Creating the best customer experiences
WHY IS IT IMPORTANT?
Creating the best customer experiences is both about providing user-friendly products and services and about being open about the pricing of what we offer.
Delivering good customer experiences is a prerequisite for our existence as a bank. In order to help our customers stay ahead, we also have to understand their needs. This means, among other things, offering simple and relevant solutions, being available and delivering transparent and competitive terms and conditions and good customer service. By building trust and offering good customer experiences, we will earn the customer relationship.
Our governing principles for corporate responsibility are normative for all product and service development. Our governing principles for ethics, the Code of Conduct, shall also contribute to increasing awareness of and compliance with the high ethical standards which our employees are required to observe. A fundamental principle is open, clear and truthful communication which safeguards customer interests in connection with sales and advisory services. Both the principles for corporate responsibility and the Code of Conduct have been approved by DNB’s Board of Directors. Read more about this in corporate governance.
WHAT DID WE DO IN 2018?
Customer satisfaction among personal customers showed strong progress throughout the year and increased from 70.4 points at the end of 2017 to 75.3 points in the fourth quarter of 2018, which is over the target of 75 points. The customers find that we have good customer service (mentioned by 37 per cent), and other feedback is short response times, good availability, a high level of competence and useful products. At the same time, we see that the customers that are less happy, often state price related to increased interest rates as one of the reasons. They also find that DNB is «not very proactive» when it comes to lowering the interest rate. Nevertheless, we believe that DNB has competitive prices, and that the difference between banks is generally very small. It will therefore be important in the time ahead to improve our efforts to highlight the bank’s terms and conditions as well as offered products, so that the customers get the best and most accurate picture of DNB’s prices.
In the course of 2018, all products and services were reviewed, evaluated and approved, and some products were phased out. This process is called “shelf control”, and it is rooted in our group standard for the approval of products and services as part of the risk management framework. The purpose of the standard is to ensure high quality in our portfolio of products and services, and thereby increase our competitiveness, strengthen our reputation and safeguard our corporate responsibility. The group standard and procedures for compliance shall support effective product development and approval, and contribute to innovation and change capacity.
PRODUCTS AND SERVICES
New mobile bank
The new mobile bank will be our customers’ most important digital banking tool. To create the best possible mobile bank, we have focused on the customer throughout the entire journey. Quantitative user surveys and thorough testing have formed the basis for all the choices we have made.
Customers were involved even before the first beta version, and they have given us specific feedback on both functionality and design. Based on their input, we launched an early prototype where several thousand DNB employees were given the opportunity to test the skeleton of what is now the mobile bank, and help shape what would later be released to the entire Norwegian population. In the course of the autumn and winter, we invited an additional few thousand customers to participate in the open beta testing.
Just two weeks after the launch in January 2019, more than half a million customers had started using the new mobile bank. This is nevertheless just the beginning, and we will continue to enrich the mobile bank with new functionality to simplify and improve the everyday banking life of all bank customers in Norway.
Online home mortgage application
When customers apply for a home mortgage online, DNB uses consent-based collection of data from the digital government dialogue portal Altinn. This is very quick and easy for the customer and safe and secure for the bank. Consent-based collection of salary data is a more secure way of retrieving documentation, it makes the data harder to forge and is in line with the data protection legislation. The customers need only give their consent by using their BankID.
In 2018, we updated our information booklet on how to use the bank without an Internet connection (‘Banking without Internet’), aimed at our non-digital personal customers. The booklet contains information about all the possibilities available to non-digital DNB customers and the products and services we offer them, to enable them to manage their own personal finances. We want our customers to feel that we are their personal bank, and that we are doing what we can to meet their needs. Banking without Internet includes services such as staffed telephone services, bank statements by post, AvtaleGiro (direct debit), BrevGiro (giro sent by regular post) and TeleGiro (payments via telephone), information about authorised users, BankID, etc.
FIGURES FROM THE FINANCIAL SERVICES COMPLAINTS BOARD
The Norwegian Financial Services Complaints Board handles disputes concerning private individuals’ contractual relationship with banks, finance companies, mortgage institutions or mutual fund management companies. The number of cases dealt with in the Complaints Board is an indication of DNB’s ability to deliver products and services that meet customer expectations.
In 2018, the secretariat of the Norwegian Financial Services Complaints Board registered a total of 4 674 new cases related to banking and insurance, of which DNB was involved in 325. Of our 325 cases, only 70 cases were considered by the Board, out of which 60 went in our favour and 10 in favour of the customer. The number of cases in the Complaints Board is as expected, in light of the number of personal customers in DNB, and in comparison with previous years and with other financial services groups. The results of the cases are also as expected and show that DNB has few cases which end in disfavour of the bank. This is considered a positive outcome.
THE WAY FORWARD
The vast majority of Norwegian bank customers are digital and see no need for contact with a human customer adviser when performing everyday banking tasks. But in situations with large financial consequences, the customers have made it clear that they prefer to discuss their options with and get advice from a human being. Customers still expect a bank to act as a bank. This means that we always have to deliver on customer expectations and needs, be it digital products and services or more traditional advisory services, where desirable.
