Case study: How Banco Sabadell works with its clients and customers to encourage sustainable practices

Stakeholder identification and consultation

Please describe which stakeholders (or groups/ types of stakeholders) you have identified, consulted, engaged, collaborated or partnered with for the purpose of implementing the Principles and improving your bank’s impacts. This should include a high-level overview of how your bank has identified relevant stakeholders, what issues were addressed/results achieved and how they fed into the action planning process.

In 2022, a review was conducted on the materiality analysis performed in 2021, which resulted in a list of key topics for the Group. This review aimed to refresh the Group’s perspective within the materiality matrix and to adapt to the increasingly stringent regulatory requirements and the evolving market conditions. Additionally, the approach to prioritizing material topics was shifted from one based on importance to one based on the impact they create, aligning with the directives of “GRI 3: Material Topics 2021,” published in October 2021.

Furthermore, in the latter half of 2023, efforts began to update Banco Sabadell Group’s materiality analysis in accordance with the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG).

The goal of this analysis is to identify and prioritize the material topics relevant to the Group and its stakeholders, focusing on three objectives:

• Determine the ESG priorities that Banco Sabadell Group should concentrate on, taking into account risks, opportunities, impacts, and trends.
• Enhance relationships with various stakeholders by identifying and understanding the impacts and expectations regarding ESG.
• Meet disclosure needs arising from legal obligations and from analysts, indices, and the requests of shareholders, investors, rating agencies, and other stakeholders, using clear and accessible language.

In 2021, key stakeholders—with their demands and requirements incorporated into the materiality assessment—were identified, including employees, suppliers, customers, investors, rating agencies, society, regulators and supervisory authorities, and economic operators. Through engagement with these stakeholders, the materiality of all ESG-related topics was evaluated from both internal and external stakeholder perspectives.

During the second phase of the materiality assessment process, conducted in 2021 and updated in 2022, Banco Sabadell merged the analysis of stakeholder expectations with the identification of impacts through a double materiality lens. This double materiality process seeks to define the impacts of the environmental and social context on the Group, as well as the Group’s effects on its stakeholders, assessing these to gain a comprehensive understanding of how sustainability issues are influenced by each material topic.

To prioritize these identified impacts, the Group carried out a quantitative assessment by distributing questionnaires to various areas of the Bank to gather feedback on these impacts, measuring their significance using pre-defined scales.

The results of this analysis enabled a comprehensive double materiality approach and facilitated the update of the materiality matrix. In terms of outcomes, three priority levels were established, with level 1 representing the highest impact for the Group, which includes the following material topics: (i) Corporate governance, (ii) Value creation and solvency, (iii) Ethics and integrity, (iv) Climate-related and environmental risks, and (v) Sustainable finance and investment.

How did Banco Sabadell work with its clients and customers to encourage sustainable practices and enable sustainable economic activities?

In its 2023 Non-Financial Disclosures Report Banco Sabadell reports that it works with its clients and customers to encourage sustainable practices and enable sustainable economic activities as follows:

Sustainable financing is a key catalyst for facilitating the energy transition, particularly in addressing global warming by fostering an economic model that protects the environment.

Banco Sabadell is committed to supporting and accelerating essential economic and social transformations that promote sustainable development and combat climate change, particularly for individuals and small and medium-sized enterprises (SMEs). The Bank provides its customers with a range of solutions focused on energy efficiency, as well as options for purchasing and renovating homes, sustainable mobility, and the installation of renewable energy sources.

The Group actively promotes sustainable financing and investment to advance the shift towards a more sustainable and low-carbon economy, offering optimal solutions for customers and investors. In 2021, the Bank pledged to mobilize €65 billion in sustainable financing by 2025. As of December 2023, following a reassessment of the criteria for sustainable mobilization, over €38.6 billion has been mobilized, including more than €15 billion in 2023 alone.

To fulfill this commitment and to foster social and financial inclusion while contributing to environmental preservation and climate change mitigation, the Bank is enhancing its educational and advisory initiatives across all business sectors, providing solutions to fund the necessary investments for this transition. All of its resources are being made available, including:

Financing solutions across various business lines:

To align loan approval processes, portfolio management, and reporting tasks with international sustainable financing standards (including the Green Loan Principles and the Sustainability-Linked Loan Principles from the Loan Market Association, as well as the Green Bond Principles and the Sustainability-Linked Bond Principles from the International Capital Market Association, ICMA), the following financing types were defined in 2020 based on the use of funds:

