November 2018

To our stakeholders:

I am pleased to confirm that SpareBank 1 SMN reaffirms its support of the Ten Principles of the United Nations Global Compact in the areas of Human Rights, Labour, Environment and Anti-Corruption.

SpareBank 1 SMN devoted 2017 to professionalising the bank’s CSR efforts. The reporting process was an important aspect of this work. Inputs were received from external stakeholders, and all managers, the board of directors, the respective bank directors and the managements of the subsidiaries were involved. The bank’s specialists obtained information on each theme of the report and the chapters are quality assured by the bank’s managers in the particular field.

The report is approved by the Group management and the board of directors, and adopted by the bank’s highest body, the supervisory board, together with the annual report.

The bank is now reporting for the first time on the bank’s performance in the field of CSR and sustainability under the globally recognised standard, the Global Reporting Initiative (GRI), in accordance with the Core option. (GRI 102-54) The bank will report its CSR results under the GRI standard on a yearly cycle together with the annual report. (GRI 102-52)

In our first annual Communication on Progress, we describe our actions to integrate the Global Compact and its principles into our business strategy, culture and daily operations. We are also committed to share this information with our stakeholders using our primary channels of communication.

Yours sincerely,

SpareBank 1 SMN

Finn Haugan
Chief Executive Officer

SpareBank 1 SMN’s main focus is regional, but it also has to take global considerations into account in all its activities.

The bank aims in all contexts to conduct itself responsibly and in keeping with its own and internationally recognised principles of corporate social responsibility and sustainability.

The Group has endorsed the UN Global Compact principles, and will report regularly with respect to those principles. The Group also aims to endorse the UNEP Statement of Commitment by Financial Institutions on Sustainable Development and the UN Principles for Responsible Investments. ISO 26000 on social responsibility and the CSR Ladder provide further central themes.

• All of SpareBank 1 SMN’s direct investments, subsidiaries and companies in which it exerts majority control are now subject to a new policy from 2017 “Our requirements on sustainability in our lending and our owner positions” and “Our principles regarding ethics, corporate social responsibility, corporate governance and sustainability in asset management”. The policies describe the criteria underlying positive and negative screening over and above statutory requirements (GRI FS11) and the bank’s requirements on its external asset managers.
• The bank requires evidence of a positive development in the willingness of the company concerned to comply with the bank’s principles in order to maintain its owner position. Owner positions in companies that breach the bank’s principles are followed up in the form of a half-yearly report to the board of directors until the position has been wound down. (GRI FS10).

Although new holdings are screened in accordance with the bank’s requirements, existing portfolios have yet to undergo a structured screening process. (GRI FS11) Such a process is planned for 2018. Where the subsidiaries are concerned, the bank has a continuous owner dialogue in which the bank also incorporates social or environmental themes. (GRI FS10)

The bank collaborates with the Norwegian State Housing Bank on start-up mortgages. Start-up mortgages require smaller down payments than other first-home mortgages and carry low interest. Start-up mortgages are granted to social groups in a vulnerable situation described here. In 2017 the bank granted a total of 130 start-up mortgages worth NOK 276m, corresponding to 8 per cent of the net volume of first-home mortgages.

In collaboration with the housing cooperative TOBB, the bank offers “Rent before Owning”. Many have the income needed to buy a home, but lack sufficient funds for the down payment. With “Rent before Owning” the increase in value of the flat during the rental period goes to meeting the required down payment, which is 15 per cent of the flat’s value. The value increase up to the 15 per cent requirement accrues to the tenant if the tenant chooses to buy the flat after a period. By this means a tenant has the opportunity to accumulate sufficient equity to buy the flat he/she owns, based on the increase in value of the flat during the rental period. TOBB itself accepts the risk of a house price fall. The bank sold 182 such services in 2017 to a value of NOK 0.5bn, corresponding to 3 per cent of equivalent services provided without a social profile.

