Environmental and climate issues
We realize that the greatest impact that banks have on environmental and climate issues is through lending and investment, and we take this responsibility seriously. We are proud of our green journey, and our focus on environmental and climate issues is embodied in the Bank’s range of services and products.
Directing financial resources towards green development and the circular economy is hugely important in the fight against climate change and we fully intend to continue in this direction. For further information see the sections on green finance and responsible banking for further information.
Arion Bank’s environment and climate policy
We aim to be a role model on environmental and climate issues and to minimize greenhouse gas emissions and the negative environmental impact of our activities. Man-made climate change is one of the greatest challenges of our time and it is critical that global warming is restricted to below 1.5 degrees Celsius.
We are committed to helping Iceland meet its obligations under the Paris Climate Agreement and other local and international environmental and climate agreements. We support Iceland’s ambitious plans to have net zero emissions by 2040, and the Bank aims to be net zero itself the same year.
Banks perform a vital role in funding progress and our focus is on funding projects on sustainability and green development. We also require our suppliers to consider the environmental and climate impact of their activities.
We are setting ambitious targets and will publish the results of our progress in areas where we have the greatest impact, such as buying, our own activities, lending and the Bank’s investments. We endeavour to enhance our employees' knowledge and understanding of environmental issues and to support our customers' journey towards a green future in accordance with the UN Sustainable Development Goals.
Targets relating to our environment and climate policy
In 2023 the Bank updated its targets on environmental and climate issues, and the targets were approved by the sustainability committee at the beginning of 2024. Earlier targets were reviewed in light of the results achieved so far and new targets were added. The Bank’s targets are reassessed annually with the aim always being to set higher targets.
The Bank’s target was for the percentage of green lending under the Green Financing Framework to be at least 20% in 2030.
Status: At the end of 2023, green lending represented 10.7% of the Bank’s total loan portfolio. After two years of solid growth in 2021 and 2022, the figure fell slightly in 2023. The Bank’s target was to increase the percentage of green loans under the Green Financing Framework to at least 20% by 2030. This target was revised at the beginning of 2024, and in the future, it will apply both to green loans and loans which have a positive impact on society. Revisions of the financing framework also commenced during the year. Loans which have a positive impact on society will now also be incorporated into the framework. This work will be completed in 2024.
This target on the percentage of sustainable loans will be reviewed annually, taking into consideration the opportunities over the next few years for sustainable financing and the implementation of EU taxonomy in Iceland. The Bank hopes the growth rate might even exceed the target figure.
Since 2022 Arion Bank has been preparing sustainability policies for those sectors on which lending has the greatest environmental and climate impact.
Status: In 2023 sustainability policies were published for seafood and industry, energy and manufacturing. In addition, a sustainability policy concerning the Arctic was published, as the Bank is placing increasing focus on the region.
When devising the Bank’s sustainability policies we seek to obtain opinions from stakeholders and refer to plans and actions concerning ESG issues in these sectors.
We will ask our main suppliers about the environmental and climate impact of their activities.
Status: The supplier assessment appraises suppliers on their performance in terms of environmental and climate issues, as well as equality and labour laws. The supplier assessment is carried out on suppliers over a certain size. In 2023, 90% of new suppliers which come under this definition and have an agreement with the Bank underwent the assessment. The updated target on the supplier assessment is that at least 90% of new suppliers under agreement with the Bank should take the supplier’s assessment where their performance in terms of ESG is assessed and the same percentage should agree to the Bank’s code of ethics for suppliers.
The Bank’s target was to assess the carbon footprint of the loan portfolio using PCAF methodology, and once a clear picture has been obtained of the carbon footprint, a target will be set on reducing it by 2030 in accordance with the objectives of the Paris Climate Agreement.
Status: At the same time as releasing the 2023 Annual and Sustainability Report, the Bank is publishing its second report on financed emissions using PCAF methodology and its first targets on the Bank’s lending up until 2030. In 2023 the Bank began devising the targets.
The updated target concerning the Bank’s environment and climate policy is to aim for a reduction in financed emissions in the sectors which have the most impact (Scope 3) in line with Iceland’s and the Bank’s net zero target by 2040.
Target on financed emissions validated by Science Based Targets initiative.
In December 2023, Benedikt Gíslason, CEO of Arion Bank, signed a commitment whereby the Bank aimed to have its climate targets validated by Science Based Targets initiative (SBTi) within 24 months. Validation by SBTi confirms that the Bank’s targets are science-based and align with the commitments of the Paris Agreement; the targets help restrict global warming to within 1.5°C; and refer to scenarios where this is achieved.
The Bank's target was not to buy cars which do not run on 100% renewables from 2023.