In our mobile bank, we will in the time ahead offer ever-more innovative and unique solutions for our customers, and the services we offer must be at least as good as those offered by the new third party providers, to retain the customers.
We have a long list of functionality and services that we plan to make available in the mobile bank. We will therefore prioritise development in order to cover the most important customer needs as quickly as possible. Continuous further development, fast delivery rate and the ability to quickly readjust will be critical success criteria.
A selection of other new products and services
The corporate app DNB Puls was launched in November 2018 and is a financial management tool for small businesses. It provides a complete overview of the company’s finances and serves as a pocket-sized digital adviser and accountant for companies.
SMEdig is a digital initiative for customers in the corporate segment, and so far, the solution includes application for term loans and lines of credit. The plan is to expand the solution to cover more credit products and a wider range of customers. The goal of SMEdig is to improve the customer experience, simplify the everyday working life of account managers and ensure higher-quality decision support and advisory services.
DNB launched the app Enkel Bilhandel (simple car purchase) in mid-February 2018. This is an app for second-hand car purchases and handles the purchase contract, payment, any loan financing, insurance and re-registration.
The savings app Spare was launched in 2017 and is a one-stop shop for all your savings activities. The customer’s savings account is shown directly in the app, along with everything from pension savings to shares. The customer can also add savings goals and purchase mutual funds, and get a complete overview at all times. By the end of 2018, the app had been downloaded 327 113 times.
Credit Manager is a new digital tool for large corporate customers, where they initially will get an overview of all the company’s credit facilities and can easily apply for a new credit or extend existing credit lines. The solution is being further developed to include more functionality and more services for the large customers segment.
Aino is a chat robot (chatbot) that responds to simple customer inquiries in the Internet bank. If it cannot answer the inquiry, the chatbot will refer the customer to a customer adviser. From the launch in June till the end of 2018, Aino replied to over 238 000 inquiries.
DNB’s self-service solutions within the field of currency and equity trading and securities services have been further developed. This also includes the mobile solutions. Within risk management products, we have improved our digital solutions in order to integrate the bank’s systems with our customers’ risk management systems. This applies in particular within transaction confirmation, updated/valuated customer portfolios and safeguarding of our customers’ needs for statutory reporting to the authorities.
Markets’ analysis products within equities, macro and credit are now compiled in one analysis portal for professional investors. In 2018, there was a significant increase in the number of webcasts with analyses and advice within a broad spectre of capital markets topics.
Furthermore, within securities and derivatives, DNB facilitated increased transparency with regard to pricing, and our customers now receive information about the bank’s estimated earnings on agreed transactions.
Innovative business model and product development
WHY IS IT IMPORTANT?
Based on experiences with other digital services, our customers expect banking services that simplify and streamline their everyday life. Combined with rapid technological advances, changes in regulations and new competitors, this presents both new challenges and new opportunities.
Our goal is to create the best customer experiences while delivering on our financial targets and meeting regulatory requirements.
To create profitable growth in the period ahead, we need to improve our existing operations and at the same time create new revenue streams from services that we are not currently offering. Our innovative power lies in combining in-depth understanding of banking with smart solutions, and not least having a strong implementation capacity. This assumes that we make clear priorities and use our resources effectively.
WHAT DID WE DO IN 2018?
DNB has taken a number of active steps in the area of innovative product development, and there is a strong and positive commitment to innovation within the organisation. The common focus on innovative power created by our new strategy has certainly had a significant effect in this regard.
At the beginning of 2018, we established New Business as a separate business area. New Business is responsible for four group-wide priority areas in DNB: data and customer insight, payments and payment infrastructure, Open Banking, and application of new technologies and strategic partnerships.
The business area helps streamline and accelerate the development of new sources of income and competitive strength within existing customer segments, while at the same time identifying and realising new business opportunities.
To meet the competition from technology companies, DNB has developed a method of prioritising projects that should be carried out with an agile approach, which is a common way of managing projects in technology companies, where ideas are continuously developed and tested. An important effect of this is that we can test ideas faster and in that way avoid the costs of developing solutions which for various reasons do not work.
HIGH SCORE ON INNOVATION
DNB is operating in a highly competitive market when it comes to innovation, where both existing banks and new players are continuously looking for opportunities to create added value for customers. In this type of market, it is a sign of strength that brand surveys show that DNB stands out positively with regard to the values innovative and modern. Our customers find that we are often among the first to launch new solutions.
We cooperate with StartupLab, Norway’s largest and best technology incubator, in a number of areas. One example is the leading fintech accelerator in Norway, DNB NXT Accelerator. We also partner with Digital Norway to share learning about the digitisation of Norway, and with the Norwegian University of Science and Technology on matters such as artificial intelligence (AI), in collaboration with major market players, including Telenor, Equinor and SINTEF.
New ways of cooperating has led to venture investments in companies such as Payr, Spiir and FundingPartner, and in 2018, DNB developed an accounting solution for corporate customers in cooperation with Lucalabs. We also combined investment with partnership through the collaboration with 11:FS, one of the world’s leading companies within financial technology, by establishing the company 11:FS Foundry. The company offers a completely new approach to the digitisation of banking services: a flexible core architecture that makes it possible for providers of financial services to leave old systems and obsolete infrastructure behind. The first task in this partnership will be to consider whether we can optimise DNB’s value chain for unsecured credit.