SpareBank 1 SMN’s guidelines are in addition formulated such that the bank goes a long way to finding solutions other than forced sale of dwellings, and has a 60 per cent lower share of forced sales than its market share in the region would indicate. Further, the bank grants payment relief to employees affected by bankruptcies in the region. The bank granted 90 such reliefs in 2017 to a value of NOK 120,000.

In its materiality process the bank defined the following themes among the top priorities:
◾Staff development
◾Diversity and equal opportunity
◾Negative screening and exclusion through requirements on financial suppliers

The bank’s procurement policy requires all purchase contracts to include documentation of corporate social responsibility. Suppliers must at minimum abide by local, national and international laws, rules and principles (including provisions on matters such as pay, working time, health, environment, safety and anti-corruption). In the case of calls for tender and RFQs, SpareBank 1 SMN requires offerors to provide documentation of approved environmental certification.

SpareBank 1 SMN’s aim is that all offices should at minimum be on a par with the banks’ national average in terms of key performance indicators for HSE. SMN will be a driving force for CSR in the SpareBank 1 Alliance.

(a) SMN will work systematically to reduce sickness absence, and will maintain a particular focus on offices and divisions with a high rate of sickness absence.

All of SpareBank 1 SMN’s direct investments, subsidiaries and companies in which it exerts majority control are now subject to a new policy from 2017 “Our requirements on sustainability in our lending and our owner positions” and “Our principles regarding ethics, corporate social responsibility, corporate governance and sustainability in asset management”. The policies describe the criteria underlying positive and negative screening over and above statutory requirements (GRI FS11) and the bank’s requirements on its external asset managers.

Suppliers are subject to a notification obligation and SpareBank 1 SMN can carry out inspections and audits. Suppliers undertake to act in an ethically correct manner in their contracts for deliveries to SpareBank 1 SMN. The same requirements apply to a supplier’s sub-suppliers and any partners connected to a contract to supply SpareBank 1 SMN. Any breach of the CSR provisions is regarded as a breach of contract and could provide a basis for contract cancellation. A standard annex on CSR that underlies our procurements applies across the entire SpareBank 1 Alliance.

• The Group’s remuneration policy states that the Group abides by the equal pay principle, i.e. men and women are paid identically for the same work or for work of the same value.

• The SpareBank 1 Alliance has a shared digital teaching platform (LMS), which makes courses and training programmes available to staff. The bank’s own curriculums and the financial industry’s authorisation schemes form the basis for the bank’s objectives and responsibilities for developing staff competence. Together with good advisory practices, the industry’s procedures and rules, and the bank’s staff manual, provide the basis for policies, guidelines and commitments. The bank is affiliated to the authorisation scheme for financial advisers, which requires certain programmes to be in place for development of the bank’s staff. (GRI 404-2a).

• Staff that are affected by change, either in the form of reorganisation of work tasks or reduction of capacity, are offered a severance package. A number of employees also built up new competence by participating in development projects that qualify them for other tasks. Those who quit receive financial advice, help in making life path choices and career guidance from well-established external providers in the field. (GRI 404-2b)

• The bank adopted updated ethical guidelines in 2017.

• Whereas the bank has most women in operative management (12 women and 5 men), men are in the majority in middle management positions (14 women and 29 men), and in the Group management team (1 woman and 5 men). (GRI 405-1). The bank is aware of the gender distribution challenge as regards managerial positions and wishes to increase the proportion of women in higher-level managerial positions. The bank has had a particular focus on increasing the proportion of female managers in recent years, but will continue to give priority to improving the gender balance in middle management and the Group management team.

All of SpareBank 1 SMN’s direct investments, subsidiaries and companies in which it exerts majority control are now subject to a new policy from 2017 “Our requirements on sustainability in our lending and our owner positions” and “Our principles regarding ethics, corporate social responsibility, corporate governance and sustainability in asset management”. The policies describe the criteria underlying positive and negative screening over and above statutory requirements (GRI FS11) and the bank’s requirements on its external asset managers.