Status: In 2023 approximately 94% of all vehicles owned by the Bank were either plug-in hybrids or electric cars. 100% of the cars owned by the Bank and used by employees for daily tasks (buying, meetings, etc.) are plug-in hybrids or electric cars. Only one new car was bought in 2023 and it runs solely on electricity. We therefore reached this target, and we will continue to implement this strategy.
For 2023 we set the target to increase the percentage of sorted waste in the Bank’s operations to 90%.
Status: Good progress has been made on the Bank’s waste sorting and the percentage of sorted waste from the Bank’s operations has increased in recent years. The total percentage of sorted waste was 67.2% at the end of 2023 so there is still work to be done. The figure peaked at 80.1% in 2022, but we are committed to reaching 90% and we retain this target for 2024.
The Bank’s goal has been to reduce emissions of carbon dioxide and other greenhouse gases from our activities by at least 55% by 2030 from the reference year 2015 and to carbon offset all these emissions.
Status: Originally, the Bank’s target was to reduce emissions from activities by 40% from by 2030, i.e. from business premises and vehicles (Scopes 1 and 2). By the end of 2020, the Bank had reduced emissions by 34.7% and it was therefore considered appropriate to update the target and to reduce emissions by 55% by 2030. At the end of 2023, emissions had been reduced by 75.5% from the reference year 2015 and therefore our targets have become even more ambitious. The Bank’s updated target is to reduce greenhouse gas emissions from own activities (Scopes 1 and 2) by 80% by 2030 compared with the reference year 2015 and to carbon offset the remaining emissions. Furthermore, we intend to make continuous efforts to obtain a more accurate picture of emissions from acquired goods and services (Scope 3) in the Bank’s activities.
The target will be reviewed annually, and while the Bank has clearly made excellent progress over the last few years, we aim to go even further. For more information see the Bank’s 2023 environmental accounts below and the section on environmental factors in the sustainability accounts.
Financed emissions
Arion Bank is a signatory to the Partnership for Carbon Accounting Financials (PCAF). This is a global partnership of financial institutions that work together to develop and implement a harmonized approach to assess and disclose the greenhouse gas emissions associated with their loans and investments (Scope 3). Although the Bank’s operations affect the environment, the greatest impact is through lending and own investments. Knowledge of the carbon footprint of the Bank’s loans and investment is a critical component of managing climate risk and setting environmental and climate goals.
The Bank’s report on financed emissions from lending and investment, which is published at the same time as the 2023 Annual and Sustainability Report, reveals that total emissions decreased between 2021 and 2022. Calculations of financed emissions use data which is at least one year old as newer data is unavailable. Therefore, the calculations in the report are for 2022.
Financed emissions at Arion Bank in 2022 from the Bank’s lending and investments amounted to 153 ktCO2e, excluding emissions from sovereign bonds. Emissions from the Bank’s sovereign bonds total 149 ktCO2e, and calculations for 2021 indicate a reduction of 88 ktCO2e in this category. However, emissions from lending increased, and economic activity increased due to the fact that there were no restrictions in place in 2022 due to the global pandemic. However, the emissions intensity of the loan portfolio, i.e. greenhouse gas emissions per ISK million loaned did improve, decreasing 2% between years. Emissions intensity is used to measure actual reductions as monetary amounts can change but the ratio remains comparable.
We are trying to improve data quality year by year and by taking a new approach we get more reliable results. This year the carbon footprint of sovereign bonds was added to calculations. Emissions in this category represent a sizeable portion of the Bank’s total emissions. For the sake of consistency, financed emissions for 2021 were recalculated and the results are used as a comparison to estimate the Bank’s progress between years.
Emissions from the Bank’s own activities (Scopes 1, 2 and 3 excluding financed emissions) in 2022 amounted to 574.1 tCO2e. The Bank’s financed emissions, excluding sovereign bonds, are therefore 266 times the emissions from own activities and 524 times more than if emissions from sovereign bonds with land use are included in the calculation.
Total financed emissions in 2021 and 2022
Arion Bank's total financed emissions in 2022 - excluding sovereign debt
Indirect emissions from sovereign bonds represent the largest factor in the Bank’s financed emissions, or 148.5 ktCO2e if emissions related to land use, land-use change and forestry are included. If excluded, emissions from sovereign bonds total 98 ktCO2e. Business loans are by the far the most significant loan category, with emissions from them totalling 139.4 ktCO2e, or 90% of total emissions from the loan portfolio. The Bank’s business loans are broken down to sectors in order to estimate where the main impact is, as value and emissions do not always match. In order to measure the reduction in financed emissions, we measure emissions intensity, defined as greenhouse gas emissions per ISK 1 million loaned. The division of emissions from the loan portfolio by sector is similar to 2021 and 2022, but the emissions intensity of business loans decreased by 5% between 2021 and 2022.