When we launch products in the market, which is demanding improvements at an ever-increasing speed, it is also essential to make the most of the existing competence and established working methods of dedicated teams.
On the basis of this, one of the three buildings of our head office in Oslo was established as a “Digital House” in 2018, where we co-located IT teams and business areas for all development projects. Particularly in major development projects such as the new mobile bank for personal customers and the corporate app DNB Puls, we have learned that using teams with expertise from both the business areas and IT from start to delivery, results in faster clarifications and accelerated progress. The same is true for projects with a high degree of technical complexity. One example is the development of our new chatbot Aino, where we applied both machine learning and artificial intelligence. Chat is the fastest growing channel in DNB’s customer service centre, receiving more than 1.5 million inquiries a year, and Aino has ensured continued personalised customer experiences combined with a seamless transition to a human adviser for the more complex inquiries. Aino has been well received by our customers and has more than halved the chat traffic to the service centre since the launch.
THE WAY FORWARD
Based on our positive experiences with interdisciplinary teams this past year, we will further increase and improve the cooperation between the various business areas and support units in the bank throughout 2019.
We are facing a fundamental shift in the way banks are operating. One area where this is clearly evident is Open Banking, which is all about banks opening up their infrastructure via secure and user-friendly interfaces, allowing third-party developers to create new services and user experiences for the customers. In 2019, Open Banking will really gain ground in Europe, largely as a consequence of the introduction of the PSD2 Directive, which will also affect Norway. This is a priority area for DNB, and we will keep up the good work of creating value for DNB and our customers in close interaction with third parties.
Information security and stable IT systems
WHY IS IT IMPORTANT?
As Norway’s largest bank and a major settlement bank, DNB is an important player in Norwegian society, which requires offering user-friendly, stable and secure solutions – for our customers and society at large. A well-functioning banking system is a fundamental requirement for being able to carry out payments in shops, pay bills and make transfers between accounts in all banks and countries.
DNB operates and manages a range of IT systems and handles large amounts of data of both a personal and commercial nature. New digital services, new technology and a complex threat scenario require both that we have in place substantial technical security measures, and that we have employees with sound knowledge of how digital services and data are managed in a safe manner. This is essential to maintain our customers’ trust and thereby our competitive strength. Stable and secure IT systems are also a basic prerequisite for being able to increase our innovative power in the years to come.
WHAT DID WE DO IN 2018?
In the course of the past year, we reviewed the organisation of the IT and security functions and adapted them to today’s banking activities.
A number of measures were implemented, both process-related and technical, which helped improve operational stability in 2018. Among the measures implemented were the establishment of a proactive monitoring system for DNB’s critical systems and enhanced high-availability solutions for multiple services. In addition, DNB’s external network lines were moved to a new data centre in the county of Akershus in 2018, after the mainframe computer was moved to the same location in 2017. Moreover, the underlying infrastructure for the handling of credit cards was upgraded and improved, and the mainframe for disaster recovery was upgraded and its capacity increased.
DNB has reaped the results of this work in the form of improved operational stability. In 2015, incidents occurred on 110 days of the year, which caused periods of unavailability or long response times for customer services, for instance in the Internet bank. In 2016, this number was reduced to 74, while there were 38 and 27 such days in 2017 and 2018, respectively. This is an improvement of 75 per cent since 2015, and of 29 per cent in the last year.
The Group is following a three-year action plan for information security and is continuously working to develop and reinforce security solutions. We have made significant investments and implemented a number of improvements in the area of security. Key elements include having multiple levels of robust security measures, continuously enhancing and upgrading IT solutions, strengthening security competence among employees and further developing national and international cooperation. Moreover, we are focusing on increased automation and continuous monitoring of the level of security. In 2018, DNB reinforced the protection of the IT infrastructure, improved user and access management, strengthened the defence against digital fraud and introduced more comprehensive training in IT security for IT professionals. The ongoing communication efforts and the general training in information security for all Group employees were continued. The National Security Month campaign was carried out once again in 2018 and received a great deal of attention and support internally in DNB.
If a serious IT incident were to strike DNB, it is crucial that it is dealt with effectively, so that we are able to quickly resume normal operation. To strengthen this ability, the Group’s crisis management organisation was in 2018 adapted to suit today’s organisation and business operations, and the new crisis management team underwent extensive training and carried out several drills.
Every day, DNB experiences cyberattacks where criminals attempt to enter our IT systems, gain access to data and carry out digital fraud. The attacks are becoming increasingly sophisticated, and we note that the attackers are willing to spend a significant amount of time and resources to achieve their goals. The Group handled around 6 500 IT security incidents in 2018, an increase of 10 per cent from 2017. None of these incidents had serious consequences.
In the same period, we registered an increase of 9 per cent in the number of customers who were victims of digital fraud. In 2018, the total value of prevented fraud attempts against our customers was NOK 266 million. In DNB, we help our customers with tips on how to avoid falling victim to financial crime and provide frequent advice and information on how to safely use services such as online banking, payment cards and mobile banking.
