish State.

  1. Extraction and production of fossil fuels

  2. Weapons

  3. Tobacco

  4. Alcohol

Activities excluded from our financing

KommuneKredits financing is positively defined by legislation, meaning that we only finance purposes that are within the 16 categories specified in our regulation. Therefore, investors can also be assured that we do not finance any of the typically excluded activities listed in the bullet points. In addition, all the projects that we finance must comply with Danish regulations, including the protection of workers’ rights, human rights, environmental standards, anti-corruption and tax laws. All loan applications are subject to a rigorous legal due diligence process to ensure that they comply with the regulations before a loan is granted.

Read about the use of proceeds
esgdata

ESG data

KommuneKredit must have adequate data to assess ESG impacts and meet investors’ demand for nonfinancial data. ESG data risks involve both the production and reporting of data, including their breadth and coverage, as well as data governance to ensure quality. To set our ambition level for ESG data and reporting, we regularly identify our investors' needs and will continue to develop and optimise our system support for ESG data.

Contact us

If you would like to know more about treasury and sustainable financing in KommuneKredit, please feel free to contact us.

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