Car and equipment loans are second to business loans in terms of financed emissions from lending, with emissions of 10.5 ktCO2e, and estimated emissions from retail mortgages are only 2.5 ktCO2e even though this loan category represents about half of the value of the loan portfolio. This is largely due to our renewable sources of energy, geothermal and hydropower, as the carbon footprint estimate covers the energy consumption of housing.
Financed emissions at Arion Bank from investments other than sovereign bonds, i.e. listed and unlisted securities, are only 0.6 ktCO2e. Most investments in the Group’s portfolio are not considered polluting industries. The majority of emissions in this category originates from companies involved in air passenger transportation to and from Iceland. Other sectors which are major contributors to these emissions are seafood and shipping.
Targets up to 2030
Arion Bank has pledged to follow the methodology of the Science Based Targets initiative (SBTi) when setting emission reduction targets. The calculations of financed emissions using PCAF methodology will be used to identify the main opportunities.
The amount of lending changes between years and therefore the decrease in financed emissions is estimated by comparing emissions intensity rather than real emissions at year-end. Arion Bank’s targets are based on sector targets and the government’s action plan which are set out to meet commitments under the Paris Agreement.
We have set targets on reducing emissions intensity in the following economic sectors until 2030:
- Seafood 28%
- Power generation 30%
- Transportation 28%
- Agriculture 5%
- Aluminium production 26%
- Coal remain at 0% (at the end of 2023, the Bank was not financing any coal mines or processing)
- Oil remain at 0% (at the end of 2023, the Bank was not financing any oil prospecting or processing)
The report and an explanation of the methodology used can be seen here.
Highlights of Arion Bank’s environmental accounts for 2023
We have reported on the status and actions in environmental and climate issues since 2016. The reference year for the Bank’s environmental accounts is 2015, and our updated target is to have reduced emissions from own activities by 80% by 2030 (Scopes 1 and 2). The highlights of Arion Bank’s environmental accounts for 2023 can be seen here. Details of the environmental accounts can be found in the Bank’s sustainability accounts under the section environmental factors. Total emissions of greenhouse gases from own operations, i.e. from vehicles and business premises, have decreased by 75.5% since 2015 (Scope 1 and 2). Of this total, total emissions from vehicles decreased by 63.4% and from own business premises by 86.3%.
We have made good progress in reducing emissions from the Bank’s own activities by reducing floorspace and the number of cars which run on non-renewables. The main opportunity for further reducing emissions is to completely stop buying fuel for cars, and from 2023 onwards the Bank will not buy any vehicles which do not run on 100% renewables.
Greenhouse gas emissions from vehicles (Scope 1)
Greenhouse gas emissions from business premises* (Scope 2)
It must be noted that part of the emissions from own business premises has been transferred from Scope 2 to Scope 3, since the Bank has in some cases sold property and leased it again. Emissions from the subsidiaries Vörður and Stefnir, which share their headquarters with the Bank, have been included in the calculations of the Bank’s environmental accounts and the emissions for the subsidiaries have been deducted from Scope 2 and transferred over to Scope 3. The amount of waste from the companies’ activities was calculated by the number of employees, so the waste ratio of the subsidiaries can be separated from the Bank’s activities.
Total emissions from vehicles and business premises with targets up to 2030 (excluding mitigation measures)
As in previous years Arion Bank took mitigation measures for emissions which could not be prevented in 2023 from own activities (Scopes 1 and 2) and other factors related to operations (Scope 3), such as business trips, waste and employees’ journeys to and from work. In the second half of 2023, the Bank entered into an agreement with Vaxa Technologies and bought certified carbon credits corresponding to 650 tCO2e. Vaxa Technologies, which is based at the Hellisheiði ON Geothermal Plant, sells carbon credits created during the production of microalgae, spirulina. The Bank has also provided generous financial support to the Icelandic Forestry Association for many years and will continue to do so.
Total greenhouse gas emissions in Scope 3 (excluding mitigation measures and financed emissions)
Enhanced data collection has enabled us to obtain better information on acquired services and we are continually seeking to get a clearer picture of Scope 3. In 2015-2018 international flights, flights by contractors, flights with international airlines, taxi journeys and data destruction have been added to the Bank’s environmental accounts, which partly explains why recorded total emissions of greenhouse gases from acquired services have increased during the period.
In 2020 indirect emissions from employee journeys to and from work were added for the first time, and in 2022 emissions from leased and leased out properties were added to Scope 3. Leased assets under Scope 3 include emissions from working facilities and premises which the Bank leases for its activities, such as branches and places of work in regional Iceland, and this also includes emissions from ATMs which the Bank leases from a service provider. In 2022, the Bank also added data on acquired equipment, i.e. computers and computer equipment.
