Annual Report 2023

Our stakeholders are parties that can influence our operations and parties that can be affected by our operations to a significant extent. The sections below provide a description of KBN’s most important stakeholders and of KBN’s activities with these stakeholders in 2023.

Customers

KBN’s customers are municipalities and county authorities, in addition to a range of municipal and inter-municipal companies and companies with a municipal or county authority guarantee. KBN held approximately 250 customer meetings in 2023, of which around half were digital meetings and the remainder were visits by KBN to the customer. KBN also organised 12 webinars on topics such as interest rates, the macroeconomic situation, local energy production and improving energy efficiency, and the 2050 Climate Change Committee, as well as 11 physical seminars across Norway and that 19 newsletters were sent out. The aim of KBN’s seminars, webinars and newsletters is to increase the local government sector’s insight into relevant macroeconomic developments and the outlook for interest rates, as well as promoting better understanding of financial risk management and debt management (financial sustainability). KBN carried out two events for our specially designed course KBN Skolen (Parts I and II). The KBN Skolen events are designed to offer both a foundation and a more advanced understanding of loan administration for municipalities and county authorities.

KBN updated its climate risk tool for the local government sector in 2023 with a new data source that provides information for comprehensive risk and vulnerability analysis. All Norway’s municipalities are required to have a comprehensive risk and vulnerability analysis, and the Norwegian Directorate for Civil Protection recommends that this should be updated every four years in connection with updating their planning strategy. If a municipality does not do this or does not have an up-to-date risk and vulnerability analysis, it may indicate that their management of risk is deficient. In contrast, an up-to-date risk and vulnerability analysis can indicate that risk management is high on a municipality’s agenda.

The annual Municipality Finance Conference, which is Norway’s largest event of its type, was held in June 2023 with approximately 450 attendees. KBN organizes the conference in collaboration with the Norwegian Association of Local and Regional Authorities (KS), the Norwegian Association of Local Government Treasurers and Finance Managers (Norges Kemner- og Kommuneøkonomers Forbund), and the Norwegian Association of Local Government Auditors (Norges Kommunerevisorforbund).

KBN collaborated with KS and the Zero Emission Resource Organisation to award the ‘Local Climate Measure of the Year’ award, a climate competition for the local government sector, at the Zero Conference in November. Nordre Follo municipality took first prize in 2023 with its decision to adopt land degradation neutrality for its local plan, a measure the municipality has received a lot of attention for throughout the winter in relation to the public debate on nature encroachment.

KBN’s Supervisory Board is appointed by KBN’s owner and consists of representatives from KBN’s various customer groups. The Supervisory Board is tasked with focusing on KBN’s social role and social responsibility, and accordingly on our sustainability work in broad sense. The Supervisory Board held two physical meetings in 2023, one in Oslo and one in Inderøy in Trøndelag.

Employees

KBN’s premises in Oslo are the place of work for all our employees. In 2023 KBN’s employees worked from the office in the same way as before the pandemic, but the trial scheme involving employees having the option to work from home for up to two days a week was made as a permanent solution.

KBN organised a number of ‘Lunch & Learn’ talks for our employees in 2023, with topics such as macroeconomic developments, mental health, money laundering prevention, key rules on ethical conduct and IT security.

The employee stakeholder group also includes potential employees. KBN has chosen to market itself as an organisation that is helping to build a sustainable society, including in the context of recruitment. We want to attract employees who are committed to delivering on our mandate and strategy, and we are finding that job applicants are increasingly committed to sustainability, in particular to climate and nature.

Owner

KBN is a limited liability company 100%-owned by the Norwegian state, with the Ministry of Local Government and Regional Development acting as KBN’s owner. KBN held quarterly meetings with our owner in 2023 and sustainability was one of the topics discussed. All the members of KBN’s Board have annual discussions with our owner.

The authorities

KBN is subject to legislation, regulations and supervision in the same way as other financial institutions. KBN is one of the four financial institutions in Norway that have been designated as systemically important institutions. KBN held meetings in 2023 with inter alia the Financial Supervisory Authority of Norway, the Ministry of Finance, the Ministry of Climate and Environment, the Ministry of Trade, Industry and Fisheries, the Norwegian Environment Agency and Norges Bank. Climate and sustainability were topics at a number of these meetings.

Investors

KBN’s investors are the buyers of the bonds it issues, including capital markets participants such as commercial banks, central banks/official institutions and pension funds from around the world. As in previous years, KBN held a range of meetings with investors in 2023, both in the form of physical meetings, digital one-to-one meetings and telephone conference calls. In addition, KBN distributed quarterly updates to investors around the world.

Rating agencies

KBN is rated annually by both of the traditional credit rating agencies and is in addition rated by ESG rating agencies on an increasing scale. Rating agencies such as Moody’s and S&P have developed methodologies for ESG rating, and Moody’s carried out its first ESG ratings in 2022 of issuers including KBN. ESG is always on the agenda for KBN’s annual meetings with credit rating agencies. KBN has established separate targets for the ESG risk ratings issued by Sustainalytics, ISS ESG and MSCI.

Suppliers

KBN’s expectations for our suppliers are published on our website. We hold annual review meetings with our major suppliers, and KBN’s expectations of the supplier and the supplier’s work on sustainability are agenda topics for these meetings.

