Credit Risk Assessment From a Strategic Sustainability Perspective: The Case of the Nordic Banking Sector

Abstract

The financial sector plays an important yet ambivalent role in society's sustainability transition. Credit decisions have a substantial impact as they determine the allocation of large amounts of financial resources. This study applies the Framework for Strategic Sustainable Development as a lens to review literature and investigate practices in Nordic banks on sustainability considerations in corporate credit risk assessment. Three gaps and recommendations are presented: (i) banks should apply a systems perspective that goes beyond a narrow focus on climate change to avoid sub‐optimisation; (ii) strategies like inclusion and exclusion should be informed by backcasting from basic sustainability principles to foresee the long‐term direction of change and to assess whether solutions are scalable towards sustainability; and (iii) instead of asking whether it ‘pays to be sustainable’, research and practice should focus on ‘how’ companies can work strategically with sustainability, finding the optimal timing between being too passive and too proactive.