The bank aspires to be a leading actor in terms of responsible lending, and to ensure that it fills its role as a guide for the bank’s customers based on a regional and global perspective. Responsible credit processes are important in ensuring that customers do not assume commitments they are unable to service, in contributing to the bank’s support for energy transition and in providing customers with information on sustainable and competitive solutions.

The bank acts on its responsibility for customers’ and the bank’s owner interests through separate guidelines in order:

1.Not to take owner positions or provide loans to companies that fail to abide by our principles, and to include caveats regarding follow-up and consequences in the event of any deviation (covenants) in funding where the companies concerned operate in industries, countries and regions posing a particularly high risk

2.To exert pressure on customers and companies in which we invest to ensure that they maintain sound procedures and processes for making appropriate ethical, environmental and sustainable choices, and for influencing companies in which they hold owner positions through active owner management

3.To require documentation that customers have taken action on circumstances that violate our principles

4.Take the consequence of deviations that are not acted on by not renewing or prolonging loans, or by winding down owner positions.

SpareBank 1 SMN will continue its drive to lower its own consumption, and at the same time strengthen its effort to reduce the environmental and climate burden of its customers, suppliers and its own operations.
(d) SMN will reduce the bank’s consumption of materials and energy
(e) SMN will implement the SpareBank 1 Alliance’s “Standard Annex on CSR” in purchase agreements
(f) SMN will certify its offices as ‘environmental lighthouses’ with a view to reducing costs and the environmental burden and to strengthening its reputation and position in tender processes

• In 2017 offered green loans to solar cell installations in collaboration with the power company North Trøndelag Elektrisitetsverk (NTE). In 2017 the bank granted eight such loans to a total value of NOK 970,000. In 2018 the bank is also launching favourable financing for solar cell installations, secured on residential property.
• The bank also has a smart app for environment-friendly driving which reduces car insurance. The bank sold 2,515 such services in 2017 to a value of NOK 16.4m, corresponding to 5 per cent of sales.
• The bank has now phased out oil-fired heating, and uses only electric power in its central heating systems, with a location-based emission factor of 0.016 kg CO2 per KWh since it is essentially a matter of renewable energy. SpareBank 1 SMN’s total energy consumption over the financial year was 5.7 GWh, down from 6.1 GWh in 2016. An express goal is to turn both the office in Steinkjer and the head office in Trondheim into, at minimum, low-energy buildings, contributing to significantly reduced energy consumption.

SpareBank 1 SMN works systematically to uncover and combat economic crime. The bank’s overarching guidelines on anti-money laundering give clear guidance for SMN’s work on this theme, assigning clear-cut roles and responsibilities.

Insight into the bank and the customers’ business activities is important in ensuring a risk-based approach to economic crime and in complying with the requirements of legislation. The bank has to know which transactions are customary for the customer to undertake in order to effectively uncover unusual or suspicious transactions. Documentation must also be provided showing that the control measure is appropriate to the risk concerned. Government authorities, customers and competitors must have confidence in the bank’s professionality and integrity.

An increased degree of organised cross-border crime has changed the threat picture where economic crime is concerned. The bank notes an increase in cross-border transactions, a rising number of foreign customers, increased prevalence of virtual currency, as well as new products, new services and new actors in the banking business. In sum, money laundering, fraud and attempted fraud of the bank’s customers are becoming more widespread, and more sophisticated, year by year.

SpareBank 1 SMN will work systematically on ethics and anti-corruption
(a) SMN will continue to improve and implement ethical guidelines
(b) All companies for which SMN is legally responsible shall have zero tolerance of corruption in their own business. SMN shall maintain openness with regard to ownership structure and to transactions between the company and the company’s management
(c) SMN will systematically safeguard against, uncover and deal with fraud and other criminal acts.

• In 2017 a total of 9,191 transactions were captured by the bank’s transaction monitoring systems. All the identified transactions were examined by the bank’s own anti-money-laundering staff who reported 105 of the suspicious transactions to the National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim). (GRI SMN-1).