Good morning, and very welcome to this SEB event. It's, I think it's very nice to have so many people here in this room. It's very crowded, and I should also say a special welcome to all of you who are attending online, and I think there are many, lots of people that are following this event, and that is really, really nice, I would say. My name is Robert Bergqvist. I'm the Senior Economist at SEB, and with me here today:
Isabelle Tibbelin, and I'm working as a Sustainable Finance Advisor here at SEB. We are here to guide you all through this event. This is actually the third time that we are arranging this event. In 2021, SEB sharpened its sustainability strategy even further. We set targets and a roadmap to deliver on our net zero commitment, and that is what this event is all about. Because we said that we wanted to share our progress in a transparent way, and that is what we are going to do today.
Yep. I really look forward to this, I must say. I'm always a bit excited, but maybe I shouldn't say that so early in the morning, but I am excited.
But before we go through the practicalities-
Yep
... Robert, I want to ask you a question: What is your view of the world today?
Well, actually, we had that discussion before this event, and I guess most of you know that I'm a pessimist. I'm still a pessimist, but maybe I'm... I should add that I'm a optimistic, not optimistic, optimistic, but happy pessimist. Maybe. But, well, look at the world right now. You have all these kind of geopolitical events, now, the most recent in the Middle East. You have the climate crisis, you have the pandemic. It is quite easy to be a kind of pessimist, I would say.
Yes, but-
What about you? Are you a pessimist or an optimist?
Well, I'm leaning toward the optimist side of things-
Yeah
... as probably many of you know. I think what we will see in the upcoming years, with all the transparency disclosures, I do believe that both investors, but also our customers, and also corporates in general, will take some next steps in this transition.
Yeah. And maybe I should, because I shouldn't start with this kind of pessimistic view, because I must add that what I think was quite good, that was the pandemic. Not, not well, not the pandemic, but actually that we were able to create a vaccine within a very short period of time. And that shows, I would say, this kind of power of working together. When you have a common goal and you have a problem that need a global solution, if you get people together, the power of creativity, the power of working together, I think that is very nice to see.
Yes, it is.
Yep.
And hopefully-
Yep
... we will see that more today.
Exactly. So but let's start with some practical information, because I should also say that we hope that you have lots of questions, that you send the questions to us, and we will ask the speakers when you send the questions to us. And if you look at, I think you have received a text message earlier today, or maybe before today, so you have all these kind of instructions, how you can send the questions to the speakers. I should also say that we have emergency exits. Please take a look at them, the green signs.
Also, in case of emergency, the assembly point is between. I think it's quite far away, but it's between Mall of Scandinavia and Friends Arena.
Yes.
That is quite important information.
By that, I think it's time to start and kick off this event. We would like to do that with our Chairman of the Bank, Marcus Wallenberg. He will give a speech, and then we will come back and reflect on that. So let's start his speech.
Ladies and gentlemen, dear friends, my name is Marcus Wallenberg, and I am the Chair of SEB's Board of Directors. A warm welcome to everyone participating in this event. Today, we will discuss one of the major shifts of our time: the sustainability transition and how we together can accelerate change. This includes the financial sector, businesses, regulators, and other key stakeholders. One year ago, I spoke at this event about the significant changes that are now taking place: the energy crisis, the inflationary pressures, and Russia's invasion of Ukraine. Since then, we have witnessed another human tragedy and the related suffering in the Middle East. These events also serve as a reminder of how fragile our system of international trade and collaboration is. The geopolitical situation is highly concerning. At the same time, we must maintain our focus on the climate and other sustainability issues.
2023 has been yet another year of floods, droughts, and heatwaves. The consequences of climate-related disasters are felt across the globe, from wildfires ravaging forests to coastal communities facing rising sea levels. The sustainability issues must be addressed urgently. We must continue our work to transform how we produce and consume. The UN's latest Adaptation Gap Report finds that progress on climate adaptation is slowing when it needs actually to be accelerating. There are positive signs. We do see a sense of urgency across sectors. There is a global unity around the need for climate action. Consumers demand more sustainable products and services. The energy sector is changing rapidly to meet climate targets, partly due to the strong economic case for clean energy. In the financial sector, new standards, regulations, and tools increase transparency and encourage investments into more sustainable activities.
Still, the pace must be accelerated if our goals will be and should be achieved. There is a need to come together between politicians, regulators, academia, businesses, and the financial sector to achieve this, to act, plan, and coordinated our efforts to secure incentives for corporations to speed up the transition and to further develop the technological and financial solutions needed. Corporations have a key role to play in this transition. To access capital, companies will need to have a much more clear sustainability roadmap. Every link in the supply chain counts for the world to move towards net zero. At SEB, we have an important role to play in the transition. We have made sustainability a most important part of our purpose, namely, we exist to positively shape the future with responsible advice and capital, today and for generations to come. Our sustainability strategy sets out the framework.
We have adapted our business strategy to align with and contribute to the Paris Agreement. We are shifting our credit portfolio towards a more sustainable activity and to reduce the amount of CO₂ emissions that we finance. Our work is long term, and it's fact-based. Our ambitions and goals that we presented in 2021 are a key part of this. SEB's President and CEO, Johan Torgeby, and the SEB team will tell you more about this, about our progress. This journey is very important for the bank. At SEB, we have a long history of enabling big shifts in society. Since SEB was founded in 1856, we have participated in paving the way for electrification, for telecommunication, automation, and digitization by supporting entrepreneurs and aspiring businesses. Today, addressing climate change is a most urgent topic and at the top of our sustainability agenda.
As a bank, we connect capital with ideas. We can be a catalyst for positive change. We can provide expertise and financial solutions to corporations, entrepreneurs, and households. We actively support our customers in their sustainability transitions, also those who have a longer journey ahead. This is how we achieve the greatest possible impact, while also standing by the side of our transforming customers. As part of this important effort, we bring different stakeholders together to accelerate change, as we do in arranging today's event. Ladies and gentlemen, I wish you an inspiring morning and look forward to an engaging discussion. Once again, welcome.
Okay, very, very good, and I think that was a kind of mix of optimism and, maybe some pessimist, pessimism as well.
A mix between you and me then.
Exactly. Yeah, that's good. But I made some notes, which I think it was quite interesting, from his speech. He's saying that in current challenging economic and geopolitical environment, and I subscribe to that, it's important that we don't lose focus on the climate. So that is, of course, very important. But he also said, and I think this is even more important, tat maybe sustainability has gained so much importance and momentum that that will no longer be the case or the risk. So hopefully, we are in that kind of process. And I guess that hopefully, we will get some insights also during this morning. What did you take from the chairman's speech?
Yeah, I also made some notes, actually, and one reflections that I do, which Marcus Wallenberg was saying, was that we support our clients in the transition. Because I feel that we, as a bank, often tends to be in the middle of discussions in society, whether to exclude companies from financing in investments, but also to support customers with credible transition plans, and to sort of help them to be a part of this global movement that we need. So I thought that was interesting-
to hear from Marcus.
Yeah. I agree.
With that said, it's now time to welcome our President and CEO of the bank, Johan Torgeby, up on the stage. Johan, you will talk about sustainability as adding value, and you will also speak a little bit about SEB's progress on our targets and our ambition. Before you start, I just want to say that there will be time to ask Johan questions, but that will be after his presentation. I give it over to you, Johan.
Thank you very much, and I also want to extend a warm welcome to all of you. I don't know if I've told you how this came about. If I have, you will have to listen to it one more time. We have in SEB a very wide variety of events. We have conferences, we have meetings like this, bilaterals, small, exclusive sessions, very large ones, public and private. But the four most important ones are actually around our quarterly results. Then we have a press conference, we are in media for about 24 hours, and we kind of engage to meet everyone who's interested. For many years, we had, as we do still, a thematic on every quarterly result.
So not only going through the last 60 working days or the last 90 calendar days, because it's a very short-term focus, but we introduce something we think is of a topical or a broader narrative. But it always disappears because the day is such a circus around how are you performing financially. And we've had sustainability for probably 15 quarters in a row, and there was just no energy around it. No questions came. It was all on net interest income, or the return on equity, or whatever is presented on the day. So we said, "Let's complement that day or even take it away and do one solely dedicated," because this is an important topic, and it's not well-equipped for a six-minute presentation. It's hours, and it's follow, and it's years.
So that's how this came about three years ago, or this is the third time we do it, and I'll just give you some numbers. We typically have 40, 50 analysts and media calling in on a quarterly result. Today, we have 800. We typically have a few hundred consuming the news around a quarterly result. Last year, we had more than 1 million consuming this event, and it streamed also live on TV through Dagens Industri. And I don't think we have any event anywhere in history of SEB that even comes close to one million. A million is actually a quite widely watched TV program on state TV channel, and that's kind of what this event means. So thank you very much for participating. I'd just like to just start with where are we?
And this is a graph that doesn't change, but it is quite important just to remind ourselves, what is the purpose of what we do? And we want to save the planet. We want to take out CO2 from the atmosphere because we get so bogged down in just marketing and trying to find new products and disclosures, that sometimes I find, don't forget what the purpose is, and make sure everything you do is actually extracting some CO2 from the atmosphere or emitting less. And here we've seen that we continue, in this day and age, to spew out everything we've done over the last 20 years. It's still 40-45 billion tons of annual CO2 still emitted in the atmosphere. We also have here to the right, which also the chairman mentioned, this dramatic change in extreme weather condition.
Here we have drought, extreme temperature days, storms, floods, wildfires, and both these, as a banker, are enormously large investment required to fix. One is the planet's dependence on fossil. That is a huge endeavor, probably this generation's toughest thing to solve, but also the investments to protect physical assets, human lives, health, that is now coming on a daily basis to our knowledge around how we are suffering from some of the consequences. This is one of the ones I like, how to define sustainability, and that is really that a development that meets today's needs without compromising the needs for future generation. And I think often we make it a little bit too simple, but the trick is not to shut off the light of everything right now.
It's to keep the lights on for today's needs, while we are developing something that is not making it more difficult in the future. But I'll share three different, I think, different, perspectives on sustainability, and that's from a business person's point of view. And the first perspective, it's actually stolen the Ikigai that I'm sure some of you already know, and I love this model. We use it all the time for leadership and personal development, but now I'm gonna try to just talk about it as what is sustainability? Because it's actually me as well. You can start with yourself. You don't need to just look at data on the planet and make sure that you're trying to address things that you needs, that you see needs to be addressed.
Sustainability is also about harmony, it's about health, it's about me doing a good job, it's about an institution like SEB being everything it can be. Let me just run through the Ikigai if you're not familiar with it. The first thing I'd like any institution, individual, or phenomena to do, it's nice if there's some passion to it, that you love doing it. Who wants to wake up every morning to go to an institution that doesn't care of what it does or that I don't like what I'm doing? So that's the ego, the passion ego in me. I would like to do things. If I only went with this, I would play the drums all day long 'cause that's what I love doing. But it's not that easy. You need to something else.
You also need to be good at it. Otherwise, you are spending time on something that might not be productive or value-creating for yourself or for anyone else. So if you really want harmony, you would like to do something you like, and you'd like to be good at it, that you're producing something that is worth its name. And then the classic one that is very often forgotten, you actually, if you want a sustainable business, you need to get paid for it. You need, over time, to have income that are higher than your costs.... And if you don't have that over time, you don't have a sustainability, sustainable spot at all.
So if, and I think we are, of course, now very brave, we are having this huge transformation in the economy, and we need to take some really big investment decisions on things with great uncertainty because we don't know. We do not know how the reward will look like, and what do you need in those? You need courage and wisdom. That's the only two things that you need, and you need to accept that it goes wrong. In the old days, this is kinda where you stopped in a company. If you have a company which is really loving its own place in the world, they're really good at it, and they make a lot of money, that's pretty good company. But it isn't when it comes to sustainability. You also would like that you do something that the world needs.
Don't subtract from the planet, don't subtract from the environment, and it's all the issues, the broadest possible definition. Do you have an ability to add to it? And then I get into this little mega, sweet spot in the middle here. Wouldn't that be nice? If we have these four filters on everything that we do, and that's kind of one way for me to think about sustainability. Now, I like to look at these Venn diagrams for where you're not optimal. So this one. Here, you do what the world needs, you love what you do, and you do get paid for it. This is where you're very excited about yourself. You're actually quite complacent, but you are uncertain. Because if you're no good at it, you are always not happy.
There's non-harmony in not being good because you are being challenged, and one day someone might call you out, and you don't have a place. What if you are paid for it, you do what the world needs, and you're good at it? This is extremely comfortable and combined with a feeling of emptiness. It's not what I love. It's a job that I don't really care for. The other position is, of course, I'm good at it, I get paid for it, and I really love it. This is when... Well, if I was a musician, I love it, I hopefully would be good at it, and I could sell some records, but it's really crap music, and no one else gets anything for it in the world. And that's a satisfaction that I get, but a sense of uselessness.
It doesn't give anyone anything else. It's like the best hobby ever that you actually get paid for. And then you love it, you, the world needs it, and you're good at it. It's a very delightful place, but you do not create any value defined as wealth. And finance, of course, from a business perspective, is always a key metric to keep in mind. Anyway, the sweet spot, I put sustainable. This is sustainable if you can hit the sweet spot. Another perspective I wanna share is when we talk about value creation, or actually, too little people, I think, talk about it, there are, in my opinion, three versions of value. And sometimes you need to know which one are you talking about. So new value creation. See how this slide works? It looks it works like that.
New value creation, for me, is when you do something today, your firm, your institution, or yourself, that you did not do yesterday. It's an invention, it's an innovation, you're breaking some new ground, which has a value attributable to it. So this is one value. This is where we go in, all in, and we think about new ways to find and capture carbon from the atmosphere using a technology no longer existing, a new energy generation methodology, a small innovation, where we just tweak something we do today, but it has a good and improving impact on whatever it's supposed to do. The other value, which is, of course, the financial markets, number one, it's a value appreciation. This is buy cheap, sell expensive. This is the house. Your house, it appraciates the value. You buy a stock.