THE WAY FORWARD
Stable and secure IT solutions are fundamental prerequisites for financial operations. To ensure that the measures we implement actually contribute to enhanced security and stability for our IT services, they must be based on sound risk and vulnerability assessments. DNB has therefore strengthened the risk management efforts in IT and will in 2019 to an even greater degree integrate this into the general IT management. This way, we reinforce the connection between IT risk and the risk scenario in DNB’s business areas. At the same time, we will continually develop our security solutions and further strengthen our defence against cyberattacks and digital fraud.
The ongoing efforts to improve operational stability will also continue. The main improvement activities are gathered in a separate programme that has a risk-based approach to the prioritisation of the measures. Implementing stabilisation measures within parts of the payment portfolio will be a prioritised task in 2019. In addition, we will make use of artificial intelligence and machine learning in the established monitoring system. This will enable us to predict incidents and prevent them from occurring.
In the time ahead, the information security management system will be further developed, among other things by increasing the involvement of the business areas and support units in the security work. The risk-based approach will be improved to ensure more holistic security efforts, supplier management will be strengthened and crisis management will be further developed.
To build competence in and maintain a high level of awareness with regards to security, we will continue the communication and training in the area. The threat intelligence efforts will be further developed in order to provide a good foundation for risk assessments and strategic decisions for the Group.
We will maintain our security efforts to ensure that DNB remains a safe and secure financial institution for customers and society at large.
WHY IS IT IMPORTANT?
We live in an increasingly digitised world. Digitalisation provides new business opportunities if the available data is used in a sound and legal manner. On the one hand, digitalisation may pose a threat to the individual’s privacy protection, as the possibilities for abusing personal data are constantly increasing. On the other hand, digitalisation can represent an advantage for the individual, as services and products can be customised according to every person’s wishes and needs. The value of data is therefore increasing in the digital world. Information in the form of personal data is given a particularly strong protection through the new EU legislation.
Through the EU’s General Data Protection Regulation (GDPR), new privacy protection legislation was introduced in the countries of the EU and in Norway in May and July 2018, respectively. The new Norwegian Personal Data Act1) and the EU’s General Data Protection Regulation2) affect how we handle information about our customers and employees. The new legislation imposes several duties on those who are responsible for the processing of personal data, while at the same time giving the individual more rights.
Transparency and informational self-determination are key concepts in the new legislation, and also help build trust. The digital world is dependent on information, and trust is a key word in this context. DNB’s governance document specifically states that DNB aspires to be a bank that customers trust. This implies that DNB’s processing of personal data must be transparent, meaning that we are open about what we do, how we do it and why we do it. Our customers’ trust in us to not misuse the personal data they have entrusted us with, is absolutely essential for us to succeed.
WHAT DID WE DO IN 2018?
Over several years, DNB has worked diligently with the implementation of the new personal data protection legislation. Good processes and procedures have been drawn up to ensure compliance, and these have been documented in our governing documents. A main focus in DNB’s privacy protection efforts has been to ensure that all individual rights are upheld. To this end, procedures and processes have been drawn up to ensure each individual’s right to information, access, data portability3), correction, deletion and limitation of processing.
In May 2018, we published our new privacy statement on our website. The statement ensures that information about DNB’s processing of personal data is easily accessible at all times. The privacy statement includes information about our customers’ rights, enabling them to exercise these rights and check how DNB manages the information that they have entrusted to us. The privacy statement is intended to contribute to transparency, and document that DNB has complete overview and control of the processing of personal data.
In 2018, DNB established a process that safeguards the customers’ right of access to the information we have about them. We find that far more customers are making use of their right of access than in the past. In the period from June to December 2018, we registered 826 requests for access, while we in previous years have received only about 20 to 30 requests a year. In all of 2018, only two formal complaints were received about the access process in DNB, which indicates that DNB safeguards the right of access in a good way.
DNB also established new procedures and processes for the management and reporting of personal data security breaches in 2018. We have a low threshold for reporting such breaches to the Norwegian Data Protection Authority. It is our experience that breaches of the personal data security are now uncovered and reported faster than in previous years. In 2018, DNB did not receive any orders or non-compliance penalties from the Norwegian Data Protection Authority related to breaches of the personal data security. This can be ascribed to the fact that the breaches DNB reported were not considered significant, as well as fast handling of non-conformities with effective measures to prevent recurrence.
We established a new governance structure for data, which also includes personal data in 2018. A Group Privacy Office was established under Group Compliance, and a group privacy officer was appointed for key DNB companies in Norway and the EU. Governing documents were also prepared, in the form of DNB’s privacy protection standard and global privacy protection framework. These are based on the basic principles of the General Data Protection Regulation. To raise the organisation’s general level of competence with respect to personal data protection, a number of mandatory e-learning courses for all the Group’s employees were launched in 2018. On top of that, several teams in DNB were given classroom training on the topic. Several expert teams were also established, tasked with keeping a particular focus on compliance with the personal data protection legislation.
THE WAY FORWARD
Privacy protection is regarded as a key topic by the Group’s management teams and boards and will be a high priority in the years to come. We will continue to build on the thorough work performed and documented by DNB’s privacy protection programme.