Society in general

KBN’s activities affect Norwegian society, and we are therefore in close dialogue with a number of stakeholder organisations. In 2023 KBN organised open webinars on local energy production and local energy efficiency measures, as well as on the 2050 Climate Change Committee (in collaboration with the Norwegian Climate Foundation). KBN has a collaboration agreement with Ungt Entreprenørskap (Young Enterprise Norway) to help increase awareness of social entrepreneurship and sustainability in Norwegian lower secondary schools through the ‘Student company’ (‘Elevbedrift’) program. KBN has signed the Women in Finance Charter and was a contributor to its report for 2022.

A materiality analysis identifies an organisation’s relevant sustainability-related issues and determines boundaries for its activities and reporting. KBN carried out the current materiality analysis in the autumn of 2022, as part of which key stakeholders provided input on KBN’s priorities for our sustainability work going forward. With regard to internal stakeholders, all KBN’s employees as well as our management team, Board of Directors and Supervisory Board were involved. With regard to external stakeholders, KBN conducted interviews with the Norwegian Association of Local and Regional Authorities (KS, local government sector interest group), Samfunnsbedriftene (an interest group for enterprises in the municipal sector), the Norwegian Climate Foundation (a climate interest group) and Citi.

The objective of the materiality analysis was to define KBN’s most significant influence in respect of sustainability, and on the basis of this to ensure sound risk management, precise and reliable strategy and resource allocation, sound and relevant reporting and satisfactory compliance with rules and regulations. In addition, the materiality analysis facilitates anchoring and integrating sustainability into KBN’s activities. The analysis was carried out using the concept of double materiality, which means that the analysis considered both how KBN affects, and is affected by, society and the environment. The following topics were identified as material:

In 2023, KBN carried out a gap analysis to identify gaps with the EU’s new CSRD, and in 2024 KBN will carry out a new double materiality analysis in line with the requirements of the directive.

To take an example, the reduction in the interest rate on a green loan of NOK 100 million borrowed over thirty years has a present value of NOK 1.05 million using a discount rate of 4%. KBN’s green loans are a supplement to other forms of state assistance, e.g. Enova grants and Klimasats subsidies, which can further reduce the costs of investing in climate friendly projects.

Green finance

KBN raised its first green funding in 2010, and in 2013 it became the first financial institution in the Nordic region to issue a public green bond. KBN’s green bonds finance parts of KBN’s portfolio of discounted green loans. KBN’s green loans are intended to be a tool for promoting the transition to a low-carbon society and the local government sector’s adaptation to climate change, and by providing lower interest rates KBN helps reduce the additional cost of investing in climate-friendly projects (see the box). KBN’s Criteria for green loans sets out the type of projects/investments that can qualify for a green loan. KBN revises its criteria annually in collaboration with our Green Expert Committee, which is composed of representatives from relevant specialist groups, authorities, and the local government sector.

An overview of the projects financed by a green loan from KBN is available on the KBN website. At the end of 2023, KBN’s outstanding green loans represented approximately 15.4% of our total lending. KBN has a target of increasing this to at least 17% of our lending portfolio by the end of 2024. As a consequence of these targets, KBN also sets a target for the greatest possible number of municipalities to prioritise green investments rather than conventional investments. The target for 2024 is for at least 45% of municipalities to have at least one green loan from KBN.

As part of our strategy to be a leading player in green finance, KBN launched a pilot project in 2023 for the financing of projects adapted to the EU Taxonomy. This resulted in an agreement with Sandefjord municipality relating to the construction of the first school building adapted to the EU Taxonomy in Norway. In 2024, KBN’s objective is to secure five new agreements for projects adapted to the EU Taxonomy with green loans from KBN.

KBN’s green bonds are issued in the international capital markets. In 2023 KBN issued one green benchmark bond, a CAD 500 million bond. At the end of 2023, KBN had outstanding green bonds in five currencies, namely the US dollar, the Australian dollar, the Canadian dollar, the Swedish krona and the Norwegian krone. At the end of 2023, the total outstanding volume of KBN’s green bonds was, in NOK terms, NOK 38.6 billion. This represents approximately 8.6% of KBN’s total borrowings.

Climate risk

KBN expects that our investors will increasingly attach weight to climate risk and in a broader sense to ESG risk when making investment decisions, and has therefore worked since 2018 on identifying and managing climate risk both within our own organisation and at our customers. See section Disclosure of climate-related risks and opportunities for more detailed reporting on climate risk.

KBN’s customers face physical risks associated with climate change and global warming, such as surface runoff, floods, landslides, rising sea levels etc, which damage or destroy property; liability risk, which is the risk of being held liable for losses suffered by others as a result of climate change; and the transition risk associated with the transition to a low-carbon society, which can impact municipalities as a result of changes to political and regulatory framework conditions, developments in technology and changes to consumer behaviour. In November 2022, Norway notified the UN that it had submitted an enhanced climate target of reducing emissions by at least 55% by 2030 compared to 1990 levels. The local government sector will play an important role in achieving this target. Local government sector projects undertaken today have an expected economic life of more than 40 years and will therefore still be in place when society has to face a less hospitable climate and what are likely to be far stricter requirements in terms of greenhouse gas emissions and resource usage.

On this basis, KBN has been clear that climate risk should be an important part of the evaluation criteria applied when investment decisions are made in the local government sector. KBN has developed a climate risk tool for the local government sector that will continue to be developed in order to provide municipalities with even better and more relevant information on their climate risk and help to promote the inclusion of climate risk into municipalities’ decision-making processes and investment plans. KBN has designed a model for classifying individual municipalities’ climate risk, which is taken into account in KBN’s assessments of its customers’ creditworthiness. The model comprises indicators for both physical climate risk and transition risk, and will be made available to municipalities over the course of 2024. Going forward, KBN will work on expanding the climate risk model to include other types of ESG risk.