It's roughly the same company as yesterday, but today it will change in value, and many people will ask you, "So how much value have you created in SEB?" They will look at the total shareholder return, the value appreciation observable in the market, and there's a whole, you know, billions of people daily attributing the value in this type of forum, and there's no right or wrong, and they are not in conflict. It's just a different way, way of value creation. This is where something goes up in value. Then you have value preservation, which for a banker is kind of how you wake up every morning. It's when you have something of value, and you want to mitigate the downside risk of it being destroyed. It's very, very commonly used also in sustainability. The planet, nature, is of great value.
How do you preserve a value? Don't destroy it, and even better, you know, warehouse it, safeguard it. So when you have money in a bank account, it is all about value preservation. It's making sure that the whole society can park financial assets in a place where they are deemed to be safe. And it's a great value creation because it's avoiding value destruction. And these three are very different in where you operate, and I think in a well-thought-out strategy, you have all three. You need to do them concurrently with each other. Then the third perspective is kind of this conflict between value and sustainability, which I think is kind of maybe getting a little bit old.
But at least we found this quite interesting, and this is actually a few different studies, but there was one collective study of 1,000 studies looking at financial performance, how it correlates with ESG or sustainability classifications. So the graph to your left concludes that if you look at all ESG factors available to these researchers, or you look at climate only, there is a 57%-58% positive correlation between ESG performance and financial performance. So the evidence of these 1,000-plus academic studies is that there are clear evidence pointing to there is something there. But life is not black and white.... You do have 6% in the negative climate category. So there are 6% of these studies saying there's a negative correlation, and anyone can interpret these data as one see fit.
But I choose to try to do it as mathematically as possible and say that there is somewhere between 94 and 92% of all academic studies produced between 2015 and 2020, pointing to no negative. And that's a pretty good place to start with me. If you have a vast majority of everyone who's looking into it, pointing to a neutral or a positive correlation, for me, it becomes a no-brainer. As a business leader and trying to devise a strategy, you have to go on this. McKinsey had done the one to your right, and that is just looking at how you have transformed over a four-year period or a five-year period in your ESG rating versus your financial performance as total shareholder returns.
And again, you find a pretty compelling evidence that these are hundreds and hundreds of companies, that if you've improved your score in ESG, you also tend to have, on average, a positive correlation with your total shareholder return. So now, I've just offered three different perspectives and summarized the academic ones like this: There are evidence of positive correlation between ESG and financial performance. There's also evidence of higher enterprise value to EBITDA multiples, which is just a fancy way of saying appreciation. So you have an enterprise value. How many times your earnings is that worth? And that is when a business is valued more high.
You have some my favorite example is Tesla, who is generally viewed to be a future-proof automotive company or a tech company, and look at what they are valued compared to their profit, compared to a German automotive. I'm not saying what's right or wrong, I'm just acknowledging the fact that the difference is humongous, and you need to take it seriously. That's the earnings multiple because you are deemed to be future-proof. There's also a point that disclosure in itself is actually inconclusive if it actually happens, but disclosure coupled with a effective communication strategy in the firm is very desirable. Downside protection, this is the value preservation that also in times of stress, distress, and crises, companies with high ESG scores tend to be more robust and more resilient.
And lastly, as many will know, it's also evident that attracting human capital, talent, retain and attract, is also correlated to the focus of ESG, as we often hear, that employee loyalty and talent acquisition, they care a lot about the purpose of the firm or the task they are asked to do. Now, as this is called transition in numbers, you will get a lot of numbers. So we use this, event as, also getting through the last 12 months of development in these simple, type of key, performance indices that we have announced that we use in the bank. We are, of course, waiting, and would love to have a much more, globally accepted common standard for how to disclose what brown and green, or what do harm, or what do less harm, or what do good do one do.
We will hear from the formidable Liikanen later today about what we are doing and hearing that. We can just conclude on the brown. So this is the Carbon Exposure Index. So this is the composition of our energy portfolio with a high fossil exposure, has gone down by roughly 34% since we started with a reference point of 19. And I'll come back to that. We will revise this target as we've done better than expected, particularly within the oil and gas subcategory. So, a little bit better than planned. We continue to calibrate and update the two toughest, call it fossil reduction schemes that is required for Paris alignment and for the 1.5 degrees.
And we use the Net Zero World from International Energy Agency, the blue box, and we use the Divergent Net Zero from NGFS, which is the Central Bankers Coalition, and look at which one is the tightest one, and we try to be better than the tightest one. And then this is a proxy. If we can reduce our content to fossil exposure faster or in line with those who are deemed... This is not for banking industry, we just kind of copy-paste it. It's for the energy industry. And we continue to revise those, and they've changed a little bit, so they will go up and down over time. Mostly down, I'm sure.
Then we have a few double clicks on the brown, and the first I want to show is the energy companies in this category, which are, of course, the particularly demanding ones, the ones that do harm is in this massive transition. It's a very difficult thing for an oil company or an energy company of any sort to try to mitigate the do harm activities without creating a very unstable footing for employees, for society, because we are still in the, the, in need of many of these products. We are not yet ready to go cold turkey on all these things. But this is, I think, a quite interesting development. So SEB, we've increased our lending exposure to the energy industry since 2019 to 2023, with roughly EUR 2 billion.
So this is a good business for SEB. We are growing our energy business, but we have a double positive in the content. First, the outright volume that goes to a fossil share out of that has been reduced, and the proportion has been reduced even further. So we are getting here in, on a very nice trajectory. If you extrapolate that, it becomes harder and harder. We can definitely see the 2030 target being achievable, that we have, with a significant reduction. The other thing is the conundrum of the should you bank an oil company or should you bank a utility? And we are, of course, as my chairman previously, we have decided to try to engage and be a positive catalyst as much as possible.
Not always, but as much as possible, because if you're not, if you disengage yourself completely, you don't even have a voice. But, and then you can never say you do anything good. And this is, of course, a very sensitive topic because some measure, the best success in a bank is not to be involved, and we do not. We think it's better for us to be involved. And here you can see the proportion of sustainability-related financing done by the, by the most fossil-intensive energy industry. So this is the ones that we are really struggling with. They are also the most prone to do large investments in trying to do less bad to begin with and do good. And it's the same company.
I can tell you, to have 21%, more than one-fifth of all the financings in this industry now being sustainability related, it's, yeah, significantly more than the average company would do. We will come to that. It's roughly 8% the average company would do in terms of its financing, to be able to earmark something that is of good, do good nature in order to get a financing that has the stamp, "Sustainability related." On the green, we measure the green, which is, of course, the future, the super cycle for banks, to be part of helping clients to move faster and to create a financial marketplace with a limited, transaction costs and seamless access to capital to realize anyone's in dream, if it's a entrepreneur, all the way up to the largest companies in the world that need significant money.
We're talking thousands of billions of dollars to come in order to change the infrastructure of the planet. We have these four measures. One way we do it is by sustainability-related financing. These are financings on our books. It's SEB, its own money. We've sourced it from the shareholders, we lever it up 20 times, and we decide where to put it to work. Then we have sustainability financial advisory. This is where we are the intermediary. It's not our money. We find institutional investors and private individuals who would like to invest in a purposeful manner in this particular company or in this particular project, and we then find the company, the project, in order to satisfy that requirement, and we make sure that we put that transaction together. That's the advisory bit. We charge a fee for that.
We get interest in the financing. Then we invest in clean tech, green tech. This is our own capital that we put into entrepreneurs, often like equity-like capital, to help a young company, an immature company, to realize their dream. And the fourth one is, of course, the savings area, where we have investment funds that, in this example, are classified under the Article 9, and we measure the proportion of all the funds that we provide to the general public to invest in, and we have very high ambitions in all four, as you can see on this slide, to the 2030. Now, last year, we have done 113% up, so it's a fantastic business that has grown very, very quickly from 2021.
The last year, we had weaknesses in the development in sustainability-related financing and sustainability savings and investments. That is not because there's less focus, it is because of macro. So right now, the loan demand in the economy, both from households and from corporates, is muted, and it's actually going down because we are trying to cool off the economy. We are making sure that unemployment is coming up, investments are coming down, consumption is coming down in order to fight off the bigger problem: inflation. That has also, of course, led to not the best climate for investing, so stock markets have moved sideways, and we haven't had any real ability to save more and invest more. The opposite has actually been true.
Many households are going on their knees, and they need to just fight inflation through stopping savings, even tapping in to some of their previous savings in order to get life to go around. Another is to then put the brown and the green in the context of the group. So the vast majority is very difficult to earmark. It's certainly not brown, and it's certainly not green. And we can at least see that the brown that we've just went through is gone from 4.8% of the total exposure in the group down to 2.8, and there, of course, zero. When we can round this off to a zero, we're all gonna be happy. But we don't wanna do that by disengaging us.
We wanna do that because our client base has been doing a lot of positive moves. Then, the ever-growing portfolio, part of the portfolio, which is in the sustainability-related area, has now gone up, and it pretty much doubled since 2021, which, you know, we do have a balance sheet of SEK 4,000 billion. We have thousands of billions of lending. So these are huge numbers, even though the percentages might be in the single digits. Now, that's the homemade targets that we started two, three years ago, when there was no conclusion in the market. How can a bank describe how much energy, fossil energy lending they have, and what do they do on the sustainability side?
Now, we come to the more international one, which we kind of announced last year, and just a follow-up, so I won't dwell too much on. This is the targets that we have set, completely separate from the ones I just went through, in the Net-Zero Banking Alliance. And I can't remember now, is it 40, 45 banks or so in the world who have signed up? Anyone can confirm that number? More than that, you know the number, or?... No, but it's more than 40, 45.
85. And this is voluntary, and you do this, and there's at least some methodology that you are instructed to do. So comparability might not be great, but it's the best thing we have now, and it gives us the unique tool to look at SEB's exposure. Every bank will choose whatever they have. These are the ones we have chose: oil and gas, power, steel, cars, mortgages, and this year we add another one, which is heavy vehicle manufacturing, because these are highly relevant to us. But that means that we can, in the future, compare ourselves to other banks who have highly relevant exposures to these sectors. You can follow this in your own time, but I'll just double-click on the two changes from last year, and the first one is oil and gas. So we started out at 100.
We had a goal. And so, no, this graph is a little bit tricky to understand, I find. The gray area is a plot of all the banks that have committed their own targets. So the highest point in the gray area, that's 77, that is the least committed bank in this, but that's still a significant reduction for them. And the most ambitious bank, it's around the 30 mark. And all banks are in the shaded area, so different banks have different ambitions. We used to be at the 44, not at the very, very top, because we start in a pretty good place.
However, we've done a tremendous job, and I must thank our whole division, Large Corporates and Financial Institutions, because this has really been done with very little disturbance into the average, the general business, but we have taken it down significantly, and therefore, we've changed the target from the 44 to be absolute on par with the best to the 2030. And then that means that we have another 20 years to get it. I mean, in the end, we would like to get it as close to zero as possible. The other one is the new, which is a very simple metric, and that is the heavy truck and vehicle industry. And in 2022, 0.5% of all heavy trucks sold in the world, they were electric.
The target is to 2030, that SEB's client base, on average, are then having a composition of electric heavy truck vehicles, where 35% of everything being sold in 2030 is electrified. To conclude this presentation, I think we continue to face a grave challenge of CO2, as my first couple of slides. Then I think I made a, at least something we feel very strongly about, that sustainability and value creation goes hand in hand, and I gave a few different perspectives. SEB is, with our own targets, broadly progressing in line with them or a little bit better. But this is a really long-term play, so don't forget, it's just the beginning. Thank you very much for your attention.
Thank you so much, Johan, for an interesting presentation. And, while we're waiting for questions from the audience, I thought I could start with asking you some questions, which I have prepared. So if we start off with, you said, but also Marcus Wallenberg was saying that, we face an uncertain macroeconomic as of now, but we also see, geopolitical shifts in society as well. Does that impact SEB's sustainability strategy or goals anyhow?
Not really. I think you should divide every event around you as a cyclical or a structural change, and we have enormous power in the cyclical change right now. Cyclical change doesn't change our strategy. Structural might. But there are a few things that happen. So the war in Ukraine has had meaningful impact on structural change, and that is, of course, to cut 30%-40% of whatever gas or fossil supply we got from Russia; we have to adapt. But it's a positive thing, and it also means that distress, cyclically, typically leads to higher prices of energy, which makes it more economically incentivized to try to find a solution. Volatility is a very good friend of people who want to reinvest in something more stable.
So if you are a positive, in the short run, you have to put up a few, a few coal-fired plants immediately. So be it, because we need to take care of here and now. But in the medium to long term, I think it's worked as a very good accentuator to the need for security, energy stability, energy security, and and therefore accelerating this. And it's not all about economics, and sometimes you need a heart to be married with finance. It can't be only heart, and it can't be only finance, because you don't get it done, and that's exactly what I find happening right now.
Thank you. Robert-
I have several questions now.
Did I do it again, Robert?
Yeah. Should we come a little bit closer to Robert?
Okay, I can-
Let's start with this one. Beyond-
Should we go very close or?
Beyond climate mitigation, what other target areas do you see coming up as sustainability target areas?
I mean, the TCFD is now more or less changing name to the nature instead of climate. So I would say biodiversity and nature at large is probably the next frontier. We've been at it for a few years, and I must say, it is much more difficult. The nice thing with CO2... Well, it's typically not a nice thing, but there are a few good things about it. It is. It's comparable, it's quite easy to calculate, and it's a common denominator for a lot of things that we are addressing one problem. But to look at flora or fauna, how a reef is protected, it's much less of a common denominator. It's, like, very specific activities that might harm particularly this part of the flora or this part of the fauna, and it's not as easy.
For bankers, we need some really good metrics that can be described to investors and to companies to create a financing around it. So, I think it's, as always, a great invitation to anyone in this industry, 'cause this is the Holy Grail right now. How do you mirror what we've done in green financing or sustainability linked, which is exploding, into also incorporate more on nature? And the good thing is, it's happening a little bit because in the sustainability-linked framework, any company or any investor can pick one or two areas that are not necessarily CO2. It can be social, it can be health, it can be obesity, it can be whatever you like, and widen the concept. But in the financial market, nothing can really compare to the green and the sustainability link right now. So a big challenge for all of us. Mm-hmm.
There are so many questions. Can I continue?