Key points in DNB’s work in this area is the establishment of an organisation (Group Privacy Office) responsible for coordinating the compliance function for privacy protection both nationally and internationally. The Group Privacy Office will be extended to include more employees in 2019, to ensure effective monitoring, control and reporting on DNB’s compliance with the personal data protection legislation.
DNB’s goal is to ensure that privacy protection is well incorporated in all parts of DNB’s operations, systems, services and products. Our privacy protection culture shall be embedded in the walls of DNB. A responsible and trustworthy privacy protection policy is an absolute prerequisite for DNB to reach its financial targets.
1) Act of 15 June 2018 no. 38 relating to the processing of personal data, in force on 20 July 2018.
2) Regulation (EU) 2016/679 (General Data Protection Regulation).
3) “Data portability” is the right to receive and transfer data in a commonly used machine-readable format.
Responsible lending and investment
Responsible lending to corporate customers
WHY IS IT IMPORTANT?
The DNB Group’s resources shall be used to meet customer needs without coming into conflict with the bank’s and our customers’ responsibility to contribute to a sustainable development of society. We integrate corporate responsibility in our operations because it is morally and ethically right. It is also sound risk management. DNB’s long-term profitability is dependent on our customers also integrating corporate responsibility in their strategic choices. If this does not happen, our future earnings will be exposed to an excessively high risk.
As a lender, DNB has influential power. By requiring our customers to be accountable, we can both contribute positively to society and reduce our customers’ and our own risks.
Corporate responsibility has always been important in DNB’s credit activities. In 2018, corporate responsibility assessments were nevertheless given an even more central position in our credit decisions. Environmental, social and governance (ESG) factors are essential elements in credit decisions for all our corporate customers.
ESG-related aspects have formed an important part of the many thousands of customer dialogues we have carried out in 2018. We see great commitment among and receive many positive responses from our customers on these topics. Together, our customers and DNB contribute to raising awareness of and establishing measures for risks and opportunities related to corporate responsibility and sustainability.
WHAT DID WE DO IN 2018?
DNB’s strategy was clearly evident in all responsible lending activities in 2018. The corporate customer strategy is operationalised in 15 sector-specific business strategies within credit, all of which were updated in 2018. For the first time, a separate chapter on sector-specific corporate responsibility was included in all the strategies. Many of the sector-specific chapters on corporate responsibility are described in more detail in DNB’s ESG sector guidance notes. In 2018, a new sector guidance note on plastic packaging was prepared and adopted. This comes in addition to the five existing notes which have been prepared on energy, arms and defence, seafood, metals and mining, and forestry. All of DNB’s sector guidance notes are available in the sustainability library on dnb.no along with other guidelines. We have started the work of updating the existing sector guidance notes and developing new ones, and expect the work to be completed within the first half of 2019.
Both the credit manual and the group standard for corporate responsibility in credit activities were updated in 2018, which included the incorporation of ESG factors. The credit manual was reviewed in several credit seminars in 2018, and the credit officers are instrumental in the ESG integration. All credit employees have upgraded their skills in responsible lending through DNB’s training platform Motimate. The course is mandatory for all employees who work with corporate customer credit and for relevant employees in Group Risk Management (GRM).
The reporting and follow-up of ESG in the credit process were also further developed in 2018. In all credit proposals with a value of more than NOK 50 million, risk levels associated with the loan are registered. Eventually, the goal is to be able to report on the main ESG risk types as well. We will continue to work on reporting solutions in 2019.
The procurement process for ESG information systems, which was initiated in 2017, was completed in the winter of 2018. At present, DNB has access to three external sources for ESG analyses: Sustainalytics, MSCI ESG manager and Reprisk. The information systems contain data on companies’ and industries’ ESG risk exposure and are tools we use when carrying out risk assessments of customers and industries in our credit activities. They are also used as a starting point for dialogue and involvement with customers. We have developed and implemented extensive training programmes in these tools.
In 2018, we also rolled out the Corporate Responsibility Ambassador role (CR ambassadors). CR ambassadors were appointed in all divisions within the corporate customer segments. All industries and regions, both in Norway and internationally, have a dedicated ambassador. The CR ambassadors are “local change agents” with insight into the relevant legislation and tools, and are vital to the effective roll-out and implementation of the corporate responsibility strategy in the corporate credit process. The ambassadors have been responsible for local training initiatives and awareness campaigns and have been available instructors in the use of the ESG information sources.
In addition, we conducted more than 50 workshops within the corporate customer segments, where dilemmas, controversial topics and sector-specific aspects were discussed. More than 500 employees participated in these workshops in 2018. The CR ambassadors have been central contributors to this work.
In the autumn of 2018, we arranged a series of mini-seminars, which we called “sustainability talks”. Customers from various sectors, who have worked systematically and effectively with sustainability, were invited to share their experiences. Our purpose was to raise the level of competence among our employees. The events were open to all employees, and excerpts from the customers’ presentations are included in the sector-specific ESG training that has been made available to all employees.
A framework for sustainable products was introduced in the autumn of 2018. It is based on the internationally recognised Green Loan Principles and describes sustainable causes that will qualify for green products in DNB. So far, one green loan product has been developed, and we granted one loan under this framework in 2018. The framework will be further developed in 2019 to include more products and areas of DNB.