In 2022, KBN implemented a sustainability strategy for our liquidity management as part of a process for identifying and reducing KBN’s overall exposure to sustainability risk. The objectives for this project are to give us better insight into how we invest KBN’s liquidity, to communicate what we do and do not find acceptable when placing liquidity, to help to increase transparency and to influence our investment universe, i.e., issuers. KBN has carried out continual ESG screening of our liquidity portfolio with quarterly reporting since 2022. KBN adopted Guidelines for Sustainable Investments in 2023.

KBN seeks to be recognised as a knowledge business in financing and in relation to the development of future-oriented financing solutions for Norwegian county authorities and municipalities. We strive to have strong specialist teams that work to develop and share their knowledge. We are committed to ensuring all employees have good working conditions, are treated equally, and have access to the same opportunities with regard to personal and professional development and promotion. A central part of our strategy is that we continually renew our expertise in order for KBN to be relevant and create value for our customers both now and in the future. As part of this, in 2021 KBN launched a campaign entitled ‘KBN Kompetanseløftet’, which challenges all KBN’s employees to learn something new over the course of the year. This was a success and has become a permanent offering for employees.

Employee engagement and wellbeing at work can affect motivation, productivity and the quality of employees’ work. KBN carries out regular employee interviews and surveys to map employees’ perception of their day-to-day work and opportunities for improvement. KBN is committed to ensuring all employees have good working conditions. In 2023, development discussions were conducted with all permanent employees. When analysed by employee category, development discussions were conducted with 100% of female staff and 100% of male staff in the senior management team and with 96,3% of female staff and 95,7% of male staff at other levels of the organisation. Those who did not conduct development discussions were either on leave or were employed late in the year. The Working Environment Committee’s aim is to actively contribute to the creation of a good working environment and the promotion of good physical health by building a culture characterised by well-being and collaboration. The Committee held regular meetings in 2023 and carried out risk assessments in relation to health, safety and environmental issues, as well as related inspections.

Regular health-promoting and social activities, including organised and individual exercise activities, were offered for all employees in collaboration with KBN’s various activity groups. No accidents or serious injuries were recorded as having occurred during working hours or in connection with journeys for work purposes or to or from work. No accidents or injuries were reported to the Norwegian Labour Inspection Authority.

Chart: Sick leave rate over the last five years
Line shows KBN’s target of a sick leave rate of below 2.5%

The surplus from KBN’s activities largely returns to the Norwegian community as a whole through the dividends paid to the owner and transfer to the bank’s equity. The latter to ensure necessary build-up of capital to meet the capital adequacy requirements to which KBN is subject, while having the capacity of lending to the municipality sector. The state’s particular objective for its ownership of KBN is ‘to offer stable, long-term and effective financing to the municipal sector’, and the bank have also in 2023 been present for the sector during periods of pressure and high prices in the capital market. KBN is the only financial institution in Norway that offers loans with maturities of up to 50 years, giving customers access to financing appropriate to the lifetime of the investment to be financed. KBN ensures that the high creditworthiness of the government sector is reflected in their borrowing costs, and that this includes the small and medium-sized municipalities that do not have their own rating and only have limited opportunities to directly access the capital market in an efficient way. While KBN is more important for the small and medium-sized municipalities, it aims to contribute to sustainable economic development throughout the local government sector.

KBN’s lending is used by our customers to finance investments in school buildings, healthcare buildings, nurseries, water and waste processing facilities, cultural venues and sports halls throughout Norway. KBN is committed to ensuring that the loans facilitate efficient welfare production to the benefit of residents, and that there should be good working conditions for the building and construction industry for both urban and rural projects. Questions about customers’ own internal control and monitoring of suppliers in connection with procurement are being given more attention in KBN’s follow-up of our customers. KBN asks all the municipalities whether they use ‘proper conduct’ clauses in relation to HSE, working conditions etc. in their building and construction contracts, and will work to encourage more municipalities to use such clauses.

KBN procures goods and services worth in excess of NOK 100 million each year. Through our direct role as a purchaser and our collaboration with others in the business community, we can set requirements that drive suppliers and their sub-suppliers to adopt more sustainable and responsible conduct. KBN’s procurement processes are designed so that they help promote KBN’s environmental, social and governance objectives, e.g. procurement must promote climate-friendly solutions where relevant, either through specific requirements for tenderers or by using environmental parameters as criteria when selecting suppliers. Having sustainability as a guiding principle also imposes restrictions on the suppliers with which KBN can associate. See KBN's 'General guidelines for procurement'.

The Transparency Act entered into force on 1 July 2022. The purpose of the Act is to promote enterprises’ respect for fundamental human rights and decent working conditions, and to ensure public access to information in this respect. The Act imposes a duty on enterprises to disclose information and to carry out due diligence, and publish a report in respect of these requirements, which is published on our website.

KBN has a collaboration agreement with Ungt Entreprenørskap (Junior Achievement Norway) to help increase awareness of social entrepreneurship and sustainability in Norwegian lower secondary schools through the ‘Student company’ program. KBN has signed the Women in Finance Charter. See section Statement on equality for further information on the bank's work in diversity and equality.

As the largest lender to the local government sector, KBN has a particular responsibility to support long-term and sustainable debt management. Through insight, financial expertise and digital tools we seek to help our customers make informed decisions, evaluate financial risk and select the financing solutions that are best matched to their requirements. As a systemically important financial institution, we also strive to contribute to financial stability.