Yeah, yeah. Continue, continue.
You are very active. Is the bank working on circular economy?
Yeah. It's actually part of nature. So circularity is probably one of the more promising areas. And here it is, we have many circular systems already, but we can definitely institutionalize this at large scale with industrial. So I know Jonas Ahlström should answer the question because he has better the details than me later, but it is definitely on top of the agenda.
Good. I have also a question about... is there any interest from clients to invest in brown transition products?
Well, there are two. There's brown transition is where you more or less look at do less harm. There is a lot of interest, particularly the industries around it that are dependent on it, because for them, it's a fight for survival. We can all sit here and talk about the Global South and point fingers around, but honestly, they need to put the gas on in the morning to get their food heated. They need the cooling, they need the energy, and it's very easy to sit up here. For them to do less harm, but still doing harm, there are many who are also interested in. There are also many who do not like that at all. So there will be.
Then there is, of course, this irony of why do you want to limit the capital markets and the banking industry, financial providers, to put capital into a certain direction? Why is it politically or sustainability or environmentally desirable to make it less available? It's because you want to increase the cost of funds. You want to reduce the ability to get money to work in favor of an investment in the oil industry or something do harm. And this is a dangerous thing on one hand because you can use political desires so far that you use the regulatory environment for banks and dictating those whom you lend to and whom you don't. And that has enormous social implications if you get that wrong, and political desires tend to change all the time. So we know that.
So we are, of course, very keen to have a protection around what's called the prudential regulation. We know that the prudential regulation is there to make the financial market stable, to make sure banks don't do the wrong thing because the consequences are dire if the financial system doesn't run. It's not designed to pinpoint one particular company or industry, but of course, it's a very powerful regulatory tool because it dictates what we do, whom we lend to, and what it costs. But rather engage in a completely new type of framework, which we will hear, you know, transparency of data starts with it, which is fit for purpose. And then also agree with academia and everyone. We have science-based target on the environment, but we don't have really science-based target for banking.
What does it mean to do a green bond? And I'm really worried about greenwashing, that we will end up having spoken too highly about what we're trying to do, and you get criticized instead of trying too hard and, you know, self-promoting yourself too great, which is a real risk in the financial industry right now.
Mm-hmm. I think we have-
Do you have another-
... one more question.
One more question. Okay. What do you think will be the next area for sustainability product development?
Nature. So biodiversity linked, nature linked, that's the number one, because I think more or less, all of us have some impact on, on, on the nature. And I, I like—I'm thinking about the air, and my favorite example is, if I have a plot of land and I have a house on it, and you come into my backyard, and you start digging in my ground, I will be out there, and I will be very upset with you. You're destroying my physical plot. The millions of cubic meters of air that I own above this plot of land, I can't control. I actually don't find it to be mine. So you will pollute that channel of air all the way up to the atmosphere without any cost to you, and I won't go out and be angry with you. Well, I might these days.
But this is the next one. So all these things that the economists would call common goods, goods that are not well equipped to be priced in the market. They are for free, like the water we drive a boat on or the air that we consume. We tend to overconsume it. And in order to get a price on it, it's the starting point. And then when you get a strike price on it, you can develop financing, and you can see who has the asset of clean air and who has the liability of dirty air, and all of a sudden, the magic happens.
Mm-hmm. Good.
Thank you so much, Johan, and-
Could I ask a final question? Are you an optimist or a pessimist?
You know, well, I'm a banker.
Okay.
Assume the worst, hope for the best-
That's good
... and that's kind of where I operate.
Yeah. Good. Thank you.
Thank you so much, Johan.
Thank you.
We will welcome you back on the stage in a while.
Thank you.
Now it has been time for me to give a warm welcome to Maria Rimbäck, Head of SEB Corporate Coverage Sweden, and she will take over the next program item.
Thank you very much, Isabelle. Corporates, small and large ones, have a key role to play in the transition. At SEB, we're convinced that we can make the greatest positive impact by partnering with our customers, and in that way, support them on their transition journey, and we can support with events like this, insights, advice, and of course, capital, so that they can reach their targets. I speak with customers on a daily basis, and the demand for our sustainability-oriented products and services is constantly increasing. At SEB, we are continuously developing our offering to be in the forefront of these dialogues. It's also evident when speaking to customers today, and corporates in general, that sustainability is seen both as a responsibility, but also as a business opportunity, and very well integrated in corporate strategies.
This is what we will hear more about today. We have three customers, who will talk about their transition journeys towards low carbon emission, and they will share their experiences from this transition journey. They will talk about the challenge that they have, the actions that they've taken, the goals and targets that they've set up, and also the results that they've seen so far. First, after the three presentations, we'll also have a panel discussion with two of the speakers. But first, let us now listen to the world-leading logistics company, DHL Group. And here to present, we have Dr. Klaus Hufschlag, who's Senior Vice President of Sustainability Reporting and Controlling at DHL. And you are also very involved in the European standard-setting process as a member of the EFRAG Sustainability Reporting Technical Expert Group. Warm welcome.
Yeah, good morning, and thank you for having me here. And I'm happy to present our company and our company sustainability agenda. You already heard about some key figures, so we are a world-spanning logistics provider, maybe the biggest and largest network connecting people all around the world. You can send shipments today and have them delivered tomorrow at more or less every place of the world. We ship not only parcels and small shipments, you can also send containers, and we are very large as well in warehousing business and supply chain logistics. For sure, all we do also takes energy. It consumes a lot of energy, and having 300 aircraft in place, this makes us a large airline already. And this implies a significant carbon footprint.
Our carbon footprint in 2022 was around 36 million tons of CO2 equivalent. This is an abstract figure, but it gets more concrete if you compare it to the size of the emissions of Denmark. So it's really a significant impact. We are also. Logistics is a people business. Yeah, we are also among the largest employer on this planet. We are the eleventh largest employer on the world, with around 600,000 people working for us every day. We are, yeah, globally world-spanning. We are in every country. 220 countries on the world you can connect to with us. This also means that we have to operate in every legislation. So, we have to have targets.
We have to have targets on the environment, and here it's clearly the carbon footprint we want to manage down, we want to reduce. 600,000 people give us a strong social responsibility that derives our social targets. And yes, in 220 legal environments, this means you have to comply with all of them. And that's what defines our ESG roadmap and our ESG targets we've set in 2021. And first of all, setting a target is the one thing, choosing the right target is another. We've chosen to go for a science-based target. So going on a reduction path that is specific to the industry, that's challenging, but also deemed to be feasible and realistic, and something we have to achieve somehow. So we want to reduce our emissions below 29 million tons.
That's the pathway we have to come to. Furthermore, I mentioned logistics is a people business, and this also means that we need happy people, we need motivated people. So the key goal is to measure this, their engagement, that they are motivated to work for the company. We can do so by providing them a safe workplace. Safety, health, and safety is a paramount means to achieve that, so we want to reduce our accident rate. To provide a diverse workplace. Diversity is hard to measure, but we can measure the share of women. We want to increase the share of women in management to 30% already by 2025. Yes, I said we need to be highly trusted in every environment. That's also why compliance is a very important thing.
Compliance is hard to measure, but we can measure parts of that, like cybersecurity. So we have ambitious targets on cybersecurity as well. We engage. We furthermore engage in the communities we work in. I don't explain all the programs, but I want to mention one because it combines what the world needs and what we are good at, without being paid for that. That's our Disaster Response Teams. Whenever something happens on this world, a catastrophe happens, typically you have a small airport where all the help comes in, and then they are completely overwhelmed by it.
And we have a dedicated team that, together with the UN, or supported by the UN, in connection with the UN, goes there and organize the, this, the ground handling to make sure that the—all the goods that come there to help are distributed and do not just stay on the ground, and block the airfield. So these Disaster Response Teams, they are this combination of the two aspects. Now, we've set up controlling mechanisms to manage all that. I'm a finance guy. I'm coming from the accounting domains, so accounting, reporting, that's my business, reporting on that, steering on that. So we measure all those KPIs on a monthly basis, report them to management. We do planning, targets, so target setting, planning, and we compare ourselves against the plans to drive what is happening. And for sure, key topic is climate change.
We had 39 million tons in 2021, 39 million tons. We talk about 36 for 2022, for sure. That's also... There was a corona peak in it, on the emissions. Our we still want to grow our business, and if we do so, we would end up somewhere far above 40. So what we have to do is we have to take measures to drive that down. We have to do this green downward vector, which we call the realized decarbonization effect. That's what we are measuring, and that's what we are controlling and incentivizing in the group. Yeah. Also, our board of management is incentivized on those target, and especially on all the targets, but especially also on this one. How can we do so? Well, we have to invest.
We said we will invest up to EUR 7 billion until 2030 into the decarbonization of our business, and we can do so by, well, starting with the ground, electrification of the fleet. We already run, I think it's the largest fleet of electrical vehicles, with about 30,000 electric delivery vans, and continue to roll that out. Nevertheless, having 300 aircraft, the biggest share of our footprint comes from aviation, and by the time, there is no alternative technologies available that are already scalable, to replace that. The only thing is to substitute the fuel. So the second, so the important lever we have here is substituting traditional kerosene by sustainable aviation fuels. So we're aiming at a 30% share of sustainable aviation fuels by 2030 and actively drive that.
This means also, we announced we will buy it because we need the production capacities to rise. We have to make a market there, and we create demand on that market. For sure, also, our buildings, all the new buildings are designed to be carbon neutral. This also works best if we don't do it on our own, but also if our customers engage with that on improving that. We engage with our suppliers, we engage with our customers, so we provide products that are already carbon reduced or carbon neutral today. And that's an important thing. The entire journey will only work if also the customer side contributes by honoring those products. They may be a little more expensive, but that's what it takes. That helps us also to finance that.
You mentioned the question about economic downturn, and in how far sustainability is needs to continue. It has to continue. We have to stick to the topic, but we can only do so if everybody does. So that's the key message behind. We are very confident, and we are good on track to make that, but for sure, it remains a challenge, but it's a challenge that motivates us, so also pays back to the people target. And it's a challenge we believe in, that it's without alternative. Thank you very much.
Thank you very much, Dr. Hufschlag, and we look forward to have you here back on stage after the other presentations, and joining me for the panel discussion. Next, we will turn our focus to Gothenburg and the industrial company, SKF. With us from SKF, we have Magnus Rosén, who's head of Sustainability at SKF, and he's joining us digitally today. Very thankful for that. He has been driving SKF's sustainability agenda for the past 15 years, and prior to that, he also held senior positions within business development and strategy. Magnus' academic records includes the great combination of a Master of Science in Industrial Engineering, as well as a PhD in Business Administration, focusing on integration of sustainability and business strategies. Over to you, Magnus.
Thank you so much for that introduction, Maria. Good morning, everyone. Very nice to meet you. Sorry, I couldn't join you in Stockholm, but I'm quite happy I could anyhow join via link. So, to begin with, I will give a very short overview of SKF's work related to sustainability and the climate transformation agenda. Then we'll have a look at the targets, sharing some of the actions we are running, including the results. And then to round off, I will reflect a bit upon a couple of the challenges ahead of us. But, I mean, to begin with, let's just underline, sustainability is not only the right thing to do, but it actually makes business sense. I mean, science is clear, increasing regulations are coming, and there are shifts in the markets and in the technologies.
We see increasing and new customer requirements, and as employees, we connect this to the purpose. I think that is quite clear in the case of SKF. To me, I think sustainability must become integrated in the business strategy, and it must become part of the normal way of working, and that is what I hope to show throughout these few minutes. So now, if we take a look at this first slide, I just want to underline that climate work and the sustainability agenda is not new to SKF. We aave, in fact, been working on these things for a number of years already, and just to mention a few examples.
So, we have done setting climate targets and done greenhouse gas reporting for very many years, and I would say with good results. If we go back, you know, 15, 20 years or so, it's quite clear that we have significantly reduced energy use, as well as greenhouse gas emissions from the SKF operations, while at the same time, we have been growing the revenues. So in a way, it's a decoupling of, on the one hand side, the economic growth, and the other hand side, the climate impact. We also do connect the sustainability agenda to the financing approaches, and here also with great collaboration with the SEB team.
We have launched two green bonds, one of EUR 300 million in 2019, and another one of EUR 400 million in 2022, financing investments and R&D in line with the strategy. Third example is related to the product's impact, where we have done quite a number of studies over the years. Product carbon footprint is one such example, so basically, how much CO2 it takes to produce a product. If we look at SKF bearings, it takes around 0.55 kg of CO2 to produce one kg of bearing. That is Scope 1 and 2. If we also include Scope 3 upstream, it's around 3.9 kg of CO2 per kg of bearing.
Of course, product-specific data varies quite a lot, depending on where the product is being manufactured and choices throughout the supply chain, and so on. Anyhow, that data I share now is 2022. If we go back, we have actually, since 2015, reduced this by 61%. So 2015 up until 2022 is a reduction of 61%. And I would say, based on that work, and now, please, next slide. We have defined, I would say, quite ambitious targets going forward, which is for our own operations to reduce scope one and two emissions by 95% in 2030, with a baseline of 2019. We call that decarbonized operations.
Then we are aiming for net zero throughout the full value chain by 2050. And for that, we have built quite comprehensive plans, which we are now putting in place and implementing. Earlier this year, we had the targets approved by the SBTi, and, you know, now we are committed to getting the work done. Now, of course, setting high ambitions is one thing. The key now is to make sure this happens in practice. We need to implement quite a number of, you know, real decisions and real actions, and I will just now share a few of these things, actually, stuff that we have been working on this year. So if we take a look at the next slide, please.
Let me just say, I mean, our greenhouse gas emissions, they relate very much to the energy we use, in our operations, where the main energy type is electricity. We currently have around 50%, or actually a bit more than 50%, of all electricity used in SKF globally coming from renewable. The target for that is to reach 100% by 2030. And as part of the strategy to reach that, we have earlier this year announced a long-term virtual power purchase agreement that is representing around 50% of the electricity use of all SKF European factories and, also adding renewable energy capacity to the grid.