In 2018, we granted our first loan where part of the margin is determined based on the customer’s attainment of specific ESG-related goals. If the goals are reached within the agreed time (confirmed by an independent third party), the customer will pay a reduced interest rate. If the goals are not reached, the customer will pay a higher interest rate. Through such loan agreements we give the customer financial incentives to develop in a sustainable direction.
In 2018, one project within oil and gas in Chile was processed in accordance with the Equator Principles. The Equator Principles is a global framework used by banks to assess and manage risks related to environmental and social aspects of project finance and project-related corporate loans. Read more in DNB’s sustainability library.
THE WAY FORWARD
DNB will continue to develop the processes to integrate ESG risk in credit assessments. We will further develop the chapter on corporate responsibility in our credit manual, and are among other things planning to draw up more sector-specific checklists to help determine ESG risk levels. We will also continue our efforts to facilitate the registration and storage of the ESG risk level of customers and transactions. Existing e-learning courses on corporate responsibility will be updated, and new courses will be developed. The sustainable product framework that was developed in 2018 will be expanded to include more products and areas. Customer dialogue and initiatives related to corporate responsibility will continue on a larger scale from 2019 onwards. In DNB, we see many opportunities for sustainable growth, and we want to be a sparring partner for our customers as well as a consultant for new business opportunities. The corporate responsibility division provides advice in credit activities with regard to the efforts to incorporate ESG factors in the processes, and offers an objective perspective on the use of available tools and the management’s approach to the subject. We believe that this is an effective way of ensuring that good efforts are made to integrate ESG factors in all the Group’s business operations.
We are pleased with the way corporate responsibility was integrated in the lending activities in the course of 2018. This has laid a good foundation for further work with corporate responsibility, and has created positive ripple effects in the organisation. In the time ahead, DNB will continue the initiated processes and introduce new initiatives in line with DNB’s strategic work in this area.
We are actively seeking areas where we can contribute to sustainable financial growth, both in Norway and through our international operations. To meet the ambitious goals set out by the Paris Agreement, we need to see more capital moving into sustainable investments globally. The sustainable bonds market, including green and social bonds, is an important piece of that puzzle. Through our extensive network of customers and other stakeholders, we aim to be a leading bank in the Norwegian market for sustainable bonds. We do this by helping our customers finance their sustainable projects and activities with sustainable bonds, but also by issuing own bonds to finance our sustainable lending activities. We are currently the largest Norwegian issuer of green bonds, with an outstanding volume of EUR 1.6 billion, which have been used to finance projects within renewable energy as well as for mortgages earmarked for energy efficient housing.
Environmental, social and governance (ESG) factors are becoming increasingly important for investors when evaluating investment opportunities, and they are seeking a higher level of transparency than before. By issuing sustainable bonds, issuers provide additional information about the environmental benefits of their business operations, thereby offering investors more transparency than is the case with regular bonds.
Responsible lending to personal customers
WHY IS IT IMPORTANT?
A sustainable society also means financial stability for the individual. We are therefore committed to promoting sustainable personal finances and ensuring that people make sound financial decisions.
Who we offer loans is first and foremost dependent on the individual loan customer’s ability to live with the costs associated with the loan commitment and on the collateral provided for the loan.
Through good individual credit assessments, we take our role in society seriously. The advisory services we offer are just as important as the underlying assessment.
WHAT DID WE DO IN 2018?
The Norwegian Home Mortgage Regulations set certain limitations for the banks’ permission to offer loans secured by property. Nevertheless, the Regulations give the banks the possibility of deviating from the regulatory requirements for a certain percentage of loans, the so-called flexibility quota, equivalent to up to 10 per cent of the lending volume every quarter. For loans secured by property in Oslo, the quota is 8 per cent.
As a result of the flexibility quota, banks have to be more selective, and in 2018, we therefore decided to prioritise young customers who are first-time home buyers. The fact that we are prioritising young customers does not mean we cannot use discretion and help customers in other circumstances of life, such as relationship breakups.
In cases where we use this flexibility, it is crucial not to inflict a debt burden on the customer that may later lead to payment problems.
There is growing demand among consumers for green and more environmentally friendly products and services. Greenhouse gas emissions from Norwegian households mainly stem from heating, and as Norway’s largest bank, we want to contribute to reducing these emissions. In 2018, we therefore launched Grønt boliglån (green home mortgages). This home mortgage is granted to customers for housing that has an energy efficiency marking of A or B.
Throughout 2018, we worked to implement our new strategy for unsecured credit, where we will offer credit cards and consumer loans in a responsible manner. For instance, we have been restrictive with the promotion of this type of products, we no longer use agents, and we have reduced the number of cards and updated their terms and conditions. With regard to consumer loans, a stable and sound credit policy over time has resulted in a corresponding stable and healthy development in defaulted loans. DNB also has a responsible collection strategy where we focus on helping our customers manage their own finances. Throughout the year, we have proactively reached out to customers with payment problems to help them establish fixed repayments. This helps give them a better overview of their financial situation.
DNB’s main principles in the follow-up of customers with payment problems are ensuring effective communication and a good customer experience, safeguarding the customer’s overall commitment and focusing on a voluntary and customised solution at an early stage.