Greenhouse gas emissions from flights (part of Scope 3)
Waste management at the Bank continues to improve but there is still work to do. We have yet to reach our 90% target on sorted waste from activities, but we are unwavering in our efforts to reach this target. The ratio has been increasing since 2020, and approximately 80% of waste was sorted in 2020, while the ratio of sorted waste was 67.2% at the end of 2023. Although the ratio was lower than the previous year, the trend has been on a steady upward trajectory since 2019, with the exception of 2022.
The Bank is constantly seeking to improve its waste management and identify new reusing and recycling solutions. For example, at the beginning of 2023 the Bank introduced a new solution for treating biowaste created by the canteen at the Bank’s headquarters. The Bank now uses a composting machine form Pure North at the headquarters which can transform biowaste into safe organic soil supplements within 24 hours.
Total waste generated and sorted waste
Travelling to and from work
Arion Bank has a policy on working from home. The policy offers greater flexibility in terms of where people work and a more varied working environment in step with changing times. Working from home more regularly saves time and reduces the carbon footprint of commuting to and from work. The strategic application of remote working is therefore beneficial for employees, the company and society as a whole.
Since 2021 employees have had the option of using ecofriendly means of transport free of charge. The Bank entered into an agreement with the electric scooter company Hopp and it has proven a hit with employees, who use the scooters to travel to and from work, go to meetings or take care of other business during working hours. It is positive to see the popularity of this initiative continue to grow, and at the end of 2023, the number of trips with Hopp scooters was 11,789, an increase of 73% from 2022.
To meet the surge in the use of electric cars and plug-in hybrids, we have installed more and more charging stations over the last few years. There are now 54 charging stations at the Bank’s headquarters, which can be used by both our employees and our customers.
At the beginning of 2024, a survey was conducted among employees about their habits when travelling to and from work. KPMG performed the survey and processed the data, all of which had been carried out by a different service provider in the last few years. The different methodology may therefore affect the comparison between years.
Total emissions from employee journeys to and from work were 269 tCO2e in 2023, and these emissions come under Scope 3 in the Bank’s environmental accounts. Average emissions from transportation per employee in 2023 were 331 kgCO2e which is 15% more than the previous year.
Means of transport used by employees
The survey revealed that 71.3% of employees predominantly use a private car to travel to and from work, 19.8% cycle or walk and 8.9% use public transport. It is positive to see more people use other means of transport than private car to travel to and from work compared with the previous year.
Of those that travel to work in a private car, 26.8% drive an electric car and this figure is steadily increasing between years. A total of 23.8% drive a hybrid or a plug-in hybrid, but very few, or 0.4%, drive a methane-powered car. These power sources amount to 51.0%, while diesel and petrol vehicles amount to 49.0%. This is the first time since the Bank began performing transportation surveys among its employees that the percentage of people using vehicles powered by fossil fuels is less than those driving vehicles powered by more eco-friendly power sources.
Employees’ vehicles - fuel type
Key figures
85%
decrease in total amount
of printed paper
63.4%
decrease in greenhouse gas emissions
from work vehicles
269 tCO2e
total emissions from means of transport
used by employees
86.3%
decrease in greenhouse gas emissions
from business premises
650
verified carbon credits purchased
for emissions in 2023
331 kgCOe
average emissions per employee
from travelling to and from work
The data and information published in the accounts are valid for 2023 and apply to Arion Bank’s core activities. Data linked to the Bank’s subsidiaries where they share premises with the Bank has been incorporated under emissions from leased out properties (Scope 3). Data from 2015-2022 is presented for comparison. 2015 is the reference year for the Bank’s efforts to reduce greenhouse gas emissions from its operations.
The Bank’s environmental accounts have been effective in gathering data to provide a picture of greenhouse gas emissions from activities. The scope of calculations has gradually increased between years, and by applying better methodology and a modified approach the goal is to get the most comprehensive picture possible. It should be noted that a new entity was involved in the environmental accounts this year, but every effort was made to deliver comparable results.
For more information see the Bank’s environmental accounts.
Methodology for environmental accounting
When calculating Arion Bank’s environmental bottom line, we use The Greenhouse Gas Protocol which is a standardized methodology which has been implemented at a number of companies globally with good results. Arion Bank has underlined the importance of implementing its climate project within the framework of Icelandic and international legislation and regulations on the environment.
The diagram below describes the methodology according to which greenhouse gas emissions are divided into three categories, Scopes 1, 2 and 3. Broadly speaking emissions originate from the transportation of supplies to the company, from the company’s operations and from the transportation of goods and services from the company. The steps encompass three different scopes which are divided into direct and indirect impacts.
Source: The Greenhouse Gas Protocol