Next example is about the fact that we are phasing out fossil fuel in our own operations, and we have put a ban on such investments in our own factories, and with that, also put in place a dedicated investment frame for the decarbonization and for energy efficiency to accelerate the transition and to reach the 2030 target. So that is SEK 3 billion. We are planning for around SEK 500 million per year over the next six years. And already now, we do have three factories which are decarbonized. We have Tudela in Spain, Steyr in Austria, and also Gothenburg in Sweden. So, I mean, we do know that this is... It is possible.
A third example is about the quantification of environmental impact of the products, where we have also this year announced new, global product category rules for bearings to help actually build, methods and better transparency and comparability between companies, in this area. You know, there are, other examples. We know we need to do much more, and we are committed to do that. I was also asked to say something about the challenges, and I mean, there are, of course, a number of challenges to get this right, and I will reflect on just a couple of them. The first point, I think we need to dare to rethink and question some of the things we have taken for granted in the past.
So basically, you know, running the business as we have always done, I don't think that will do the trick. So we need to recognize this will require change, and one of the key points in this, I believe, is to get sustainability well integrated into the normal business practice, whether it is in sourcing or product development, running the factories, bringing it into the innovation process, products and services, sales, and so on. I think sustainability will not happen on the side. It must become part of the normal way of working, and that is a challenge. Second challenge I want to mention is that we definitely need to work together, and with that, I think across companies, across functions within companies, between different stakeholders, so that we actually can create the right momentum and enough demand for the change which is needed.
On that note, I mean, if you have any ideas, please reach out. We'll be more than happy to discuss that. Good. I think I stop there. Thank you very much for your attention.
Thank you very much, Magnus. You talk a lot about integrating sustainability with business strategy. Perhaps if you could, give us some concrete examples on how you're doing that at SKF.
Yes, sure. Good, good question. I mean, we, we often say it's not only about having a sustainability strategy, but we need to have a sustainable business strategy. So I think it's clear sustainability is a mega trend, and it needs to be part of the strategy work. I think it is in our case, and it must be part of the strategic framework. And for SKF, the strategic framework now is intelligent and clean. We have it well integrated in the new purpose and, as I shared earlier, I think we also need to integrate it into the strategic decision-making. So in investments, in the financing approach, in how we develop the offers, and how we run the business and the operations.
You know, new technologies and innovation and offers for electric vehicles, I think is a good example.
Thank you. Fully agree. Then a question on a topic that we'll touch upon a little bit later as well, and that is on the different reporting standards. There are so many standards today. How is it for a large company as SKF to deal with all these standards?
Yeah, good question, and I mean, that is a challenge in itself, to be honest. But I mean, we have done sustainability reporting and follow-up for quite a long time. And I think, you know, given the importance of sustainability, there will be a need for more and better sustainability information and data, you know, for customers, for investors, for policymakers. So I think it's quite clear, sustainability reporting needs will increase. And then if we look at specifics like CSRD and ESRS, these are quite massive frameworks. And to me, of course, this will create additional work, but I also do believe that this will help us to take better decisions, and with that, we can drive improvements, and I do think this is doable.
That sounds like a good answer to conclude. Thank you so much, Magnus, for joining us digitally.
Thank you.
Now we're going to listen to a company that is bringing waste to life. With us from WA3RM, we have Fredrik Indebetou, who is the co-founder and also deputy CEO of WA3RM. Fredrik is a driven entrepreneur in the energy sector, and he has spent the past 10 years developing large-scale energy projects to find solutions for waste heat. Prior to that, you also worked at ESS in securing and designing energy flows. A warm welcome.
Many thanks for having me here. I'm very humbled to be here and to actually address this and talk about the solution we have and the future, perhaps from a different perspective, because we have a clean slate. We are a newly new company compared to the prior speakers here. But firstly, I never heard of Ikigai. I am on the sweet spot in the perfect middle. So you know, very happy to realize that at the age of 51. Yeah, you need a background here because that makes what I say true. We were the energy division at the European Spallation Source, and that is a mega science infrastructure being finalized outside the city of Lund.
Sweden won that competition, and one of the main reason was that there was a promise to make it the world's first sustainable mega science infrastructure. One of the keys was a policy called three R policy: renewable, recyclable, responsible. However, the promise wasn't that solid because no one knew actually how to do it, so we were brought in to form up the energy division and do that, and we successfully did so. So in 2015, we left, closed down the division with a final energy design for the facility, as well as an implemented and tested model for sustainable energy intense research. That is actually the background to the company, WA3RM, and the principle is quite easy. We sort of approach energy intense industries.
We team up with them, do the pre-study, understand what kind of waste streams they emit. We find a technical solution. We contract that, we finance and build it, and then commission it, and then it stands there for 20 years. It's a nice investment object, and everything it does is impact, and it goes fast. That is what we do. The market is wide open, and I have the privilege to be a global leader in this because we are alone at this point in doing this. System integration of many technologies, players, creating industrial symbiosis. This is what we actually started 2008. We roll out the company 2015, and now, many years later, it's actually sort of spreading out, and some people call that circular economy, industrial symbiosis, et cetera, or circular industries. So...
This is the schematics, and it seems very simple, and in essence, it is very simple. We, as you can see, it is circular, but that is the main system. What we do in the business model, that is sort of where the secret sauce is, and that is complex. In this case, our first project that we are now seeing the final phases of is a large greenhouse for tomato production up in Lindesberg Municipality in Frövi. We are extracting waste heat from a Billerud pulp and paper mill, and fueling this enormous greenhouse. This is actually the first phase. It's gonna be twice the size. It's fast run, 15 minutes around the object, and a roughly 10% of the Swedish annual tomato consumption is going to be produced in this object.
We are preparing to do 10 more of these projects in Sweden, additionally, five more in the Nordics, because this is one of the best products you can do when you have access to heat. The same principle goes for this object, as any greenfield industry being established in the Nordics right now. This is about controlling the resources that are going into the production, and that is water, heat, electricity, and land that isn't competing with other arable land, and that creates an additional sort of growing, production capacity. So, well, this is about vegetables. If you have access to waste heat or waste streams, such as sludge or other large residues, you can do multiple other things. But this is what we need in Sweden, since we are importing so much vegetables, and we are turning into eating more vegetables as we go.
We also are now preparing projects up from the in Gällivare down to Östersund and into Lindesberg, and then into Denmark and Finland. But what I would like to actually speak as a young company, and I think this is the most important part what we do. We create impact, and we do it fast. The industry for us is the leading capacity to make change happen, because industry are efficient, they are commercially oriented, and for us, that is what sustainability is about. We are making profits. It's good ROI, and that is what we can actually deploy. We are not subsidized. We stand on our own legs, and we can do this anywhere.
And there is other sort of geopolitical, I think we're gonna talk about that later, geopolitical things happening that is to our benefit, such as mentioned before, when you actually just blow up Nord Stream, the 40% of the energy in gas is just... it's gone, and food industry is reliant on gas for its production. That makes our objects very competitive. So when the production capacity goes down in Europe due to energy loss or water scarcity, we suddenly become very competitive. So the industry here is our best friend. The industry is also a thing that I think need to evolve. It needs to redesign when you do and develop new sites, and that takes what I usually talk about is courage. Because when you engage in that, when you invest a lot of money, you really need to spend some time in thinking about circularity.
You cannot do as you always have done. You really need to step out of your comfort zone. You need to make decisions that are, I think, unnatural at some time to your prior experience. But then there's also a part that I think is more fun, and that is confidence. Because we have everything we need. I love innovation. We're coming from that, but we don't need to innovate. It takes time. We can really focus on deploying what we have, because then we get things done. To bring an innovation into the market takes a lot of time. It rarely is successful. So it's important to have confidence when you step forward and do stuff.
But the final part of what I think brings our company to the forefront is that we regard time as a resource, and that is, I would say, very scarce. We take simply too much time in doing things. We are having too long processes. And back to innovation, if we are going to be reliant on just innovating ourselves out of this sort of position where we are at now, there simply will not be enough time. So let's focus on both innovation, but we also need to deploy what we already have at hand. And this is sort of my final message in this presentation here, and I think that's about it.
Great. Amazing and very inspiring journey that you're started off on, and, interesting to hear more about WA3RM. Now, we're back for the panel, and I want to welcome Klaus back up on stage again. Very welcome. Thank you so much for sharing your experiences here today with all of us, and also on with all, who are listening in, via, Teams as well. I will start with a first question to both of you, and we've touched upon this, earlier today, also from some of the other speakers. But how do you look upon the environment that we are in at the moment, with the turmoil that we see in the macroeconomic, economic development and the geopolitical situation? Does this hamper or impact the sustainability agenda from your perspective, short to medium term?... Klaus, please start.
Well, there's people who say that sustainability is a sunshine topic, but I don't agree to that. In the end, you have to stay sustainable all the time. You cannot treat people bad just because there is a recession, or you cannot start compromising on your compliance because there is bad weather ahead. That's something you can't do. You have to stick to the strategy and make it work. It's a long-term thing. Climate change also is a long-term thing, so we have to keep investing in that.
Thank you. Fredrik, from your perspective, do you see when partnering with different companies, that there is an impact on the environment at the moment?
Yeah, what... Can you rephrase the question?
Do you see that your projects are impacted at the moment based on the market that we're in?
No. No, I think it makes it more relevant, actually, because what we actually do is we bring in emission-free sort of resources into the projects. So we are sort of more relevant by the change in geopolitics and macroeconomics.
Great. And Klaus, you mentioned in your speech, a footprint in the size of, Denmark. Has it sometimes felt like an impossible task to turn DHL's transition journey into practice? And how have you prioritized?
Well, in the end, there's three things you need. The first thing as a company is you need data. You have to have the transparency about where your energy consumption lies, where your emissions come from. We started carbon accounting already in 2008, so we have a very granular set of data, down to cost center level, tracking every single flight, so we know actually what's going on and where emissions come from. The second thing is what's called the abatement curve. That's more or less the options you have, the measures you can take, sorted by their price. There is some which are more costly and some that are even economically beneficial, and you start for sure with those, and then you have to step up the curve.
There may be some measures that are important because they are big levers, but they are very expensive. That's the third thing: you have to have a strategy for those things to become economically viable. That's the three components you have to have to drive the change.
Super. So feeling optimistic about that. That's, that's great. And Fredrik, you mentioned that you're starting off from a different perspective than some of the other companies that we've heard about today. And you represent the company which business idea is based on circularity, sustainability, and I guess also collaboration. But how do you... what advice can you give to other industries and companies and corporates in general on how they can integrate the whole ecosystem in the business thinking?
Yeah, I can actually exemplify. I think that's easier. We are having a project in Östersund, where we work with a data center company called EcoDataCenter. And they decided from the onset that when they deploy their investments and they develop their systems, they will integrate circular recycling solutions such as ours. So they actually deploy an integrated design with us so that we can manage energy, water, and also recycle waste heat from the beginning, and that is basic design. That actually makes them more competitive, and it allows us to enable our projects. And I think actually there, from a permit side and market side, there won't be any greenfield industries deploying in five, 10 years from now without having a recycling solution attached.
And you, you talked in your presentation about the tomato fields and now the data centers. Which are the sectors and industries that your solutions are best suited for, and is it possible to scale further?
Yeah. We are focusing on waste heat because that is the easiest, I think, energy that we can translate into new commodities. But then it opens up for so many other sectors, such as water purification, persistent fermentation, and also production of vegetables and fish farmings. But this is core essence that we need, and... But in general, I think energy-intense industries and waste stream intense industries, so large ones.
Thank you. Klaus, you, we talked with Magnus about the reporting standards, and you're also very involved in the European standard-setting process. Can we expect a harmonization of standards going forward, and how do you feel that the momentum is going?
Yeah. For sure, for us, as a large international company, it's also important to be compatible also with international standards. So, it's really key that EFRAG, which will shape the landscape in Europe, for the next years, and, ISSB standards, get compatible and stay connected. I think there is already quite a large overlap on the, on the climate standard, which are largely compatible. It's important that also with the further development of, the international standards, they also remain connectable to, the EFRAG standards. At the same time, also, EFRAG will have to make compromise now and then again, because otherwise, this won't get, together. And it's important, from my perspective, less is more.... It's not that more and broader disclosure and every more detail takes us forward.
This binds resource. We have to focus on what is important. At least with the ESRS, sometimes I think that has come out of sight, and we must get that back into focus, the decision usefulness behind.
Any particular insights from these processes that you want to share with the audience here from?
Well, it's intense discussions, and it's a broad stakeholder base also involved in the EFRAG process. And it's always a compromise. We have to make sure that things at least remain doable. And yes, then we have to focus on the meaningful. The key thing for companies is the materiality analysis. At least, if you have to do it, if you have to start reporting in 2024, like we have to, yeah, we have already started to do this. We've more or less completed our materiality analysis because it gives the time to prepare. And you shouldn't believe that it automatically means that everything is material. It's really important to have a thorough process on that, to sort out things, and also to prioritize on your future disclosures.
Thank you. We'll hear more about this later on as well. But also, as DHL, you're one of the largest employers in the world, and you operate in a vast number of countries. How are you dealing with factors and topics related to the S, social?
Well, I already mentioned logistics is a people business.
Yes.
So motivated people are the key asset we have. So it's really important to make it attractive to work for DHL by knowing that there is a fair treatment, there's good working conditions, there's safety, there's inclusiveness. That's what also attracts people, and yes, I think in most of the countries of this world, it's really attractive to work for DHL.
That sounds good. Fredrik, I mean, you're starting off with like a smaller company. How are you addressing this from the outset?
The social issues?
The social issues, yeah.
Yeah, but I mean, the projects we don't staff the projects. It's our customers that do that, but they are quite labor intense, so I think we will face a challenge in that, especially in Sweden, because we have very good labor conditions. It's expensive with labor in Sweden compared to doing greenhouses in Ukraine, for instance. But I think that is also to our advantage, because now finally we can produce what we actually eat under good conditions as well as being sustainable. So I think it's hand in hand.
Hopefully, we'll feel better as well from that. I have one final question to the two of you. Do you see that there are other certain areas within sustainability that will gain importance, going forward? We've talked a lot about the CO2 emissions, and it's been in the focus of the development in the past decade. Fredrik, if you want to start.