DNB cooperates with debt collection agencies that follow up customers in accordance with our strategy and in line with sound debt-collection practices.
THE WAY FORWARD
In 2019, we will continue to prioritise helping first-time home buyers enter the housing market through the flexibility set out in the Home Mortgage Regulations.
We will continue our efforts to keep the default frequency at a low level and will continue working on a responsible strategy for unsecured credit. We will be proactive and offer more people customised advice and reminders to limit the risk of the customers ending up with payment problems. Through our cooperation with 11:FS (read more here), we also seek to improve our services within unsecured credit and offer the end user even better possibilities and customer experiences.
WHY IS IT IMPORTANT?
Responsible and sustainable investment implies safeguarding the environment, social conditions and sound corporate governance in investment management. DNB manages large sums of money on behalf of its customers, through DNB Livsforsikring, management of mutual funds and active portfolios, and the Group’s equity investments. The main purpose is to achieve long-term returns with an acceptable level of risk, contribute to sustainable development and avoid contributing to the violation of fundamental rights.
We have a responsible investment standard for our investment operations to ensure that the Group does not contribute to the infringement of human and labour rights, corruption, unacceptable greenhouse gas emissions, serious environmental harm or other acts which can be perceived to be irresponsible. It shall also ensure that assessments of risks and opportunities related to ESG (Environmental, Social and Governance) factors are integrated in all investment management. DNB’s corporate standard for responsible investment and a list of exclusions and company dialogues can be found in the sustainability library.
Our work with responsible investment is based on internationally recognised principles such as the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the United Nation’s Guiding Principles on Business and Human Rights. The measures used are mainly positive screening, active exercise of ownership rights through dialogue and voting, integration of ESG-related risks and opportunities in the management, standard setting and exclusions.
All investment management in DNB is subject to requirements for accountability and sustainability. A dedicated sustainability team works closely both internally with investment management, and externally with the companies. Their assessments are supported by three external consulting firms that monitor companies in the investment universe, prepare sustainability analyses and engage in dialogue with companies in cooperation with and on behalf of DNB and the Group’s customers. The goal is to influence the companies in a sustainable direction and contribute to value creation, both in order to uncover risks and opportunities and to raise specific ESG issues.
WHAT DID WE DO IN 2018?
In 2018, we devoted special attention to the topics corruption, requirements for sub-suppliers in emerging markets, methane gas emissions, tax and deforestation, as well as land use, in addition to the long-term focus areas human rights, climate change and water. After having prepared forecast documents on human rights, serious environmental harm and voting in 2017, we prepared forecast documents on climate, anti-corruption and responsible tax practice in 2018. These documents form an important part of our standard-setting work and are used as a basis for setting requirements for and starting a dialogue with companies on these topics.
As an active owner, we aim to influence companies in a positive direction through reactive and proactive dialogue and through casting votes. In 2018, the sustainability team had 85 meetings with 65 companies to discuss a range of different topics, including various ESG topics. In addition, we had 68 meetings with 55 companies through the consulting company GES Investment Services concerning seemingly reprehensible incidents or suspected breaches of international standards or conventions. The dialogues are structured processes with clear targets for the desired outcome. In addition, milestone attainment is measured. An example of a target could be that the company should implement good anti-corruption systems or protect indigenous rights. Moreover, we voted at 139 annual general meetings in Norway and 31 internationally. At 3 of these general meetings, we voted on shareholder proposals for climate measures and at the general meetings of 34 Norwegian and 8 international companies, we voted against the company’s recommendation. We have an ongoing dialogue with the companies’ Boards of Directors, management and election committees to help ensure that cases presented at the general meetings are in accordance with sound corporate governance. Strong expertise and diversity in the composition of Boards of Directors are important in the voting process.
Climate change involves both risks and opportunities for companies and portfolios that we manage on behalf of our customers, and can have a significant financial effect. The forecast document on climate is an important starting point for systematic exercise of active ownership through voting and dialogue with companies. Nevertheless, exclusions are still necessary. At year-end 2018, 77 companies were excluded due to criteria related to thermal coal or oil sands, as well as acts or omissions that at company level lead to emissions of greenhouse gases on an unacceptable scale. See a complete overview in the sustainability library.
We will continue to measure companies’ carbon footprints. Carbon footprint, also called carbon intensity, is the measure of a company’s greenhouse gas emissions relative to the company’s turnover. The carbon footprint of our equity portfolios is described here. This is one of several indicators of companies’ climate risk and impact. However, this indicator has limited value, as the measurement is retrospective and does not account for companies that are undergoing change or that contribute to solutions to reduce greenhouse gas emissions. In line with the ever-more stringent regulatory requirements for climate reporting and sustainable finance operations, we have therefore started working on mapping and measuring climate-related risks and opportunities at corporate and portfolio level. One way we do this, is through the use of scenario analysis, recommended by the Task Force on Climate-Related Financial Disclosures (TCFD) as a tool to identify possible outcomes for climate-related risk and opportunity factors on corporate and portfolio level (read more here). This gives a more forward-looking picture of the company’s climate-related risks and opportunities than carbon footprints, which is important to take into account in the investment process. Since this analysis is very complex, we are contributing to the development of a standardised method and tool in cooperation with other leading international investors through the UNEP FI TCFD Investor Pilot Project.
