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EeMAP: Sustainable Finance in Finland - Elina Salminen, Finance Finland

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Presented at Green Building Council Finland's EeMAP workshop on 13th Feb 2018.

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EeMAP: Sustainable Finance in Finland - Elina Salminen, Finance Finland

  1. 1. Sustainable Finance in Finland Elina Salminen Vihreä Foorumi 13.2.2018
  2. 2. What is FFI and who do we represent? FINANCIAL SECTOR ENTITIES 180 members ~26,000 employees POSITION-TAKING NETWORK 400 persons FINANCE FINLAND 5O employees We build an operating environment that promotes business in the financial sector Banking, insurance, employee pension funds, finance houses, investment funds
  3. 3. FFI Board’s policy decision 3 February 2017 •The Finnish financial sector supports the internationally agreed target of limiting global warming below two degrees Celsius •FFI and its members will collaboratively collect climate change indicators that best suit reporting in the financial sector •An ad hoc working group consisting of representatives from member organisations will then continue work on the indicators
  4. 4. Sustainable development commitment on climate change indicators • The working group will draw up a commitment to sustainable development on the basis of the Board’s policy decision • The objective is to compile indicators that best support climate related reporting in the financial sector • The purpose of the best practices guidelines is to facilitate the work of members without being binding • The commitment allows us to publicly communicate the financial sector’s actions for the prevention of climate change Shutterstock
  5. 5. Green supporting factor • At a general level, Finance Finland supports projects that aim to combat climate change and sees this as an opportunity for the banking sector. • The actions combatting climate change should be seen as both short-term and long-term developments and in the light of different instruments. Integrating a green supporting factor in capital regulations is seen as a fast way to influence matters, but it is also viewed with caution because the risk assessment of the green supporting factor has not yet been conducted and the correlation of “greenness” and risk (probability of default) is currently unknown. • Finance Finland considers it important to assess the verifiable and supporting data of the green supporting factor recommended in the current proposal before the green supporting factor is integrated into capital regulation.
  6. 6. Timeline of banks capital requirements regulation CRR II / CRD V proposals 11/2016 MEP Simon´s report 22.11.2017 Trialogue negotiations (between EU Parlament, Commission and Council) FINAL CRR II/CRD V approved 2019? EBA/ESMA to publish ITS/RTS After 2 years CRR II/CRD V has been approved 2016 20182017 2019 2020 Basel III Basel IV Green supporting factor (exc.mortgages) Commission delegated act (possibly) 22.3.2018 Commission to publish guidelines for sustainable finance High Level Expert Group (HLEG), recommendations 31.1.2018
  7. 7. Finnish Housing Company Group of individuals/families Shareholders own the shares of the housing company A housing company – an individual legal entity Shares in the company entitle the shareholder to possess a specified apartment in the building. Shares are used as collateral for a housing loan by households. Pictures: Shutterstock Certificates of shares A housing company owns the real estate – which can used as collateral
  8. 8. Finnish housing company – from legal perspective • Finnish housing company (in Finnish: asunto-osakeyhtiö) is defined in the existing Act on Housing Companies (22.12.2009/1559, as amended) • A housing company is a very common legal entity in Finland • There are around 85.000 housing companies in the country altogether. • The company is registered in the trade register maintained by National Board of Patents and Registration of Finland. Finnish Act on Limited Liability Companies (“ALLC”) is being applied to the extent AHC does not state otherwise. • Based on the company’s Articles of Association, the company’s line of business is to own and possess at least one building or a part thereof where the majority of the total floor space is, according to Articles of Association of the company, is specified as individual apartments possessed by the shareholders of the company. The building is located on land (typically plot) owned by the company or which the company has leased from the landowner. • Shareholders have an obligation to pay property maintenance fees to the company, as in detail decided by the governing bodies of the company in accordance with Articles of Association and AHC. Should an individual shareholder become insolvent, the other shareholders have an obligation to cover the loss to the company in the form of additional property maintenance fee. In addition, there are certain forced procedures available for the company to cover its losses in such a situation. • Claims of the shareholders are subordinate to other claims of the company in a potential liquidation.
  9. 9. Finnish housing company – from credit risk perspective • A legally unique entity type in the EU with specific characteristics which make it inherently low risk • Exposure is fully and completely secured by mortgages on residential property which is occupied or let by the shareholders. • Defaults are unusual: the default ratio (share of individual housing companies having default in a statistically relevant population of housing companies) is less than 0,3 %. Write-downs or final losses are almost non-existing. • The total outstanding amount of housing company loans granted by credit institutions is 28 bn€ which is 13% of total loans to the public • Housing companies are a rather homogenous group of counterparties where each individual company represents one of a significant numbers or similarly managed exposures which have been and are being treated in a similar manner. Due to this housing company exposures are managed not as individually as exposures in the corporate exposure class.
  10. 10. Finnish housing company – from customer perspective • The lending to housing companies is in practice treated similar manner as a lending to retail customers (which owns the shares in the housing company). • The similarity of the treatment and low riskiness could be seen e.g. in the renovation of the building owned by the housing company. The loan could be taken by the housing company or by the shareholder. In former case, individual shareholder has a liability of repayment of it’s share of loan but all shareholders have ultimately joint liability of the repayment of total loan. Moreover, the real estate owned by the housing company as a collateral has a better priority order than shares within the insolvency proceeding.
  11. 11. Thank you! For more information: elina.salminen@financefinland.fi Twitter: @ElinaSalminen Shutterstock