Yeah. Yeah, it's, I think that's a tricky question. It was mentioned, biodiversity. I think that is—that's coming thing, but one thing I would like to address is that it's about attracting finance and capital. I think that is the most important resource for us, actually to manage and understand, and that needs to be developed. And in that sort of, the point of attracting finance is price on the products. And we need to widen the scope around pricing to include sustainability, to include labor issues, and those measurable points when we do stuff. And I think that is very important for the market and the big players to include that when you purchase. So, that is what we are focusing on, and I think that's the tremendous challenge.
Thank you. And Klaus?
Yeah, I think, also it's important to stress the importance of circularity. You gave a good example of circularity, and, I think that's also a key topic that helps to avoid other impacts, like waste. Wherever you are circular, you also avoid waste because you return things back into the process. And this also means we need less mines, less other resources that again impact biodiversity. So circular economy is a key impact, a key driver to sustainability as a whole.
Thank you. And thank you both of you, too, for sharing your insights here today and for participating with your presentations and in this panel. Very well. And now, Robert, hopefully you are a little bit more optimistic when you heard about the ESG role.
Absolutely. Absolutely. I think it was very good news about the tomato production, because we have some problems right now with very expensive tomato prices in Sweden. And that is adding to the inflation problem. So that was very good news, I must say. So now we have one last session before the coffee break, and we have touched upon the discussions with the need of standards reporting standards. It's quite obvious that sustainability factors are becoming much more important for different kind of investment decision-making. And we need more transparency in this kind of environment, and to enlighten us about these things and also talk about where we are today and also talk about, hopefully, a bit about the future, I'm happy to introduce to you Erkki Liikanen.
You are former Governor of the Bank of Finland, and today you are the Chair of the IFRS Foundation Trustees. So welcome. I can also tell you that, before we started this conference, in the green room, we had a short discussion about the monetary policy as well. But I didn't get any answers. But now we will, we will-
I learned about your reputation already.
Yeah. Good.
Thank you very much.
Thank you.
First of all, it's great to be in your conference, and I try to structure a little bit the discussion what we have before, because it's very important in many areas. If you look at the different pillars in strategy against climate change, you can divide into three, as Mark Carney did. First, public policies. Actually, the Nobel Prize winner in 2018 said that you need carbon tax and emission trading to internalize the costs. That's true. Finland, Sweden, we are first have carbon tax; we have emission trading. That's fine, it's not enough. Second, you need company transition plans. That's what we are discuss today. If companies don't change, we can't make the difference. But for that, you need capital. To get capital, you need to have disclosure of climate-related risks and opportunities, because investors must be able to assess the companies.
That's the key point I will, I will talk today. When I became the chair of IFRS Foundation, many people came to see me that, "Why don't you start to do sustainability standards?" I said, "There are already thousands." Alphabet soups are everywhere, nobody remembers them all. So we came to a conclusion that we only do it if there's global demand. We organized a consultation. 2,000 respondents said that there's urgent demand to have simple, comparable, verifiable standards. Second was, who should do it? That was all divided already, but 75% said that because IFRS has done financial reporting standards, they are applied part or fully in 144 countries, you should do that part, too. Then we replied, "Yes." But we continue that it's not only about standard, it's more. But what are the success factors? First, you need global support.
It's not enough that you are the best if you are not owned by everybody. Second, you must work with different jurisdictions, like global and European, global American, global Asian. Secondly important precondition. Fifth is your funding, because we want to be independent. We can't be dependent on one country. We get diversified funding, public sector, audit firms, and also businesses, banking, insurance, the others who are the users. And finally, key question, there must be synergies with financial reporting. I, I'll be happy to read your annual report. You have already financial and sustainability together. In the future, they must be a part of the same package. CEO does the report in the future. They must be interconnected, and when IFRS has both sides, of course, we are particularly privileged to be able to do it. Then we went to Glasgow.
Alok will talk about more about that. That was two years ago, and we were asked to make an announcement: What can you deliver in this area? And we gave three commitments. First, we need to—we are ready to establish International Sustainability Standards Board, which would be together with Accounting Standards Board in IFRS Foundation. Second, we must get rid of this alphabet soup. We want to consolidate standard-setting organizations. We took a commitment to consolidate three of them with one go: Climate Disclosure Standards, Integrated Reporting, and SASB standards. That was big surprise there. Finally, we want to publish the first two products. Is there anybody who come from Eastern Finland here? I come from Savo. We have a saying that our projects are wonderful, but we have never started them.
So then we said, "We need to start it now and deliver." We have had so much talk about climate, but no delivery. Now, two years later, where are we? Sustainability Standards Board has been nominated globally representative. All sectors are there. Even gender balance is okay. So it's done, it's operational. What about alphabet soup? We have consolidated the three of them, Integrated Reporting, SASB standards, and ISSB. They are now part of IFRS Foundation, and by the end of the year, TCFD, which Johan mentioned, will be part of ISSB also. It will be merged. So big part of this this complexity will disappear. GRI Repair continues. But their stakeholder base is broad. So what have we done? I talk only about what has happened since Midsummer, because year starts after Midsummer in Nordic countries.
Look at the date, twenty-sixth June. Very few people are working in the north, but we adopted the first two standards on that Monday, S1 and S2. S1 is the general requirement standard, S2 is climate standard. Climate is not the end result, but you must start somewhere. Climate first, but not climate only. Then we go to biodiversity, that was mentioned. It's more complex, but next phase. But climate first, climate only. How should the standards look in the future? Klaus spoke very well about that. You need to have some global baseline, because capital markets are global, climate a global problem. If our standards are fragmented, we can't make a difference. So the idea is to merge the standards so that there's one global baseline based on ISSB standards. You can have additional building blocks there. For instance, in Europe, some higher requirements.
You can have GRI in some areas. But key question is that no double reporting on the same issue. Once you report on climate, it's accepted by all standards. So what has happened since Midsummer? June, July 25, IOSCO, which is the International Organization of Securities Commissions, gave a support to these first two standards, and that is critically important. It's represented in 130 countries. They said that all the authorities should consider what is the way they might adopt, apply, or otherwise to be informed of these standards. When we went to IFRS Standards, this announcement was critical. The world followed, and we are very optimistic that that is critical point in this area. Remember that in IOSCO, you have China, India, U.S., Africa, Europe, all are there. Then problem with Europe.
I was European Commissioner for 10 years, and— Well, Europe is always the best, of course. The question is that if you want to fight the climate and India, China out, you will not win the battle. We have had a lot of work last time, and Carlos has been very helpful there, that let's find the climate part, that if you report it once to ISSB or to EFRAG, it's accepted in both. We have done this kind of alignment work, and this key part is this interoperability. So it was too complicated. Yeah. This interoperability in common part is now agreed, and we work on details, and I think we are very close to have the solution. That's done.
But then the really critical part is that, of course, you give all the information, which is very important to customers and investors, but who can understand it all? They want to have the assessment auditor. Is this assured? Is it audited? Can you trust it? Now, work continues on international standards on assurance and audit. It was launched in August, and the consultation will end December first, so very soon, and we are very optimistic that will be also delivered by the end of the year. So this is like the structure. Standards accepted just after midsummer, IOSCO endorsed, then audit standards are in the making. Now question is how jurisdictions will follow, how markets will follow. I just show these slides. There's a four-pillar strategy in ISSB, how we help countries and authorities to apply this.
We will come out with a particular adoption guide in four weeks' time, perhaps already in Dubai. But just to give you an idea, we are. Just countries, those who have already announced that they are on adoption journey: Australia, not a surprise. Brazil came out two weeks ago. Canada has been one host of the organization. Hong Kong, very active. Japan, then Kenya, Nigeria. Africa has been key party because they don't want to be left out. They are suffering from climate problem, and they have also resources. The rare metals are produced there. If they want to get it as part of supply chain, they must report in the same way that they will be accepted. So this project is also moving on.
So if you ask me if I'm optimistic, in this area, we have, for the first time, kept every single promise we gave in Glasgow in Glasgow, COP26. Thank you very much, Alok Sharma, for working for that great summit. Thank you.
So now I got the luxury to engage in a bit of a conversation. So I'm starting. You've been in the finance department, you've been in EU, you've been a central banker. I'm thinking about politics and what role does it play in a thing like this, and let me give a context. We cannot agree on what to call gas or nuclear any day of the week. We're trying to get a common view, and this is very small groups. Even groups of three people can't agree. And here we are, we need a global standard for the reporting to come about. For me, it doesn't need to be perfect, it just need to be-
... something to begin with, and then we can see where banks and institutional investors can go. When you find yourself in this kind of global context, ambition, global standard, I mean, we don't have an anti-ESG movement to speak of in Northern Europe. I at least never heard.
But there is a very loud one in the U.S., and they have a lot of opinions about who should do this. Companies are very different in the U.S., if they should spend $millions or even billions doing this stuff, and for what purpose. So what's your perspective?
About the U.S.?
Well, the whole thing. Whatever you can share.
Oh, oh, sure. The whole thing is that what makes me so positive is Africa, because I want to speak to Africa. You know, you have your opinions about Africa, but there's a very good competent expertise in accountants in many countries, and they feel that there's the last chance to be among the best. This commitment points in Zimbabwe, where I spent two days, impressed me heavily. Number one thing. Second, I was in China a week in June. We are skeptical in China in many areas, but in climate, they say, "That has been our own problem, real problem." And second, they have moved fast in technology in the last 10 years. They said, "If we want to be part of a supply chain with our components, we must report in the same way." So the logic happens to work for us. America and Europe are different.
Europe, problem for us has been that Europeans want to be the best, but if we don't have India and China in, we fail. And I'm happy that we're able to win this battle and agree in summer that we need to have global baseline. You can be best in other issues, but climate must be the same. America, it's always divided, in all ways. But good, some good news there are. First, that SEC, the authority, has been part of this IOSCO process. So they have been supporting that there must be global. They used the word framework, close to baseline. Financial Stability Board, which has endorsed us, includes Federal Reserve Bank. That's positive. And then California. Now, I love California, as we all do, but a little skeptical how one state can change the course of things.
I've discussed with many Americans the last weeks. They say that it can be very important, because California, many companies have their home base in California. If they say that we require standards which are close to ISSB, it gives a market push to that direction. There, we're very optimistic. I'm a little skeptical because we want to have European solutions for all, but there are events which move there, which go through the markets. These standards may be relatively modest on investor base, but this pressure from the markets can come from other areas. Let's, let's wait and see.
Thank you. You very clearly point out the three pillars in your very beginning of your keynote, and that the purpose of disclosure is really efficient capital providing. What are tangible measures of success from this work? It's not only to get the standards implemented and a globally accepted, but it is the kind of movement that is accelerated thanks to efficiently working capital. And I'm thinking, no one has any problem with financial disclosure. It's almost unthinkable that we wouldn't have your P&L and your balance sheet doing anything. Now, we're gonna try to replicate that, become so natural.
I mean, yeah, you made it earlier that greenwashing is a real problem.
Yes.
I fully agree with you, because if people think that that's important, it turns out to be a bluff. It's tremendous negative impact. So let's start with the standards one by one. They know that these are verifiable, comparable, assureable. And when this kind of movement starts, it gives a solid base for the future. So that's why on climate, let's not underestimate if we make one success story here.
Agree.
Then people think we can go to other areas. Biodiversity is different because, you know, it's time we go to Lapland, there's a meter of snow and minus 25 degrees. I came from Brussels last night, only water, water everywhere. So biodiversity will be more complex, but even there, there must be a process which is open, consultation-based, and then we can fix issues where we can agree. But climate could be the first good example. This basic standard, which tells how companies must be organized, how management report, how sustainability and financial reporting are connected, is important. Let's move step by step, but let's have one success story first.
Yeah. I was thinking about obstacles. What are obstacles for you and the IFRS?
How much do we have time?
I don't know.
Four minutes and 59 seconds.
Yeah. Yeah.
I would say that I'm rarely optimist because I come from deep east, close to Russian border in Finland, and you know, we have lived in town where my mother was evacuated from Karelia and so forth. But this time, we have been able to deliver all the commitments two years ago, and people felt that if we fail this one, nobody will ever start it again. And this momentum is so important, and we have been able to have businesses, actually, also political forces, even NGOs say that, "Okay, let's do this climate first. We can't continue this endless debate." And then we're gonna have higher requirements for other issues, but global baseline is not the opponent. You just raise the floor, then go further. So I'm pretty optimistic now.
I hope that when we go to Dubai that the COP 28 gives the support that these global standards must be implemented everywhere. The authorities in countries, you know, the security authorities say that, "Yes, we will require them." And then investors say that, "We want to support climate change, but we want to have information which is assureable, comparable, and auditable." So markets have a big role to play, and banks also, that you don't trust greenwashing. That just guarantee that it's comparable, verifiable, and assureable. That is a major change. So here, politics start in the movement, but the markets can make it a real one. And that's why I... I've read your annual report and your big part of sustainability.
Even that will be simpler if we get this standard accepted, but it, you read companies who really combine financial and sustainability in the same way and have the same approach, and then we get the market push to the issues which perhaps started by political forces.
I have two more questions. Let's see if I've framed them correctly. Now, I would like to ask on, on governance once this is in place. This is very promising, by the way.
Yes.
I think if this is gonna happen this way, I think many, many, like me and my peers, will be very, very impressed. Then you need governance. So it's very clear who does the financial disclosure audit, auditing firms. They are now scrambling a lot because no one has excelled or institutional memory of how to do this, because there is none. We've never done it before. Now, if you just compare how we can sit today and argue about an accounting treatment of a particular event, and you then, you know, do that to the power of ten, you enter into that, and they of course see a great business opportunity. Someone needs to validate whatever reports we come up with to say that we've done this. You know, we're fit and proper, and we've accurately disclosed it. So that's one.
I'll do the both questions in one.
Very, very good question. Yeah.
Well, the other one is then this can be misused for political—no politicians, I mean, banks are, I know that the best, heavily regulated. Anyone can think anything about what these metrics will show. This is the exposure you have to brown and green, like we have shown today. Very, very subjective how these things land with an individual or an institution. But they can use these things for whatever will they want. How do you view this?