After having launched the low-carbon mutual fund DNB Global Lavkarbon in 2017, we have in 2018 further developed the mutual funds DNB Grønt Norden (DNB green Nordics) and DNB Barnefond (DNB children’s mutual fund). They now exclude companies with high levels of greenhouse gas emissions.
THE WAY FORWARD
Our efforts to safeguard the environment, social conditions and good corporate governance and being transparent about our work will continue in 2019.
Priorities for 2019 will be to continue the active exercise of ownership through voting and dialogue, with increased focus on proactivity and investor collaboration, as well as to intensify the efforts to integrate significant risks and opportunities related to sustainability into all investment decisions in a systematic manner. Climate-related risks and opportunities will be essential in this work.
The Responsible Investment Committee is consulted in the efforts to ensure responsible investment in DNB Asset Management. We believe this is a good way to ensure ongoing monitoring and evaluation of the work being done within the field of responsible investment.
We are pleased with the way corporate responsibility forms a systematic and integral part of DNB’s investment activities. Corporate responsibility efforts have to an increasing degree been highlighted both internally in DNB and towards our customers, creating positive ripple effects. Our efforts to safeguard the environment, social conditions and good corporate governance will continue in 2019.
We will also continue to further develop mutual funds, in the fixed-income markets as well, that invest in companies that excel in terms of sustainability.
See a complete list of excluded companies and read more about responsible and sustainable investments and company dialogue in the sustainability library.
Measuring the carbon footprint of equity funds
In 2016, as part of the efforts to reduce exposure to companies with high climate risk, DNB started to measure the carbon footprint of all equity funds. The carbon footprint, also called the carbon intensity, is the measure of a company’s greenhouse gas emissions relative to the company’s turnover, and is one of several factors that give an indication of the company’s climate risk and impact. After identifying the carbon risk in the portfolios, there are several ways of reducing this risk.
DNB uses information from MSCI ESG Research about companies’ greenhouse gas emissions. The companies’ carbon footprint is weighted by the respective holding in the portfolios. The same is done for the index. In the calculation, any cash in the portfolios is distributed proportionately between the other companies. Emission data are either data reported by companies or estimates prepared by MSCI ESG Research. For companies without emission data, the average figure for companies in the portfolio with emission data has been used in the calculation. DNB reports CO2 equivalents, as defined by the Greenhouse Gas Protocol. Scope 1 covers direct emissions where the organisation has operational control, and scope 2 covers indirect emissions associated with purchased energy. Indirect emissions associated with purchased goods and services that fall under scope 3 are not included, as there are not sufficient reported data from the companies. So-called «avoided» emissions, which give an indication of how the company’s products or services contribute to reduced emissions, are not included either, as there are not yet good enough data in this area. The method for reporting greenhouse gas emissions is under development and may be subject to change.
The graph shows 29 equity funds and their respective indices where more than 75 per cent of the holdings have reported or estimated data on greenhouse gas emissions. These funds represent about 96 per cent of the total market value of all of DNB’s equity funds. The graph is a snapshot of the portfolio as at 31 December 2018.
There is great uncertainty associated with data on greenhouse gas emissions. This is due to both regional variations in the practice for reporting, which lead to differences in geography and size, but also to the fact that estimated data are used for companies which do not report data. Despite of this, we still believe that it is important to include emissions data in the analysis of companies’ climate risk and impact, as one of several factors.
In the efforts to increase the quality and coverage of reported emissions, we support the Task Force on Climate-Related Financial Disclosures (TCFD) and CDP (formerly the Carbon Disclosure Project).
©2018 MSCI ESG Research LLC. Reproduced by permission. Although DNB Asset Management’s information providers, including without limitation, MSCI ESG Research LLC. and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Responsible ship recycling
Since we decided to endorse the Responsible Ship Recycling Standards in 2017, we have actively helped draw attention to the challenges related to ship breaking and to change in a positive direction. Our customers have already been challenged on both policies and practices, and we have raised the issue in various areas and industry conferences. Of all new shipping loans in 2018, 85 per cent included clauses with special requirements for minimum standards when scrapping ships, as defined in the Hong Kong Convention of 2009 or in EU regulations. We have an ambition to increase the proportion of new loans with such clauses.
However, the topic is complex, with challenges related to capacity and cost of responsible ship breaking. On the upside, the EU is regularly expanding its list of approved shipyards that meet the EU standards, and large sums of money are being invested in the upgrade of shipyards in countries outside the EU, including India. We also see that increased attention from civil society, investors, banks, etc. is contributing to more companies developing their own guidelines for the recycling of their ships.
There are large differences between shipyards with respect to facilities and work procedures. The best shipyards have undergone a great deal of positive upgrades with regard to environmental and working conditions, such as increased use of fixed installations and cranes, solid concrete floors, improved systems for the treatment of hazardous waste, more effective personal protective equipment, better emergency preparedness and better living arrangements. Nevertheless, there is still a long way to go compared with European requirements and standards. DNB wants to contribute to increased demand for responsible recycling capacity and, in the short term, to direct as many ships as possible away from the worst yards.