Despite all municipalities and counties cannot be declared bankrupt, KBN has developed its own credit assessment model that is at the heart of our lending processes which are reviewed annually for all customers. Customers who are classified in the orange category according to the model have to undergo a separate assessment by KBN’s internal Credit Committee before a loan can be approved. In the case of customers that are classified in the red category, any application for a new loan must be decided by KBN’s Board of Directors. KBN wants our credit assessment methodology to be open and accessible in order to increase the transparency of our assessments and to provide customers with valuable insight into their own financial situation, and KBN has accordingly published details of its credit assessment model. KBN has also developed a model for classifying each individual municipality’s climate risk and integrating this information into its credit assessments. The model will be further developed to incorporate other types of ESG, and will form part of KBN’s discussions with customers going forward.

Chart: Number of municipalities and county authorities by category in KBN’s credit assessment model
Includes Longyearbyen Community Council

KBN Finans, which is KBN’s debt management system, is a web-based tool that helps customers with their transaction history and analysis and reporting relating to their loans and interest rate fixings, and it allows customers to evaluate their municipality’s borrowing position and exposure to financial risk. KBN’s customer portal is subject to continual development with new functionality and new tools to deliver greater value added for KBN’s customers.

KBN contributes to the sharing of knowledge, including by offering regional finance seminars and through the KBN Skolen I/KBN Skolen II programs for customers. KBN’s aim is to increase customer knowledge in the areas of financial risk management, the fixed income market, and debt management so they can make informed decisions. With our climate risk tool, KBN aims to help customers to also evaluate and manage their exposure to climate-related risk. KBN’s booklet on local measures to improve energy efficiency and energy production draws on the experience of municipalities that have carried out measures to reduce costs, energy consumption and emissions to inspire other municipalities to follow their example.

Rating agencies, issue managers and investors are including and emphasising ESG data in their evaluations to an increasing extent. Poor ESG scores can play a role in companies being excluded from investment universes, and can push up their financing costs. KBN is therefore committed to making available the information on our sustainability activities that ESG rating agencies need for their analyses. KBN is rated among the best in its class by the leading ESG rating companies MSCI, Sustainalytics and ISS ESG.

In 2023, KBN mapped the proportion of its customers that have internal control procedures, including in respect of conflicts of interest, business ethics, whistle blowing, and the assessment of the risk of financial criminality. KBN has also incorporated into its discussions and monitoring of customers questions regarding the requirements they impose on their suppliers and how these are monitored, specifically in relation to procurement and building and construction projects. In 2024, KBN will follow up on this in its discussions with customers with the aim of creating greater awareness among its customers.

KBN has over time implemented a number of initiatives and measures to achieve gender balance. Our objective is to have a gender balance of at least 40% at all levels of the organisation, and an ambition for equal gender representation in all departments. The table below shows the proportion of women and men by organisational level at the end of 2022 and 2023. KBN can report good results for the gender balance at the CEO and management team level for both years. The gender balance for all employees has been stable over time, but in 2023 we were below our target of 40% of all employees being women.

The reduction in the proportion of female employees was due to more women having left KBN, and the fact that the majority of new employees were men. Two factors explain the disproportionate number of women leavers. A majority of the company’s older employees are women, meaning more women are retiring. In addition, KBN has in recent years employed a number of younger employees with attractive expertise. These individuals have access to offers and opportunities at other companies.

At the middle management level, the skewed distribution is mainly due to reorganisation and staff turnover and the fact that in the period more men than women were appointed at this level. Despite a great deal of effort, finding female candidates in some specialist areas is challenging, particularly in finance and technology.

Chart: Gender balance in percentage by organisational level at the end of the year

Table: Temporary employees, parental leave and part-time working
The figures in the table are for the 2023 accounting year and as at 31 December 2023

KBN in general offers only full-time employment, but there are some opportunities for part-time work when employees reach the age of 62 and for employees who need the opportunity to work part-time for health, social or other substantial welfare reasons. KBN also offers part-time employment opportunities for students. Most employees working in part-time positions at the close of 2023 were students, and no-one at KBN is required to work on a part-time basis against their wishes (involuntary part-time working). We use the services of temporary staff only to a small extent. The general exceptions are temporary staff substituting for employees on leave of absence and temporary project staff, as well as students, who account for the major part of the temporary staff reported.

Table: Parental leave in weeks
The table shows the average number of weeks for which men and women took parental leave in 2023

Information on salaries

The table below shows the salaries of female employees as a percentage of the salaries of male employees at six organisational levels. For the purpose of calculating salary differences, we have identified fixed salary and various additions, bonuses and benefits for the 2023 accounting year. We considered the question of the same work and work of equal value when determining the employment levels in accordance with the working methods recommended by the public authorities. This means that all roles are evaluated and given weight in accordance with the requirements for expertise, responsibility and effort. The employee representatives have participated in planning, carrying out and evaluating the information on salaries.

Table: Women’s salaries as a percentage of men’s salaries across six employment groups

The differences in group 4 are primarily explained by the number of men who have worked at KBN for a long time and the over-representation of men in specialist roles. At the same time, a number of experienced women in this group have left the company in recent years, and young women in an early stage of their career are now over-represented in the group. We will carry out further work on identifying differences that can be linked to gender and will continue our work to secure more female candidates when recruiting, with the aim of increasing the proportion of women and closing the salary gap.

KBN arbeider aktivt, målrettet og planmessig med bærekraft, herunder for likestilling og ikke-diskriminering. Likestillingsarbeidet omfatter alle diskrimineringsgrunnlagene på de ulike personalområdene; rekruttering, lønns- og arbeidsvilkår, forfremmelse, utviklingsmuligheter, tilrettelegging og mulighet for å kombinere arbeid og familieliv, andre relevante forhold, samt arbeid mot trakassering, seksuell trakassering og kjønnsbasert vold.