This tremendously important question. I have a good story behind which a colleague of Klaus, Mikael Niskala, has been working EFRAG, one of the key advisors until summer. And when this consultation about standards for assurance and audit started, I gave him a call, "Have a good look. I'd like to hear what is your opinion." He's reliable, strongly climate-oriented person. "Yes, it looks pretty good." We had discussion 15 hours, 15 minutes. "Where are you nowadays working?" "I working in PricewaterhouseCoopers." "You in PricewaterhouseCoopers? And I had this company totally focused on sustainability standards and reporting. They just bought us." "How is your daily day, life nowadays?" "I still focus on those, but every day they take me to see one of their clients to tell that this will happen. Be ready.
Yeah.
I don't know if it happens everywhere, but I'm sure that the big audit firms start to collect expertise here. But I hope also, as a market-oriented person, that these independent companies who know sustainability from the long term also create service in that area. But we need new profession. Audit profession must change, and to make a change happen, they will get the pressure from the other areas. But even the proper audit, you need the standards which are assurable. So it's these go hand in hand. But things are on the move.
If I may add, I think there's a complete business ecosystem being built around it.
Mm.
where maybe one of the most vibrant area is data collecting. Before we can disclose it, we need to know what it is.
Yeah.
That kind of industry, with a lot of startups and also more-
Mm
... more established firms. Now, I see time is up, so thank you so much.
Can I just, I agree with this data issue, that that's terribly important. We need to also connect the academics in the field.
Yeah.
Because we need the best people in the area who have no profit interest here, but academic interest with us, and we try to work as trustees, and we create networks in that area. Thank you very much, Johan-
Thank you.
for the invitation. Thank you.
Thank you. I have one more. Thank you. Thank you. I just want to do one final remark, so it's very clear. If this is successful, we can scrap the brown and the green. We will have different global standards and not homemade stuff like we are presenting here today. Thank you very much.
Good. Thank you very much, and once again, thank you, Erkki, Erkki, for a very great presentation and also for this conversation. Now it's time for a coffee break. We have a 20-minute coffee break, and you will find the coffee outside. And I hope that you will be back now after 20 minutes. So-
... Hello, everyone, and warmly welcome back from the break. I hope you got some nice coffee or fika, and warmly welcome to all of you that are participating digitally as well. Now, it's time to watch a video about biodiversity. With us, we have a special guest, Steven Polasky, which is a professor of the University of Minnesota, and he is a professor of ecological and environmental economics. And he will have a dialogue with our President and CEO, Johan Torgeby, and also with our Chief Sustainability Officer, Hans Beyer. Let's start.
Steven, welcome.
Thank you very much. Pleasure to be here.
So if I start, well, you are a professor in ecological and environmental economics, amongst many other things. But why don't you tell us, who are you?
Yes. So I'm a professor at the University of Minnesota, where I have a joint appointment between the Department of Applied Economics, which is where my formal training is, and the Department of Ecology, Evolution, Behavior. And I've spent the last 25 years basically at the interface between ecology and natural sciences, or environmental sciences, and, and economics. In that time, I've had the pleasure of, of working with many other organizations. So, among these is the Natural Capital Project, which is working to, what we call, mainstream the values of nature into economics, and, and political decisions, and financial decisions. And then, more recently, I have been working with something called IPBES, which is the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.
A very long name, but it's basically trying to do for nature, for biodiversity and ecosystem services, what the IPCC does for climate change. So bring science into describing how nature—what's happening with nature, but also, how are those changes in nature affecting human well-being?
Where does the financial markets and banks come into the picture, and why is it important?
Yes, it's extremely important. So through time, I haven't been content just to do the science. I really want to see that this gets implemented so that we actually do things that do a better job of stewardship for nature, not just for nature's sake, but for our own sake. So in finance, of course, your allocation of capital drives business decisions, and business decisions drive what happens out in the real world. Those are the changes in ecosystems that then matter. So, you know, if you're lending money to energy firms, are they doing this in a way which is shifting towards non-fossil fuels? Are you lending to agricultural entities, and how are they dealing with land use and land use change?
So these are the kinds of things that are central, are crucial.
When you look at banks-
What is your... Do you talk to banks, and do you recommend banks to do something different than they do today? And if we— 'cause we end up in engagement discussions that we should exclude, right? But what's your view on banks' role and how they should operate in society at large?
Yeah. So I know you get pressure to say: "Oh, we shouldn't invest in the energy sector," but we need energy. It's gonna happen. So what I really think is an important role is to work with those in the energy sector and say: How do you move your operations towards carbon neutral? Even if you have existing carbon, heavy carbon, sources that you're still maintaining, but are you moving in that direction? At what speed? Can you move faster? Those kinds of things are the things that I really care about. And personally, I really care about not just the climate side, which we know is important, but the rest of nature. So what's happening with land use, with biodiversity, and how are your investments affecting those?
Can we modify those investments in ways that, you know, instead of putting the road through here, which is a very important biodiversity corridor, can we modify that investment so that you, you still have the benefits of making that investment, but you do it in a way which is consistent with, let's say, maintaining the biodiversity in a particular spot?
I'm preoccupied quite a lot about the theory of common good, that we, in economics terms, tend to overuse any resource we get for free. There's no normal market-based or any other based, efficient allocation or price to pay for it. So when I look at what's happening out there, I, I can often trace the problem back to that. If we just all paid for the damage we do, the allocation and the consumption levels of many, many things would dramatically change. What's your view on this?
No, absolutely. This is kind of core of environmental economics, is that we many things in the environment are valuable, but there's no price attached to them.
Yes.
So we have the wrong set of signals. If you're an investor and you say, "Well, what pays off?" Well, you get an artificial incentive, a false incentive to say, "Oh, maybe I should be investing still in fossil fuels, as opposed to wind, or solar, or other things that don't create that negative externality, that negative cost to others." So, I'm really glad you raised this because even though I'm running... I'm a co-chair of the Biodiversity and Business Assessment... A big part of that is also what's the role of not only finance, but what's the role of government, of civil society? And the point is that businesses will respond to the prices that exist. If those price signals are wrong, we'll end up with the wrong allocation of resources.
Yep.
Exactly as you say, and this is an important feature. So part of, I think, important institutions like SEB, their role is not only what they do individually in their investments, but also what role do they play in fostering, getting the prices right, getting the policies correct, so that businesses actually have the right set of incentives to respond to.
Will, will we see, in your mind, your findings coming in through the ISSB and their standards at a later stage?
Yeah.
Is, is that the whole point with this, so we actually get something that becomes auditable? Because at the end of the day, if we can't have a relationship to auditable figures, it becomes hard to actually get it into finance in a nuts and bolts way, if you want to, just not voluntary, but actually this has an economic impact.
Yes. I mean, my view, not the best view, my view is absolutely. If this is going to work, we absolutely have to account for these things, and we absolutely have to change the set of prices that people face. I mean, it actually has to be in the system. It can't just be an academic exercise. To date, it's been largely an academic exercise. But five years from now, 10 years from now, if we don't have this into ISSB, if there aren't accountable standards, if we haven't brought these in so that they affect real prices and real decisions, then I think we've lost. I think we need to actually make the step from where we are in the science now to where it becomes material to business.
Do you have a question to a bank if you had one?
Yes. No, given this, where we are now, how do you see actually not just climate, but this wider set of nature's benefits? How do you see it fitting in now, but also, what would you like to see?
That's a great question. The financial market, I have very much confidence in, including the clients of ours, the ones using it, corporates and individuals, when it comes to. It's not even climate, but it is climate. It's CO2. There's been a disproportionate focus, and therefore, those financings are there. These are $ hundreds of billions every year that we are challenging from people with more money than they need, to companies and individual who has less money than they desire. And we are, of course, right in the middle, trying to make that as efficient as possible for, in a purposeful way. When it comes to call it biodiversity broader, it's very, very in its early stages. There's no established financial marketplace to trade these things.
So the big innovation recently has been the, what we call sustainability-linked financing, which means that you can customize. The old style was green. That continues. That's more or less that you do something good for the climate or the CO2 picture, but you can now link it to any particular, call it, do less harm or do good activity for any company, and you can customize them. But this, it's still not a common standard in the market for those. Water is another one which is emerging. It's been around for a few years. So if we call that blue bonds or blue financing, it's still nowhere near the green, and this is a big challenge that we have in our business plan.
This is product development from our point of view, to find the purposefulness that investors are looking for to invest in other things than climate.
Yeah.
The majority of the world is financed by pensioners.
Pension money is the institutional money. They invest in the bank. That's the money that we redeploy, or they invest in their kind of pension funds, which are typically more bondholders or equity providers.
So this is what we are challenged with. How do you find a commercially viable with an adequate risk-adjusted return to make these thing happen at a faster pace?
Yeah. And, very well said. The point I would make is that sometimes if it's a pure biodiversity, I'm saving the flora and fauna because people want this, then that's coming back to what you talked about earlier as almost a pure common good.
Yes.
It's very difficult for any private-
Yes
Entity to monetize that without some change in rules. So one could imagine that we now have, you know, set aside areas for biodiversity, and we have, you know, basically a permit trading on land rights to develop or conserve. Now, you start to get into a financial incentive to worry about what lands are being conserved. But there's another angle here, actually, which is that many of these protecting nature is, it's not only about saving the flora and the fauna, it's also about the functions that nature provides. So filtering the water, so we have clean water downstream, providing the pollinators, which increase the crop production. And there is a private return.
Figuring out the set of institutions needed in order to be able to capture that-
... that private return is also a big element, I think, of this next phase of bringing nature into the financial world.
But I think, we end up where we started. The triangle between academia-
Mm
... and science, governments, and private sector, this is kind of the Holy Grail. How do we sort this out? Because we all want the same... I would like to think-
Yeah
... we all want the same thing.
Yeah.
But we have three corners in this triangle with different profit functions, and we just try to marry them. So thank you very much, Steven. Very nice to have you.
Thanks very much.
Thank you.
Appreciate it.
... So if you're interested in watch this video again, if you found it particularly interesting, it will be available at sebgroup.com/netzerotransition. But now, well, would like to welcome you, Hans Beyer, up on the stage with me.
Thank you.
Could you please start with highlights, some key parts from the film that we just saw?
Yeah, well, one of the findings that when you look at it, you just realize that this guy is a living equivalent of the Rosetta Stone for bankers, right? I mean, we simply don't understand what he's talking about in the beginning, which was pretty apparent. When you ask a question, you get an answer, and you look at it, it's like, "Do I - did I really get that?" But at the end of the day, he is really an asset for us to be able to talk to because he can actually transfer this to become understandable for us. And I think that there are a few things that he says that makes me very comfortable on the path that we have chosen, right?
And that is that banks and the financial community, in general, should engage, not exclude, right? We need the financial representatives, the banks, and the investors, and so forth, to actually tackle this issue. That is one that I think is, like, super important. And then the discussion that you and he has about pricing or actually putting a value on nature contribution to business, that would put the floor on the phone aside, right? But, like, there are fishes out there, right? There are pollinators out there, that the water gets filtered. And Robert's favorite topic here, the cost and the inflation you drive if we don't take that into consideration. I think that that is something that I take away from the discussion with Steven.
And then it feels quite comfortable, and looking back at what Erkki Liikanen had talked about before, that this is going into the general framework that we are to operate with on a-- at a later stage. That makes me quite positive, Robert, that this will happen in the foreseeable future, and that we will be able to account for this in our auditable statements in the future. And then, of course, as you talked about the triangle at the end, right? What's a little bit worrying is that businesses have a longer or different duration than politicians might have because they get re-elected, hopefully, they... for them, every fourth year, right?
While, while we are talking about, much, much longer time horizons when it comes to investing and, and restating the way we operate with nature.
Mm-hmm. So how would you then explain that SEB is approaching the concept of biodiversity?
Yeah, as we said at the beginning, this is, this is a new territory for us. We, we participate in, in industry initiatives, like he talked about the biodiversity and industry assessment. We're part of that. We're part of Mistra, which is a Swedish university science-based foundation, and their BIOPATH. We're, we're working with Natural Capital Project with Stanford, thanks to our connections with the SEB and External Sustainability Advisory Board. And through those learnings, we've, we've kind of approximated our contribution when it comes to products, down to water and circular material management to start with, as a service will come later, and try to provide our customers with investment opportunities. We've done a water certificate. We will very soon come up with a circular certificate to be able to... for our customers to engage in this.
So we also support our customers when they expand their commitments when it comes to sustainability through their funding and financing frameworks. We were happy to participate when Stora came up with their groundbreaking new biodiversity-included financing framework that came out this summer. And that's how we kind of approach this. And then, of course, for our own sake and for our own lending book, right, we take a little bit of small steps at a time and use pilots that are available from UNEP-FI and ENCORE to get a feel for what kind of footprint our lending book has.
That will lead us into I have to talked about with Mass about that, but geotagging, which is gonna be not cheap, but we need to geotag our assets going forward in order to make a proper assessment of this.
You're already now alluding a little bit to what will happen in the next couple of years.
Yes.
Could you describe something more? What do you think will happen?
No, I think that we will take stumbling steps, and I mean, our business is, to a very large extent, dependent on auditable and verifiable statistics, right? So we need to find the metrics. Much of the exploration that we take part in is to define metrics that we feel comfortable with. And, if, as I hope, then the TNFD gets absorbed under the IFRS, then that work is gonna be slightly less complicated, although that we will need Rosetta Stones like Steven and the Stockholm Resilience Centre to help us interpret things that we as bankers not naturally understand.
Thank you so much-
Thank you
... Hans Beyer.
Thank you very much. A very interesting discussion. And now we will shift focus and talk about the upcoming very important COP28 in roughly two weeks time. Are you an optimist or pessimist about that?
I'm always an optimist.
You're always optimistic, okay. Because if you read the headlines, I took this from BBC, "Deep divisions ahead of crucial UN climate talks.
... Sounds positive, right?
Exactly. So, it will be very interesting to follow these meetings, and we are very happy to have Sir Alok Sharma here today. You are a member of the U.K. Parliament, and you were also a successful, I would say, President of COP26. That was two years ago in Glasgow. So, the stage is yours. And hopefully, you could give some insights into what we should expect from COP28.