• Green and Social Loans (GSLs): These loans are defined primarily by how the funds are used, making them preferable due to their direct positive impact on the environment and/or society. They are closely related to Banco Sabadell’s Eligibility Guide, referencing the EU Taxonomy and market best practices like the Green Loan Principles, as well as green bonds issued by the Bank in recent years under the SDG Bond Framework.
• To encourage GSL transactions, the Bank has implemented discounts to provide better pricing for customers. The rollout of the Next Generation EU Recovery Funds is expected to significantly enhance this type of financing.
• Sustainability-Linked Loans (SLLs): This financing type incentivizes achieving sustainability targets by linking the transaction price to the performance of specific Key Performance Indicators (KPIs). Unlike GSLs, SLLs do not require the funds to be allocated for a specific purpose. Ensuring that the selected indicators are relevant to customers is crucial to effectively support their sustainability strategies.
• Investment in renewable energy through Sinia Renovables: More information is available in section “5.2 Sinia Renovables” of the Non-Financial Disclosures Report
• Issuance of sustainability bonds: Additional details can be found in section “5.3 Issuance of sustainability bonds” of the Non-Financial Disclosures Report
• Sustainable savings and responsible investment solutions: More information is presented in section “5.4 Sustainable savings and responsible investment solutions” of the Non-Financial Disclosures Report

Efforts have been made to develop a unified framework for managing ESG credit risk that incorporates all applicable rules for authorizing credit transactions by the Bank. Consequently, ESG risk management guidelines were established, which include:

• Environmental and Social Risk Framework at the customer level: This framework aims to identify whether a new transaction might involve any restricted activities from the outset (see subheading on Environmental and Social Risk Framework).
• IRCA: This indicator enables the Bank to assess the ESG risk of the companies it finances while taking into account their performance in managing climate-related and environmental risks. It helps define credit risk management policies and identify investment opportunities to assist high-emission companies in transitioning toward more sustainable operations.
• Decarbonization pathways: For borrowers in sectors impacted by the decarbonization pathways defined by the Group, the Bank continuously evaluates significant transactions to which these pathways apply, beginning as soon as they are initiated. A specific workflow has been established to identify, assess, and monitor transactions subject to these pathways.

Banco Sabadell has established its Commitment to Sustainability, built upon four strategic pillars that outline the Bank’s sustainability strategy and forward-looking vision with ESG goals and commitments, all aligned with the UN Sustainable Development Goals (SDGs). The primary focuses of this ESG framework are as follows:

• Progress as a sustainable institution: The Bank aims for greenhouse gas (GHG) emissions neutrality, promotes diversity, nurtures talent, and continues to integrate ESG criteria into its governance while participating in the most relevant ESG alliances.
• Support customers in transitioning to a sustainable economy: The Bank is making strides to establish decarbonization pathways, assist customers in their transition to specialized solutions in renewable energy, energy efficiency, and sustainable mobility, and set sectoral standards that restrict controversial activities and/or those with negative social and environmental impacts.
• Offer investment opportunities that contribute to sustainability: Within the investor ecosystem, the Bank is focused on increasing savings and investment opportunities that support sustainability, offering a broad spectrum of social, ethical, green, and sustainability bonds and funds, both proprietary and from third parties.
• Collaborate for a sustainable and cohesive society: The Institution believes in taking an active role to enhance financial education, drive inclusion, reduce vulnerabilities, and ensure secure transactions and information exchange.

Understanding customers at every stage of their relationship with Banco Sabadell is vital. To this end, the Bank is continuously developing new methodologies to gauge customer feedback, identify the main drivers of satisfaction and dissatisfaction, and assess how well it meets customer expectations. This evaluation includes market research and consumer analysis through a variety of qualitative and quantitative metrics.

Banco Sabadell analyses its customer experience through quantitative surveys, including:

1. Net Promoter Score (NPS)
2. Satisfaction surveys
3. Branch quality surveys

In alignment with its policies and procedures, the Bank has implemented mechanisms to ensure transparency in all information provided to customers, ensuring that all products and services meet their needs. Before launching a new product or service, an internal “Product Workflow” is followed, wherein relevant Bank departments review various aspects for compliance with established standards. The final validation by the involved departments is endorsed by a high-level committee, the Technical Product Committee. This validation process aids the Institution in identifying the appropriate customer demographic for each product, focusing on those whose interests, goals, and characteristics correspond with the product’s conditions, including preferences related to sustainability as specified in MiFID II and the IDD.

Moreover, each year, the teams responsible for product offerings conduct a comprehensive review of product conditions and their impact on customers to ensure continued suitability for the initially defined target audience. This review is part of the obligations imposed by various customer and investor protection regulations, including the Guidelines on Product Oversight and Governance Arrangements for Retail Banking Products and the MiFID II Directive.

UN Principles for Responsible Banking: Accelerating a positive global transition for people and the planet

With over 300 signatory banks representing almost half of the global banking industry, the Principles for Responsible Banking are the world’s foremost sustainable banking framework. Through these Principles, the banking community takes action to align core strategies, decision-making, lending and investment with the UN Sustainable Development Goals and international agreements such as the Paris Climate Agreement.

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References:

This case study is based on published information by Banco Sabadell, located at the link below. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the report’s meaning. If you would like to quote these written sources from the original please revert to the following link:

https://www.grupbancsabadell.com/corp/en/sustainability/reports.html

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