We have set the following ambitions for our work on diversity and equality:

• KBN shall have a corporate culture and management that promotes inclusion and diversity.
• KBN shall be a diverse organisation. There shall be a gender balance of at least 40% at all levels and the ambition of equal gender representation in all departments. The Chief Executive Officer shall monitor the gender balance in KBN.
• In relation to recruitment and internal mobility, KBN shall place emphasis on maintaining and improving diversity. The best qualified woman and the best qualified man shall be identified in all recruitment processes.
• Employees shall be given equal opportunities in respect of competence building and career advancement, salary and employment flexibility.
• Succession planning for key positions shall focus on diversity.
• An Action Plan based on risk assessments will be produced and disclosed throughout the KBN organisation.

Principles, procedures and standards for equality and prevention of discrimination

Work on equality and preventing discrimination is an integral part of KBN’s Human Resources policy and is followed up in all areas of KBN’s activities. KBN is committed to having an inclusive culture in which all employees have the same rights and opportunities and are treated with respect.

Our overall work on diversity and equality is anchored in the guidelines for sustainability. KBN’s ethical guidelines (Code of Practice) include rules on conduct. KBN has zero tolerance for harassment, sexual harassment, or discrimination. Our guidelines for whistle blowing and whistle blowing procedures ensure the availability of secure channels and opportunities for individuals to whistle blow.

Annual salary adjustments take place in accordance with a standard process using gender-equal and transparent criteria and are assessed to identify any inequalities. KBN also imposes requirements for its suppliers’ work on diversity and equality.

Our work to promote equality and prevent discrimination in practice

Our ambitions, objectives, and measures to ensure equality and prevent discrimination are firmly anchored with KBN’s management. Our guidelines set the direction for our work in this area, together with our ambitions and strategic objectives. Reports on the current status of diversity and equality, including work on the activity duty and the duty to issue a statement, are required to be provided regularly. Equality and discrimination are topics in management and employee development. Meetings of the Workplace Environment Committee (Arbeidsmiljøutvalget) are held regularly, and the measures adopted are followed up in collaboration with the employee representatives and the Committee

KBN's Human Resources (HR) function has the overall responsibility, and collaborates closely with the employee representatives and the Workplace Environment Committee in its work on the activity duty and the duty to publish annual statements using a four-step working method. A number of meetings were held in collaboration with the employee representatives to investigate the risk of discrimination and barriers to equality. KBN’s guidelines, policies and working procedures in all areas of human resources have been reviewed with a focus on all sources of discrimination. A range of measures based on the risk assessment have been implemented and continued.

The annual employee survey combined with systematic follow-up maps the working environment, including equality and discrimination. Employee development interviews that address these topics are carried out annually. The annual preventative workplace inspection maps the physical and psychosocial working environment and helps to identify whether employees believe that they have been exposed to, or observed, any kind of discrimination, harassment, or sexual harassment.

Gender balance is measured continuously by quarterly reporting and at the start of recruitment processes. The annual salary review process is reviewed to identify any inequalities before the final decisions on salary increases are approved. Gender equality is mapped in collaboration with employee representatives every other year.

Risks of discrimination and obstacles to equality, possible causes, and the measures implemented and planned

The risks of discrimination and obstacles to equality that are identified relate particularly to diversity, including gender balance in recruitment, and for some departments the balance between work and family life. Enhanced awareness and knowledge are crucial for preventing discrimination, promoting equality, and preventing various forms of harassment. A number of measures were therefore implemented over the course of last year that were aimed at creating a corporate culture and management for inclusivity and diversity.

In 2023, two employees, one a member of the management team and one an employee in HR, completed a certification course in diversity management. The knowledge they gained was shared with all KBN employees through talks, and a number of workshops on diversity and the gender balance were run for the management team. KBN intends to progress its work in this area in 2024, and diversity is an ever-growing part of KBN’s strategy.

KBN has over time pursued a number of initiatives and measures for work on gender balance. The overall gender balance for employees in total has been relatively stable over time and is in line with our ambitions. The gender balance at the senior management level was 50% at the close of 2023, unchanged from the previous year. At the middle management level, KBN has an imbalance in gender representation, which is due to a combination of more female middle managers having left the company, organizational changes that have been made, and the fact that more male employees have been appointed. The gender balance overall falls short of KBN’s target of at least 40% of employees being women.

Table: Gender balance among new employees
The following table sets out the gender balance at KBN among new employees over the last five years:

KBN strives to ensure a good gender balance and attract a diverse range of candidates with differing expertise, background, and experience. The bank worked purposefully on this in 2023, even though the outcome of the processes resulted in a high proportion of newly hired men, as indicated in the table above. In our work on promoting diversity, we believe that placing significant emphasis on diversity in recruitment processes is an important tool for achieving our ambitions. This represents a challenge for certain areas of expertise where we experience a much higher proportion of male rather than female applicants. This reflects the situation in the finance and tech industries where there is still a relatively large over-representation of male employees, although the situation is moving in the right direction with increasing numbers of women taking up employment in these sectors.

A number of measures intended to increase the number of women that KBN appoints have been implemented. These include women designing KBN’s job announcements, ensuring its interview panels have a balance of genders, and using head-hunters to increase the number of female candidates. However, more men than women are being employed. As discussed above, finding female candidates represents a major challenge, particularly in finance and tech. In 2023 we reviewed and continued to work on improving our routines and templates for the recruitment process to ensure that candidates are treated equally to a large extent. Unconscious discrimination can affect the assessment of candidates. A recruitment course for managers will be run in 2024 which will include this topic.

