Financing on a long-term basis and in view of customer risks
OP always takes a holistic approach to lending to customers. The biggest lending issues applying to personal customers relate to their debt-servicing capacity and the loan size. When it comes to corporate customers, it is important to identify financial risks associated with their business or the project to be financed, and environmental risks.
Careful determination of a customer's status as the basis
We base our financing for private customers on our Code of Business Ethics and Code of Ethics for Lending. In this respect, we emphasis economic and social responsibility. In lending, we observe regulations on good lending practices and the recommendations issued by the Financial Supervisory Authority.
We aim at long-standing customer relationships in lending to private customers. When granting a loan, we carefully analyse a customer's debt-servicing capacity and fit the loan size to match his repayment capacity. Our extensive range of products and services provides us with a solid basis to offer loan applicants comprehensive and safe solutions at reasonable cost.
We advise customers who fall into financial difficulties to contact their bank as soon as possible, because early intervention usually means that there are more potential measures available for fixing the situation.
We have indirect responsibility in companies' business
As a financial services group, OP has indirect responsibility when it comes to financing for corporate customers. Our financing decisions take account of social responsibility and environmental issues. It is crucial for this evaluation to identify potential risks associated with major projects and risky sectors.
In addition to our own analysis, we may consult an independent expert who assesses environmental risks with respect to an individual customer or a project to be financed. The identified risks play their role in our lending decisions.
Policies for sectors
OP Corporate Bank has created policies for sectors that are relevant to OP Corporate Bank’s loan portfolio with significant impacts from the ESG perspective. OP Corporate Bank seeks continuously to further develop responsible business practices and encourage companies to integrate their responsible and eco-friendly solutions as part of their operations.
These policies are based on the taxonomy of sustainable activities in the European Commission’s action plan for sustainable finance. The fundamental idea is that an eco-friendly function causes a significant positive impact on any impact category in the taxonomy but does not cause any significant harm in other impact categories. In the policies for sectors, OP Corporate Bank has aimed to put the taxonomy into practice by simplifying, when needed, and applying to the Finnish context.
In 2019, OP Corporate Bank developed its ESG analysis (Environmental, Social & Governance) as part of the assessment of corporate customers’ creditworthiness. This analysis examines busi-nesses and projects seeking financing, including their effects and risks in terms of climate change, waterways or land use. As regards society and governance, ESG analysis examines elements such as employee wellbeing, board independence and transparency of taxation. The analysis seeks to identify material ESG risks and opportunities for the bank’s corporate clients, which supports to the traditional credit assessment.
In 2019, OP Corporate Bank developed two products based on the international framework for sustainable finance: the green loan and sustainability-linked loan. In green loans, the cor-porate customer undertakes to use the borrowed assets for defined projects, whereas in sustainabil-ity-linked loans the corporate customer commits itself to sustainability performance targets that are jointly agreed at the lending stage. These targets affect the loan margin. With our green loans and sustainability-linked loans, we encourage companies to further improve their sustainability
OP´s responsibility principles in project finance
The Equator Principles (EP) is a benchmark in the financial services industry. It is a risk management framework for determining, assessing and managing environmental and social risk in projects. OP Financial Group adopted the Equator Principles (EPs) towards the end of 2016. Projects in question are implemented in OP Corporate Bank Plc. The relevant personnel working in project financing and related financing in OP Corporate Bank's corporate finance have been trained to follow OP's internal EP process.
In practice, OP applies the EPs by executing the following stages:
OP identifies the projects whose size and nature fall within the EP scope. OP makes environmental and social assessments of these projects using material provided by the customer and where necessary, independent consultants and site visits. Based on the provided material, an EP specialist working in corporate finance assesses the project's environmental risks as well as ways to mitigate them. The EP specialist cooperates with the persons negotiating the project's financing and with legal services when drawing up the financing terms.
Together with the person responsible for financing, the EP specialist presents the project in a decision-making body, compliant with the risk policy, whose committee confirms the EP risk level and action plan. The committee's statement on EP compliance is appended to the financing decision.
OP monitors the projects annually to ensure that the planned actions are implemented from the environmental and social perspective. The customer must submit a report on the project's progress. In the case of misuse, OP goes through the suitable measures with other financiers.
OP reports annually the projects within EP scope to the Equator Principles Association.