Managing risks and capital effectively is crucial for Nordea’s sustained profitability and a part of our social responsibility to mitigate systemic risk in the Nordics. Maintaining risk awareness in the organisation is an integral part of our business strategy. Nordea has defined clear risk, liquidity and capital management frameworks.
The Board of Directors bears the ultimate responsibility for deciding on Nordea’s risk appetite, comprising of all the risk types to which Nordea is or could be exposed. The Board of Directors is furthermore responsible for the risk strategy, setting the overall risk appetite limits and overseeing that Nordea has an adequate and effective Internal Control Framework.
Risk is measured, managed and reported according to common principles covered by Group Board Directives and Group CEO Instructions. Management of risks includes all activities aimed at identifying, measuring, assessing, monitoring and controlling risks as well as measures to limit and mitigate the consequences of the risks. Risk management is proactive, with an emphasis on training and risk awareness.
The Internal Control Framework includes the senior management responsibilities towards internal control, all group functions and business areas including outsourced activities and distribution channels. The Internal Control Framework is designed to ensure effective and adequate identification, measurement and mitigation of risks and compliance with laws, regulations, supervisory requirements and Nordea’s internal rules. It is also designed to support efficient operations, prudent conduct of business, sound administrative and accounting procedures and reliability of financial and nonfinancial information.
Risks related to sustainability are managed and governed based on Nordea’s guiding principles on sustainability as set out in the Group Board Directive on Sustainability, which implies that it shall be integrated into our investment and lending activities as well as in our advice to customers. Risks related to sustainability factors in general and climate risks in particular cannot be treated in isolation to other risks as they can have a financial impact. Therefore, sustainability considerations are being integrated into Nordea’s existing risk management framework.
For example, initiatives to integrate ESG risks into the credit risk framework have been implemented, such as reflecting sustainability considerations in the Group CEO Instructions on Credit, embedding these in credit policies and guidelines to enhance the bank’s capability to identify and monitor ESG risks, in order to highlight the potential credit risk impact of ESG risks at both customer level and portfolio level. Screening and evaluation of ESG risk aspects has become an integral part of Nordea’s credit risk assessment for corporate customers.
The impact of ESG risks is taken into account in credit decision-making, including escalation to credit committees as determined by Nordea’s governance. The risk management framework for relevant risk areas will be enhanced to take account of sustainability considerations, in line with regulatory developments and Nordea’s business strategy. This will be achieved by further developing risk assessment processes that are forward-looking and take into account the time horizons that are relevant for our customers, embedding second-line-of-defence controls and establishing metrics and targets for monitoring and reporting.