KBN’s membership of the Women in Finance Charter means we are required to set internal targets for the gender balance at the managerial level, to nominate one person at the management level who is designated as having responsibility for monitoring work in this area, to publish our status and progress, and to link management remuneration to the achievement of our targets. We attend network meetings and conferences to keep up with developments in the area of gender balance in general in our industry and to share our experiences and challenges with other companies.

We have implemented a number of measures over time that have had positive effects and that we continue to use. Our new and existing measures to ensure diversity and a gender balance in recruitment include the following:

• Preparing an overview of the gender balance for KBN as a whole and for the recruiting department.
• Identifying the best qualified female candidate and the best qualified male candidate in all recruitment processes.
• Including KBN’s gender balance for its activities in the performance evaluation of the CEO.
• Structured recruitment processes and training in diversity recruitment, including training in avoiding unconscious bias. Appropriate training for managers involved in recruitment will continue in 2024.
• Requirements for diversity and non-discriminatory processes for the recruitment agencies with which we collaborate.
• Publicising the objective of diversity through the content of recruitment advertisements, profiling, and communication, as well as applying greater awareness of who is the target audience and using gender-neutral words and expressions.
• Working in a focused way to succeed in recruiting female students to student jobs at KBN. A number of these female students have since taken up permanent employment once they have completed their studies.

We will also continue with the target of ensuring that manager and employee development includes diversity management and the avoidance of unconscious discrimination. It is also important that we have a long-term perspective on the outlook for diversity and gender balance in our middle management roles. It is KBN’s policy to give existing employees equal opportunities in terms of competence building and career advancement, and we are also committed to focussing on ensuring diversity in the succession planning for key positions. Employee development interviews are held on a regular basis, together with the preparation of individual personal development plans.

We have worked proactively to reduce the observed differences in how employees take advantage of the competence building opportunities that KBN offers. Our ‘Kompetanseløftet’ skill development program is intended to challenge all employees to develop their expertise and to learn something new each year. Managers are appraised on the basis of the take-up for this program in their departments. This also serves to ensure that everyone is given equal opportunities for personal development. The program continued in 2023 with a completion rate of 85%.

We celebrated both World Mental Health Day and Pride at KBN with a number of activities for employees, with high attendance. We also ran dilemma training for individual employee groups with a focus on sexual harassment, discrimination and whistle blowing.

There is a risk that key employees may experience that others are largely dependent on their deliveries, which in turn can cause stress. We have therefore continued and expanded a number of measures to ensure a good balance between work and free time. We would mention in particular:

• Flexible working hours, extra holiday leave and time off in lieu.
• Arrangements that continue after core hours or normal working hours are planned well in advance. As a general rule the work-related element is scheduled during normal working hours.
• Hybrid working whereby employees have the option to work at home for up to two days a week to give employees flexibility in terms of where they work, and to ensure a balance between work and free time due to less time spent on travelling to/from work.
• Our work on our meeting culture and our management of meetings will continue in 2024.

• Employee development interviews include the topic of whether the employee needs any workplace adaptations.
• The transition to an activity-based office at KBN’s new premises will meet different needs that employees have in the course of their working day. The solution provides varied working areas that support different ways of working, e.g. quiet areas for work that requires concentration, as well as areas for collaborating and a rest area.

Results of the work carried out

The employee survey carried out in 2023 shows that the majority of our employees think that KBN has an inclusive working environment. 72% of employees agreed with the statement ‘At KBN, we are very accepting of diversity’, while 17% had no particular view either way, and 9% disagreed. A preventative workplace inspection was carried out in December 2023 with particular focus on matters including the working environment, discrimination, harassment and sexual harassment. The inspection reported good results.

Courses and workshops on the themes of diversity and equality have created engagement, and are a major focus area and priority for the management team. Dilemma training with a focus on discrimination and potential uncomfortable situations was provided to employees who are frequently in contact with third parties. This measure is being continued, and will be provided to more employees in 2024.

A number of the measures in place for recruitment, competence building and the balance between work and family life are considered to be important in order to ensure equality and prevent discrimination. These measures will be continued.

Work on the activity duty and the duty to issue a statement follows an annual schedule with regular meetings held between the employer and employee representatives. The activities in 2023 were carried out in accordance with the annual schedule and will therefore also be scheduled again for 2024. The Action Plan for 2024 set out below details the plans and priorities for further action:

Action plan for 2024

The types of basis for discrimination that we address are gender, pregnancy, leave in connection with childbirth or adoption, care responsibilities, ethnicity, religion, belief, disability, sexual orientation, gender identity and gender expression, as well as combinations of these types of basis.

Description of KBN’s governance of climate-related risks and opportunities.

1. The Board’s oversight of climate-related risks and opportunities

Each year the Board sets KBN’s risk appetite, which is an expression of the amount of risk that KBN is willing to assume in order to achieve its strategic objectives. Climate-related risk is included in KBN’s assessment of its overall capital requirements through the Internal Capital Adequacy Assessment Process (ICAAP), which is approved by the Board of Directors and evaluated by the Financial Supervisory Authority of Norway.

KBN’s Risk Management Committee ensures that KBN operates within the stipulated risk appetite, and that the guidelines for risk management are followed. The Board’s Audit Committee carries out independent monitoring of the company’s sustainability-related reporting, including climate-related risk.