Well, ladies and gentlemen, it's great to be here. When I arrived here this morning, my friend, Hans Beyer, met me, we hugged, and then I said to him: "Hans, you're not wearing a tie." He said, "No, don't worry. There'll be a smattering of people with ties and not ties." I said: "What should I do?" He said, "No, you're a foreigner. You've got to wear a tie." So if halfway through, I whip this tie off, you'll know I'm feeling more Swedish. What you'll, some of you will know is that, I have, I spent 15 years at the bank, then gone and done politics, and...
But I've returned as a part-time advisor for lots of reasons, because one of them, the key ones, is the fact that I think the bank is doing absolutely the right thing when it comes to sustainability. But what I've noticed is that many of the colleagues that I left behind 50 years ago are still here, and that, to me, is a tremendous strength, and I think they're living this sort of ikigai concept throughout their career, which is great. Look, may I ask you, how many of you, either individually or at your organizations, were represented at COP26? Few. Anyone planning on going to COP28? Hans Beyer is going. He shouldn't be lonely. Some more of us should go. I'm going. But look, let me take you very quickly back to sort of COP26.
I know the aim of this is to tell you about what I think may happen at COP26, but just a quick recap and to put this into context. So going into COP26, our key goal was to ensure that we were able to say at the end of it is that we were keeping alive the prospect of limiting global warming to 1.5 degrees. And, you know, why is that? Because that is what countries agreed in Paris, in the Paris Agreement in COP21. And we know that if we're able to do that globally, we also avoid the worst impacts of climate change.
Now, it was a challenging COP, but we did manage to get a negotiated outcome amongst almost 200 countries, called the Glasgow Climate Pact, and in that, countries once again reaffirmed their commitment to 1.5. The International Energy Agency did a recap of all the commitments that came out at COP26, leading up to COP26. One of the big ones, by the way, was that we went from 30% of the global economy being covered by a net zero target to over 90% of the global economy covered by a net zero target. Just about every G20 country signed up during the arc of our presidency. The IEA estimated that if all of those commitments are delivered upon, we're heading towards 1.8 degrees of global warming. Not 1.5, 1.8. Still some way to go.
But what that requires is delivery. One thing is to have your commitments, the other is to actually get on and deliver them, and that is why, at the end of COP26, I described it as a fragile win, and I said 1.5 was on life support, and unfortunately, it remains on life support. But one of the other things that we did manage to do at COP26 was, for the first time, we managed to get the global business community to come to a COP. You know, for many people, these are opaque negotiations that go on. They're vitally important, but they're pretty opaque. We wanted to get the business community purposely involved as part of this process. Governments, politicians make policies. You are the people responsible for delivering at the end of the day.
I think it's fair to say that many people now talk about COP26 being the first business COP. It's something that I'm actually very proud of, and the U.K. team that put this together is very proud of as well. So what were some of the commitments that we got from the business community? The first is we got $130 trillion of financial assets signed up to go to net zero. Johan talked about the Net-Zero Banking Alliance that was part of this sort of GFANZ grouping. We managed to get financial institutions to commit to ending fossil fuel financing abroad. We managed to get financial institutions to agree to ending support for activities leading to deforestation.
We had some of the biggest auto manufacturers in the world, including Volvo, together with countries, say that by 2035, you know, all new car sales were going to be zero-emission vehicles in developed markets, in major auto markets in 2040 across the world. We managed to get countries to sign up something called the First Movers Coalition, and this is some of the biggest companies in the world signing up to say that through their purchasing and supply chains, they would ensure that we were seeing decarbonization in the hardest-to-abate sectors. Some of the first movers, the first companies to sign up to this were Nordics. We had Scania, Vattenfall, Volvo, Nokia, a number of others, as well as Ørsted, as well, Yara International.
There's a whole bunch of them who sort of signed up to this. And then, as you heard from Erkki earlier, and by the way, I want to pay tribute for everything that he has done and is continuing to do in this area of standards. But as you heard, we also at COP26 agreed on forming the ISSB. So it was absolutely ensuring that the business community was front and center of a COP process. I think we will see that in Dubai as well. So turning to COP28. What is the expectation? What can we think will actually come forward? Well, the first thing that those of you who follow these issues will know that some months ago, the COP president designate for COP28, Dr. Sultan Al Jaber, made a really important commitment.
He said that the North Star for all the work that we're doing at COP28 and working towards, was to ensure that we kept 1.5 degrees alive, that goal. Now, that may sound like a really obvious thing, but I can tell you, having been in international negotiations since COP26, there have been countries that have pushed back on that 1.5 degree goal. So it's really important that that is something that they've reiterated. So in terms of outcomes, I think we will see two things. The first thing we will see is a negotiated outcome, between the almost 200 countries that will be there, the same thing that we got through the Glasgow Climate Pact, or similar, if you see what I mean. The second is what is referred to as the UAE's, COP28 Presidency's action agenda.
All the commitments that are made by companies, by countries, outside the negotiated process. So if you look at the negotiated outcome, I think the key plank of that will be the response to the global stocktake. What is a global stocktake? In Paris, countries agreed that, periodically, the world, countries together, would look to see where we were in terms of the commitments that we'd made, whether we were on track to get emissions down. We've had a stocktake, and the outcome of that, unsurprisingly, is that we are not on track. And just to put that in context, we have to cut emissions by over 40% globally by 2030 if we're gonna stay on track. And so the response, of that has to be negotiated by countries.
One of the things that certainly I would like to see is commitments on a sector-by-sector basis, as well. That were the big, big negotiated outcome, and we'll see what else the UAE puts together. The other will be the issue of this action agenda. And if I just sort of outline some of the themes that I think we will see across that particular COP. The first will be on energy transition. And there is a hope and expectation is that countries will agree to triple the amount of renewables energy or clean energy capacity by 2030, that they will agree to double the level of energy efficiency in their economies by 2030. We will see some positive movements on more hydrogen in the global economy, a cutting of methane.
And then I think, even more corporates, going back to the sort of real-world element of this, even more corporates joining that, alliance of, companies that are the first movers to try and get a further abatement when it comes to, carbon in the most hard-to-abate, sectors. That, I think, is what we will see on the energy side. Secondly, there will be a big push on finance, as there is at every COP. And, Gosh, I'm really running out of time. As we had at every COP, and this is about how do you mobilize significant amount of finance.
The third will be this, this issue that we've touched upon throughout this conference, will be some hope for agreements on health, on nature, on food, and those are issues and that, as you know, are impacted directly by the changing climate. And then I think the UAE is very keen that this is an inclusive COP. We know that it needs the whole of society, it needs business communities, it needs governments, it needs civil society working together to try and find the solutions. And there will obviously be a piece on technology as well. Now, I mean, I'm not Nostradamus, just to be very clear, and I don't have a sort of full picture of what is gonna happen, but let's just see.
I think those will be some of the, the impacts. The other big thing that will be discussed at COP28, and which we cannot get away from, is fossil fuels. There will be a push from many countries to get wording in the negotiated outcome on phase out of fossil fuels. We tried this last year at COP27. I tried it. We got 80 countries agreed to some wording on fossil fuel phase out, but unfortunately, in the end, it wasn't possible because it needs every country effectively to agree to this. There will be a big push on this. My view is that, you know, of course, if you're pragmatic, as we've heard, this is about turning off the taps overnight. This is going to be a transition.
But if on the one hand, you're saying we wanna triple the amount of renewables capacity, the other side of the coin has to be to do something in terms of fossil fuel production, particularly. So I think that will be a big focus. And one of the responses from the UAE has been to put together a decarbonization alliance, getting a group of national oil and gas companies, investor, basically privately held or listed companies in the oil and gas sector. Let's see what the outcome of that is. And I think one of the things that people will look for is: What are the commitments that those companies are making? Scope 1, Scope 2, yes, but is there anything on Scope 3? The final thing I want to say is on the geopolitics.
The geopolitics is clearly much more challenging now than it was two years ago. We've got the shadow of the Putin's illegal invasion of Ukraine still hanging over us. We have the crisis in the Middle East, and of course, all of this has an impact. All of this has an impact. And I can tell you that trying to do this negotiation with almost 200 countries, it is a little bit like playing super Jenga. Any of you play Jenga? Right, we, we do this every Christmas at home, and I, I don't look forward to it because there, there's cheating always taking place. But if you, if you imagine that you're trying to get 200 countries to agree to the same thing, that is really very challenging.
I just end with what actually Marcus Wallenberg said in his opening statement, which is that, we hope that while leaders, of course, deal collectively with the immediate challenges that we have, they will also rise to the occasion because this existential threat of climate change and this chronic threat is going to be with us for the years and the decades ahead, and we do need world leaders to respond to that. Thank you.
Thank you very much, and I-
I'm an optimist, just to be very clear. Okay? We got that one out of the way.
Yeah. But you said that one of your final remarks that this kind of new geopolitical landscape is maybe affecting the outcome of COP28. But how could it affect? Because I can understand that it will affect, but how can you say, in what kind of things will it change the outlook for COP28?
Well, let me put this in the context of what we had at sort of COP26, which is that there were disagreements, but there was this feeling of collective self-interest in getting this right. But of course, what that needs is for you to be able to have a very open dialogue with, you know, other countries and other parties-
Mm
... without sort of any other baggage hanging around. We know that there are countries which have major disagreements on many other issues.
Mm.
And so my hope and expectation, well, expectation, but hope certainly is, that those countries will put aside those other issues that they have, and effectively put guardrails around the discussion on climate. Because irrespective of everything else, what we are actually talking about is preservation of our planet.
You also touched upon this discussion about phasing out or phasing down the need for fossil fuels. Now we have the meeting in a very big oil-producing country. Do you think that that affect the credibility for COP28 or for COP overall?
Look, look, I mean, there's been a lot of discussion around this, and, my view is that you have to judge every COP presidency on what they actually achieve, right? I mean, when I, when I was appointed, you know, a lot of people said, quite rightly, I'd never been to a COP before, "So how is this guy going to negotiate with 200 countries at the same time? He's never done this before." You've got to judge them on that. But you can look at the other way, is that it's an opportunity. If there's any country that is going to be in a position to marshal and get the oil and gas sector to act, it is going to be one which is effectively a petrostate.
Mm.
And that's why, I think we want to see what comes out of this Decarbonization Alliance that has been formed. But one other point on, on, this language on phase down and phase out, just to remind our friends here, is that we did have the G7 countries agreeing in their latest communiqué, the leader-level communiqué, on a phase out of unabated fossil fuels.
Mm.
Now, we'll see what sort of language emerges, but I think there are very many countries that will want to see some language on fossil fuels.
I think it's interesting because you're also an advisor to the Rockefeller Foundation in the U.S. And of course, the U.S. is quite important also for the outcome of these COP meetings. What do you think, what kind of role do you expect the U.S. to play at this meeting? And now, if we speculate about the future, we could maybe have a new president in the White House next year. Mr. Trump could return maybe. How could that change the outlook for COP, well, maybe '29-
Yeah
... '30?
So, look, I think first thing, in terms of the current U.S. administration, you know, you, in my view, you've got to give them credit. Because they came back to the table, they re-signed the Paris Agreement after, Mr. Trump had, had left the Paris Agreement. They've introduced the Inflation Reduction Act. Again, people may have views on this. My personal view is, it's a, you know, a very clear industrial policy, which is about getting investment into the U.S... It's about an element of sort of reshoring as well. And just look at the impact of that, right? You've got, $370 billion committed over 10 years. They have already managed to attract around $200 billion of private investment as a result of that.
And so, to you know, I had this discussion with colleagues in the U.K., where people will say, "Well, you know, why are they doing this?" I say, "Well, you've got to, you've got to deal with the world as you find it." So perhaps, you know, governments around the world need to think about how they incentivize industries, green industries, to grow in their own patch. The second thing is that, of course, the US is vitally important to this whole discussion on COP. And, you know, in the final final few hours of COP26, when it looked like we were probably going to sort of...
Everything's going to break down. I mean, I remember going behind the curtain together with Xie Zhenhua and Bhupender Yadav and John Kerry and Frans Timmermans and trying to sort of hammer out this deal that we eventually got over the line. But we also recognize that China and the U.S. are the two biggest emitters in the world. What they do collectively together matters. Just a few days ago, there was a meeting between Xie Zhenhua and John Kerry.
Today there's a meeting between President Xi and President Biden. Let's see whether they say anything positive on climate or not.
But that's going to be critical. And then in terms of Mr. Trump's coming back, well, look, I mean, who knows? As I said, I'm not Nostradamus. I can't tell you what's going to happen in a year. But what I can say is that if you look at where quite a lot of the money from the Inflation Reduction Act has been going, particularly in terms of renewables, it is to Republican states.
That's a question mark any Republican president would have to do: Would you pull that? Or if it's creating jobs, and inward investment, whether you keep it and you're pragmatic.
Mm. Maybe a final short question, because we are running out of time.
... So we have quite a lot questions, actually, but I will take this short one. What is the link between the climate COPs and the biodiversity COP?
Well, there are effectively three COPs. There's a desertification COP as well. So I mean, these are different conventions, the UN. I mean, I could bore you for hours. We haven't got time. The key thing is that they are looking at different issues, but, you know, there have sometimes been suggestion is whether you try and sort of combine all of this into one, and then other people will say, actually, it gets too complicated. It's difficult enough to negotiate on climate. But there is no doubt there is a lot of overlap, two sides of the same coin, climate and nature. I mean, you heard that in what Johan was also saying in terms of how the banks looks at this.
Just as we got at COP26, commitments on nature, I think the same push will come here at COP28.
Great.
Thank you so much.
Thanks so much. Pleasure.
Thank you. Maybe one final reflection, and we talked in the green room, and you said, Hans, that if you are a foreigner, you should wear a tie. But you have a Swedish wife.
I do.
Yeah. Sorry. Thank you.
Okay, so now it's the time to discuss the way forward. How can we, in the best way, as a bank, support our customers to accelerate the transition? So I will now welcome a part of the SEB Group Executive Committee to join me here. And I will also introduce you all. Okay, so Hans Beyer, as you probably know by now, our Chief Sustainability Officer, and we also have Javiera Ragnartz, Head of SEB Investment Management, and Jonas Ahlström, Head of SEB Large Corporates and Financial Institutions.