The Board receives reports on KBN’s green lending, greenhouse gas emissions and ESG screening of the liquidity portfolio at least quarterly.

The Board receives an annual internal audit opinion for KBN’s Green Bond Framework.

2. Management’s role in assessing and managing climate-related risks and opportunities

Climate-related risk involves several departments at KBN:

Chief Lending Officer: Responsible for mapping customers’ exposure to climate-related risks, including the climate risk methodology that is integrated into KBN’s model for credit assessment of lending customers (see the presentation of the model in the Risk management section.)

Chief Capital Markets Officer: Responsible for the management of climate-related risk in the liquidity portfolio and in respect of counterparties. Responsible for the management and development of KBN’s sustainability-related funding and Green Bond Framework.

Chief Risk Officer: Responsible for ensuring that all areas of risk, including climate-related risk, are identified, measured and managed. The Chief Risk Officer is responsible for risk reporting to the Board.

Chief Compliance Officer: Responsible for ensuring compliance with the regulatory framework and guidelines related to sustainability and climate-related risk.

Head of Legal Operations: Responsible for monitoring and reporting to the Board on regulatory changes that may affect KBN, including changes that relate to climate-related risk.

Head of Sustainability and Communications: Responsible for communicating KBN’s work on climate-related risk to KBN’s stakeholders, including the Board of Directors, on a continual basis.

See the section Organisational structure and governing bodies.

KBN launched a climate risk model for Norwegian municipalities in 2019, and this model is subject to a continuing program of development.

Description of the actual and potential impacts of climate-related risks and opportunities on KBN’s businesses, strategy, and financial planning where such information is material.

1. Climate-related risks and opportunities that KBN has identified over the short, medium, and long term

Risks in the short, medium and long-term

KBN’s customers are exposed to various forms of climate-related risk, including physical risk, transition risk and liability risk. In the short term, individual incidents have immediate financial consequences, and in the medium term impacts may over time affect the customers’ economic leeway, including their ability to access new debt financing. In the long term, this may have an impact on KBN’s lending activity. Evaluation of each customer’s climate-related risk exposure has been included in the annual customer risk assessment since 2022.

Opportunities in the short, medium and long-term

There is growing demand for green funding products from investors with ESG mandates, and this also represents an opportunity for KBN in that it makes it possible for KBN to achieve somewhat better demand and prices for the green bonds it issues, than other types of financing. This advantage is expected to increase over the medium term.

Green loans account for over 15% of KBN’s lending portfolio. Investments financed by green loans must comply with strict criteria and be deemed to be part of the road to a low emissions society.

KBN has mapped its criteria for green loans against the technical criteria for ‘significantly contributing’ and ‘do no significant harm’ (DNSH) in the EU Taxonomy. The mapping of the portfolio against the criteria for ‘significantly contributing’ showed that approximately 19% of KBN’s green loans were aligned with the technical criteria, while approximately 52% were evaluated as likely to be aligned. However when the ‘do no significant harm’ criteria were included in the assessment, there was no basis to conclude that the portfolio's criteria are aligned with the technical criteria, which demonstrates the Taxonomy’s high level of ambition. The Taxonomy criteria will naturally be taken into account when KBN’s criteria for green loans are revised.

The Ministry of Finance has expressed the view that it is natural to expect that companies that carry out activities that satisfy the criteria in the EU Taxonomy will have better access to capital in the future. An increase in the proportion of investments by KBN’s customers that qualify as green investments will over time help to reduce climate-related risks, for example investments in zero emissions technology are expected to reduce transition risk, and climate adaption measures reduce physical risk.

2. Actual and potential impacts of climate-related risks and opportunities on KBN’s businesses, strategy, and financial planning

Climate-related risks and opportunities form part of the Board’s annual strategy process and the annual assessment of capital adequacy.

With regard to its funding, KBN is well positioned to meet the increasing international demand for green bonds. International developments, including the EU’s Sustainable Finance Action Plan and Taxonomy Regulation, may enable favourable borrowing terms to be achieved on future sustainability-related bond issues by high quality issuers. In 2023, KBN launched a pilot project relating to the financing of projects that are adapted to the EU Taxonomy. This is a strategic measure approved by the Board of Directors. KBN has a target of financing five new projects adapted to the EU Taxonomy in 2024.

3. The resilience of KBN’s operations, strategy and financial planning, taking into consideration different climate-related scenarios

CICERO (the Center for International Climate Research) has developed three climate scenarios for the Norwegian local government sector on behalf of KBN. KBN has used these scenarios as the basis for evaluating the risks and opportunities that may affect KBN through its involvement with the local government sector. A brief description of these scenarios is provided here, with a more thorough description and their expected significance to KBN here (only in Norwegian).

Scenario 1: Sustainability – the green road (SSP1-2.6): Strong climate policies are implemented starting in 2020, emissions fall, and the world achieves the goal of the Paris Agreement. This is the scenario with the strongest economic growth, but it assumes significant investment by both the public and private sectors. The economic picture continues to be sufficiently positive (relative to the other scenarios) for the local government sector in general to be able to invest significantly in the transition to low carbon solutions in terms of buildings, transportation and infrastructure, as well as in climate change adaptation measures in areas such as the water and wastewater sector. This means the local government sector will need to have greater access to debt capital throughout the entire century.

Scenario 2: The middle road – we carry on as before (SSP2-4.5): More time passes before global climate agreements are put in place and their policies take effect and measures are implemented. The world does not manage to achieve the goal of the Paris Agreement. In this scenario, the Norwegian economy still grows well over the century, driven primarily by continued investment in the petroleum industry. Norway’s oil revenues decline after 2050, but natural gas revenues are high for a few more decades before they in turn decrease. Once emissions reduction measures are rolled out on a large scale in the second half of the century at the same time as the need to invest in climate change adaptation increases significantly, the local government sector will have a significant need to invest that will coincide with a reduction in the revenues it receives from key industries. KBN considers that in scenario 2 the level of demand for debt capital would remain steady in the first half of the century but then increase in the second half.

Scenario 3: Regional rivalry – the bumpy road (SSP3-7.0): The world does not achieve the goal of the Paris Agreement by a sizeable margin and the physical consequences of climate change are significant, even in Norway. Norway’s gross national product is lower than in scenario 1 and scenario 2, and this will have an effect on local government sector finances. The oil and gas industry performs well in the first half of the century, but other important industries will be threatened by physical climate-related risk caused by the effects of climate change. Norway’s local government sector will face major challenges in relation to adapting to climate change and carrying out repairs after extreme weather. In this scenario, the Norwegian state and local government are expected over time to have significantly less financial room for manoeuvre, which in turn means a smaller market for KBN. The weaker financial situation of both the Norwegian state and local government authorities could impact KBN’s credit rating and funding costs.

Chart

The three scenarios represent different levels of physical climate risk and transition risks respectively between 2030 and 2100. For example, will the “Green transition” result in a high level of transition risk in the short-term because the transition needs to happen quickly, with the result that the benefit comes in the form of lower physical risk in the long term relative to the other scenarios?

Description of how KBN identifies, assesses and manages climate-related risks

1. KBN’s processes for identifying and assessing climate-related risks

KBN is indirectly exposed to climate-related risks - in the extreme case climate-related risks that impact the long-term financial sustainability of municipalities and county authorities would also impact the state and KBN.

Climate risk is integrated into KBN’s credit assessment model for customer lending. The model applies 10 microeconomic indicators, e.g. changes in GHG emissions, storm surge vulnerability as sea levels rise and how updated the municipality’s risk-and vulnerability analysis is, to give a climate risk score for each municipality on a scale of ‘Low’, ‘Medium’, and ‘High’. Most of the municipalities have been given a “medium risk” score in the model. Municipalities that score high in the model tend to have large point emissions from industrial companies that employ relatively many people, have very old wastewater networks and relatively high emissions per inhabitant. Municipalities that do well have low emissions per inhabitant, are not exposed to storm surges, have up-to-date risks- and vulnerability analyses and a significant proportion of green loans. In 2024, KBN will provide details of the climate risk assessments in its credit model in its discussions with customers.

Chart: Risk scores
On the basis of ten microeconomic indicators, each municipality is awarded a risk score of ‘Low’, ‘Medium’ or ‘High’

2. KBN’s processes for managing climate-related risks

Climate is integrated into a number of the categories in KBN’s risk management framework:

Capital risk: KBN expects that changes to the regulatory framework are likely to favour qualifying green/sustainable investments. KBN has a well-established green lending program that is growing more quickly than its other lending activities. The Board’s risk appetite in relation to capital risk is ‘low’.

Liquidity risk: KBN developed a strategy for its liquidity portfolio in 2022 that takes into account ESG factors and has carried out routine ESG screenings of the holdings in its liquidity portfolio. KBN has a well-developed green funding program that will support its access to capital when capital flows are being directed toward sustainable investments. The Board’s risk appetite in relation to liquidity risk is ‘very low’.

Credit risk: Norwegian municipalities and county authorities, which represent the most important credit counterparties for KBN, cannot be declared insolvent, meaning that KBN’s exposure to default risk is very low. Despite this, KBN assesses the creditworthiness of municipalities and county authorities regardless of the insolvency protection, and also works to analyse the climate risks to which municipalities and county authorities are exposed. The Board’s risk appetite in relation to overall credit risk is ‘low’.

Market risk: KBN has developed a sustainability strategy for its liquidity portfolio investments. The Board’s risk appetite in relation to market risk is ‘low’.

Operational risk: KBN has a long-term objective of operating with the lowest possible level of ESG risk and has established separate targets for ESG risk scores for KBN from MSCI, Sustainalytics and ISS ESG. The Board’s risk appetite in relation to operational risk is ‘low’ and is ‘very low’ in relation to money laundering and compliance.

Climate-related risk is described in KBN’s ’Documentation of risk profile and assessment of capital requirements’ (ICAAP).

3. How processes for identifying, assessing and managing climate-related risks are integrated into KBN’s overall risk management

KBN carries out annual reviews of risk exposure to ensure that all material risk is identified and satisfactorily managed. This review includes climate-related risk.

In addition to the climate risk scoring mentioned above, KBN implemented ESG and NBS screening of its liquidity portfolio in 2022. The results of this screening are reported on a quarterly basis.

Description of the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

1. The methods used by KBN to assess climate-related risks and opportunities in line with its strategy and risk management processes

2. KBN’s Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and the related risks

See the Greenhouse gas accounting section for an overview of KBN’s estimated greenhouse gas emissions over time and its plan and the measures it is implementing to reduce its emissions. KBN is currently working to develop methodology for calculating a greater proportion of its Scope 3 emissions, and plans to set science-based targets for reductions in emissions where this is possible.

Greenhouse gas emissions from KBN’s own activities are limited and the risk is assessed to relate primarily to its reputation.

3. The targets KBN uses to manage climate-related risks and opportunities and performance against targets

See the section Objectives for 2024 for KBN’s objectives in respect of green finance and emissions.