Yes.
And last but not least, Jonas Söderberg, Head of Corporate and Private Customers here at SEB. Robert-
Yep.
I know you're very eager to start-
Yeah
to ask some questions.
This will be a challenge because we have two Jonas.
Next week.
Exactly. But I would like to start with you, Jonas.
Okay.
... Jonas A.
Yes.
I think about the—we have a talk about the—now we have this kind of very uncertain environment. We have rising interest rates, et cetera. Can you see that our clients have been affected by...? Of course, they have been affected, but have they changed their focus on sustainability due to all these kind of very challenges in the world?
I think maybe we talked about geopolitics earlier today, whether that is diplomatic or trade tension between global superpowers or if it's actual brutal human suffering in war zones. I think it's certainly had an impact, and I think under the heading of energy security or energy self-sufficiency, and I think a side effect of this is that we have a broad realization among politicians and state leaders that, you know, you need to mobilize in the energy area. And I think that's a sort of a positive side effect or outcome of this, and that we see clear movement on.
Of course, as you alluded to, this has resulted in the sort of disruption of supply chains or the active reshuffling of supply chains and the part of the explanation of the inflation we're seeing currently, or have seen at least, and rising interest rates as a result. So I think from a our corporate client base, whether that's sort of energy companies, industrials, service companies, I think I see a strong, relentless commitment to sustainability. But in the short term, inflation, supply chain disruption, makes it perhaps slightly more difficult to come to a conclusion on a major CapEx expansion product, for example, with a green stamp on it.
So I think, short term, it is a bit disruptive, and we're also seeing the headlines in the media about, you know, government auctions, big offshore wind parks, where, you know, the cost equation doesn't work any longer because of the recent movement in the markets. But from my perspective, where I end up, short term, it's a bit of a challenge, but I think it's also a healthy correction. If you go back a couple of years from now, there was certainly a bubble feeling around some of these big projects in terms of unrealistic valuation expectations. And now I think we have a more healthy view on cost of capital and capital structures, and so I think it's good for the medium to long term. So I think to summarize, I think the commitment remains there.
There are some short-term challenges, but we're clearly moving in that direction.
Okay. So the fact that because I guess that interest rates should decline to some extent going forward, I hope.
Well, yeah.
Yeah, we can have that discussion later on. But they will stay higher. But you're not concerned about that, that will have a big impact on this kind of transition, because there's a huge demand for capital, and the capital will be more expensive, but you don't expect that to have a negative impact on this kind of transition?
I think, as I said, I think short term, it is an issue, but I do, being an optimist, believe in the public-private partnership needed to get all these hundreds and thousands of billions put to work, and we will see that happen.
Mm-hmm. And then I have a question for the other Jonas that is also about the household sector, because they are facing lots of difficulties right now with weaker economic growth and the high unemployment rate and high rising interest rates costs. Can you see that the interest from our clients are declining for these kind of green products?
No, I think that it has just created a great awareness. I think that this increased interest rates and increased inflation has created a lot of increased awareness, which is usually the first building block in creating the transition. So I think that everyone now is aware of what they are paying in their electricity bill if they're having a green electricity, if they have a diversified mix of electricity, and so on. If they what kind of buying patterns that they are having, how can they change the recipes in their favorite dishes? You know, how can they be more sustainable and have a cheaper one in that one? So I think that this is a great trigger for innovation and for changing customer behaviors. And I also say that, you know, it's not that this period is the abnormal period.
I think that from 2015 to 2022 was the period when we, as private individuals and the households, could try out a higher class in society than what we actually, in the normality, would be actually to live in and have a consumption pattern for. And I think that that is also creating other social patterns that can change now, which we are seeing, that you can see people that has tried, tried in an higher class, of course, they have to, they have to cut back on things and do that. And I think that the social contracts are much tougher to change in how you behave instead of just changing it, in the, in the way that you spend.
Okay. I would like to have also Javiera's reflections on this.
Well, I think I can just echo what Jonas is saying, and, I mean, it, taking a broader perspective, the fund industry, I mean, obviously, the challenging geopolitics and the macroeconomic environment being quite bad for the industry, and we are going through some tough times. But still, if you look at flows, there have been quite a lot of outflows in the fund industry during the last 1.5 years, say, but we see inflows in products that are sustainable, and I think this is very, very good. And these inflows are actually also very stable. And the good news, I think, where we need to be optimistic about this development, is that even this is happening, even though many of these products are not doing very well in terms of performance for several reasons, one of them being high energy prices, for instance.
So this makes me quite optimistic, and I'm sorry to say that, Robert, but leaving you quite alone in the perspective.
I realize that.
Yeah.
But I want to continue on the funds and saving industry, because we've heard Johan spoke earlier-
Mm.
about that we're seeing now some sort of anti-ESG movement.
Yeah
... especially in the US. Have you noticed any ESG backlash in terms of investments?
Yes, I think, I mean, I think it's a difficult answer to that question. I think if you look at the headlines in the newspaper, you might very well get that impression, especially from a political perspective in the U.S., right? But if you look at what is happening and the activities that we are seeing in corporates, you can actually see that corporates, they are putting sustainable strategy. They are incorporating sustainability in the operation. That is actually increasing. There is also both observable and empirical evidence that consumer, they are demanding more, sustainable product, whatever that product might be. You have the fund industry or the investment industry, where you see that people are quite, persistent, even though performance is kind of shaky for now, and that is in the short run.
I think in the long run, I agree with Johan in the presentation in the morning. I think we might very well... We are capable of delivering both sustainable investment, but with good financial development. Yeah.
Thank you. Hans, would you like to comment on that as well? Something to add?
Well, maybe not on Javiera, because we talked about this a lot, whether do we have a problem in the future fund industry when it comes to attracting money, because we have those overvaluations that you talked about-
Mm
... You can choose either, Jonas, before. But I think that we probably left behind us the time for the super enthusiastic front runners, right? And we're moving into some kind of sobriety right now that feels quite comfortable, where you get a wider part of society actually accepting this. And that will have a hampering on the speed of change that we foresaw before, that we were expecting and shouting and tabloiding about. But maybe we need to then take a step back and realize that this is actually happening right now. And the... Just listening to DHL, I didn't have a clue that they were this big. So 600,000 employees in 220 countries. I thought we were 184 countries.
It's slightly embarrassing, but at the end of the day, when people like that starts to move, right, and when you listen to someone that I would have thought was more of an enthusiastic person, like Steven and the whole science part of society, and they also become pragmatic. I become very positive that maybe it doesn't go as fast as we required and thought before, but there is a wider acceptance of this. And then, as I think you alluded to, Alok, the mankind's ability to innovate itself out of problems is absolutely fantastic, which makes me ending up in Isabelle's camp and not in your camp, Robert.
Thank you, Hans. I want to ask you, Jonas Ahlström-
Yeah
... one more question, and that is, seeing now the transition happening in the large corporate space, where will we see the most sustainable business opportunities?... going forward? And maybe where do you see that it grows more and more sustainable business models?
Well, I think what comes to mind first is, I think what I already touched upon, is the energy sector. I think you want to show the slide on the transformation of our lending portfolio there, which is a brutal reshuffling that you rarely see in a bank in only a couple of years. And I do see that continuing in terms of both energy generation, but also transmission, so grids, grid balancing technology, and also storage, whether it's in the form of hydrogen or batteries or other ways. So the energy space is an obvious one. When you look at the broader industry and service sectors, I think we've seen three really good examples here today, from logistics, from manufacturing, and also scale up on circularity.
But we see this across our entire client base. We have these type of discussions with all our large corporate clients. We establish transition paths and a climate classification, and we have continuous dialogue on that, and we follow progress. So from my perspective, this is a mass movement. Everybody's moving, and that's needed. As you said, I think the main concern is really time. I think there are factors here, you know, cliff events and the things we might not understand yet. So I think time is, you know, what we need to focus on broadly.
Mm. Hans, I know that you meet a lot of clients as well. Do you agree with Jonas Ahlström's view, or-
Yeah, well, we are quite coordinated. It's good. We talk quite often about this. So yes. Yes, the short answer to that is yes. And but I guess that if... It's not the depressing part, but they, in the beginning, they didn't know what to ask, the question to ask, right? But at the end of the day, they are becoming, or you are becoming a lot wiser in this. And some of them are, of course, of major concerns of the costs of this, right?
We talked about internalizing the cost of externalities, but I think that one of the most important part of this day also is the fact that we need to make some of the mandatory requirements on business concerning sustainability less tedious, in order not to lose some of the supporters that we have out there, right? And I think that that's very important. So we get as many questions about: What can we do, as do I really have to do this, and when do I have to do this? I'd like to quote an old collaborator at SEB Bank called Ralf Enso, said that, "Just because you pass Arlanda and realize that it's 50 kilometers an hour in town, you don't have to drive at 50 when you pass Arlanda," right?
You adjust as you go forward. And that kind of, of, dynamic approach to regulation is also extremely important to have, because otherwise you can completely drown in the future commitments. And, and I, I can just say that I hope that the new commission that we will get after the elections in June will have a slightly more than sober view on, on what to require and, and maybe adapt to Mr. Vikner's way of thinking.
Robert, I will let you in to ask some more questions. Can I ask one more question?
Yeah, yeah, of course.
Before letting you in? So I will ask the same question then to you, Jonas Söderberg. You're head of the small and medium-sized companies. Which sector do you see will be the fast mover in the transition? Because there is a perception, as I have understood it, that small and medium-sized companies are not up to the large corporate speed in terms of the transition.
Yeah.
What do you see in your clients?
No, I think that they are still lacking the sweet spot of the Ikigai. I think that goes for a lot of private individuals and a lot of SMEs, and I think that the entry barriers are still too high. It's too high to change, and I think that there are... We don't have that discussion with all of the clients. I think that there is a much more polarized view in the small and medium-sized side. You have the strong innovators. You take Fredrik's presentation, for example. They can start and reside in our division. They have, you know, super interesting innovative ideas. They start there.
But then, on the other hand, you have the super laggards that see no actual economic benefit at all to start to transition the transition journey, and if they don't have any customers requiring them to do that, why should they? So I think that this, with the biggest risk that we're seeing is that if the large caps are starting with the circularity, and then they are defining their different stakeholders in their value chain, and then you're losing out on that, how often do you think that the large cap will review their value chain of partners in the circularity? Because they will be so much more integrated into the value chain. Then you might be out of business overnight. You miss out if you start the transition journey, you know, too late.
I think that there is a big risk if you don't lower the entry barriers. I was really, really happy to, to hear Mr. Vikner speak about, you know, lowering the, the more harmonized standards, easier for everyone to understand and to try to, to participate. I think also, you know, just making... Let's take the digitization. All the Swedish households, they were given the opportunity to lease a computer for three, for three years just to be able to embrace that. You know, what can you do in society to start making the entry barriers for private individuals to start the transition? Is that the solar panel and the battery for storage, connect up to the grid? And what is the equivalent to the SMEs and so on? We, we're lacking these, you know, common views to get the whole momentum in society.
So that's what I'm really looking forward to. I would say great potential, but we are at a totally different starting point than the large caps that has been forced and driven by regulatory pressure and other standards.
Mm-hmm. Thank you.
Okay, actually, we are running out of time, but if I could get-
We're on your calendar.
But if we could get very quick answers from each of you. Because some people doubt that banks can make a difference in this transition... how would you react on that? Should we start with Hans?
Banks can make a difference.
Yeah. Okay.
Absolutely.
Okay.
Yeah, I'm quite quite longer, but I think from a Scope 1 and 2 perspective, we are completely uninteresting as it is, how we, you know, heat our buildings, power our servers, and so on, and business travel, that's it. But from a Scope 3 perspective, how we deploy our balance sheet, SEK 4,000 billion or SEK 4 trillion krona, and how we advise our clients across our markets, I think we make a big difference.
And I think that, don't underestimate the power of us as an enabler. Don't ask us to be the innovator, but use us as the enabler to create the momentum, and just as we're doing today, this is a great enabler event, creating this platform for you to interact with each other, learn from everything, from academia, from other, you know, pioneers in this, in this transition, and just embrace. Give us a call, and we will participate and connect with that. So see that as a great enabler, and we will have a big impact in doing that together.
Great. Thank you very much.
Thank you so much. Thank you.
Thank you.
So actually, now we are coming to the end of this conference, and I think it has been a great day. And I would like to thank all of you participating, and we have received lots of questions, so lots of energy in the room. And I should also say a great thankful for you attending online. We know that there are many people that have been following this event.
Yes, and for those of you who found some parts particularly interesting today, everything will be recorded and uploaded on SEBgroup.com. So before we end this event, Robert, I just have to ask you a question: Are you still that pessimistic?
Yeah, I have always been a pessimist, and I think I will always be a pessimist. But, but I think it has been, I think it has been a very interesting day. And I realize that, I realize that I'm quite lonely, my, my pessimism, but, but I think it has been a great day. What about you?
I agree, and I am still optimistic-
Okay, good
... about the future. With that said, I will now give a warm welcome for the last time to our President and CEO, Johan Torgeby, for some concluding remarks.
Well, this day is a little bit of a luxury. This is the third time, as we've said, we do this. We take a half a day out. We're also trying to work on feedback culture. So I'll start with say, please send your feedback into this day. For me, it is part of the preparation. It still kinda hits the aim of the day, which is to listen to external speakers that I don't get the luxury to hear in a calm and, relatively speaking, be here and in the now and listen to academia, to business examples, to politics, and other experts. So any feedback would be welcomed. How could we improve it? Or if you just like it, that would be welcomed, too. But I also end up with just saying thank you to all the external speakers.
So great that you came and joined us. It is a very good vitamin injection to hear a different perspective. And I do think we all suffer from being too closely aligned with our day-to-day jobs. And if you don't break out of that mold, you will never get a different perspective. And that's the recipe for cooperation and co-creation that we actually had as a theme last year. So if you don't engage across the natural borders that limits you, you will be limited. Then, of course, thank you to all the SEB everyone participating in arranging it, but most of all, to all the clients and everyone else who joined us today, both online and here in the room. So thank you very much.