Taxonomy, SFDR and Net Zero

Hypoteket Fondförvaltning Sverige AB is an AIF-manager, and as such covered by the new EU regulation regarding disclosure of sustainability related impact and risks. We have gathered key information on the subject below.

Highlighted Potential ESG-related Impact

Green Mortgages

Although mortgages as such have a limited impact on our climate, they play an indirect role in the footprint housing in general makes. Mortgage lending, hence, is one of the means to steer housing development in a desired direction. Many Mortgage lenders, including ourselves, have as a result engaged in Green Mortgages - Mortgages that come with various demands in regards to for instance certain energy classification criteria on the underlying building/security. In Sweden, the classification system runs from A (best) to G (worst), and general market practice is to award green status to classes A and B. So far there has been no market practice of denying or punishing mortgages on the worst energy rated housing (negative screening), but you could see this as a potential development going forward.

Hypoteket has decided to launch a product called "Gröna tilläggslånet" (The Green Additional Mortgage), as we wish to sponsor a green transition by granting discounts on mortgages that are taken to enhance energy efficiency. Examples of this include solar roofing, rock heating or improved insulation. As we see it, there is no obvious transition taking place by substituting buildings that already have good energy efficiency, as this is already established as a new standard by builders. There is however, as always within green assets, an interesting trade off to be made within relevance in terms of volume and ambition, and we expect this discussion to continue.

Gröna tilläggslånet can be found here

Mortgages and Social Inclusion

At Hypoteket, we believe that owning your home is a great way to get integrated into society. This goes for youngsters buying their very first flat as well as for other groups that, for various reasons, stand further away from the housing market. People with a recent citizenship could be one group, single parents another. 

Now, as much as we would like to, there is rather little we can do to tackle these challenges today. We have LTV limitations in our investment mandates that will be a hurdle for many from these groups. It is however a clear ambition for us to become a full service provider in the future, meaning we will be able to offer Mortgages all the way up to 85% LTV.

We also need to make a thorough and proper credit assessment which means certain criteria, that could prove hard for some, will have to be met. Income, income in relation to loan size, stress tested rates scenarios etc. 

We will continue to explore our own viable ways forward in this area, and fully support any governmental ambitions to find solutions to these challenges.

Highlighted Potential ESG-related Risks (to our Portfolios)

Climate change

Climate change is likely to pose a potential risk to any Mortgage Portfolio on a long time horizon. Mortgages typically have a long juridical life, and although the average turnover is only 6-7 years, there could be some that remain on the books for longer. Should the sea level rise according to UN projections*,  there could be problems for housing closes to our shores. This in turn could have implication for the value of these houses (they often start at a premium value), which would affect the securities and LTVs. In the most extreme scenario, certain property could be fully eroded away.

Except for erosion, we also identify flooding, land/mudslides, extreme winds and extreme heat (fire) as potential climate related risks that we need to be aware of and monitor. As you can see, climate related risks can come from all of our basic elements (Earth, Wind, Water and Fire ). To control these is not a small task. Interestingly enough however, the same elements can be utilized in energy creation to help save the planet.

Hypoteket Fondförvaltning is aware of the risks and monitor any potential changes to the current outlook, but we do not see a great threat for our mortgage portfolios as a whole today. Our funds are well diversified geographically and only in the most extreme scenarios should there be damage enough to threaten overall portfolio performance. Having said this, there could of course be isolated events. We do not carry out geographical screening or turn down mortgage applications based on climate rekated risks today but we have engaged in an interesting project which seek to create a climate related risk classification system that can be applied to single houses. 

Overall, ethics are very important to us.There is the aspect of discrimination to factor in, should such screening at some point be carried out.

Social unrest

Another potential threat to the housing market, and eventually mortgages is social unrest. A society that is not in balance could see social divide, and drift further apart. Geographically so in the form of, for instance, cities vs the countryside, city centers vs suburbs, "good areas" vs "no go zones". Causes could be many - economic frustration, inequality, rising crime levels, conflicts, pandemics, (lack of) integration. Hence, as a Mortgage Lender, Hypoteket has a great stake and an important role in society, to promote sound and sustainable financing solutions to as many people as possible. 

As a fund manager however this will be very hard to factor in when purchasing mortgages. We do however work closely with our investors to find solutions which help us towards our overall goal of financial inclusion and transparently priced, equally treated Mortgages to the many.

*(average sea level rise is predicted to be 24–30 cm by 2065 and 40–63 cm by 2100 relative to the reference period of 1986–2005)

Why do Hypoteket Mortgage Funds comply with the Article 8-definition under SFDR, and what does it mean?

When a fund supports sustainability and/or a sustainable transition, and excludes harmful investments and "unwanted activities", a classification as light green should be appropriate according to Fondbolagens Förening*. We certainly see us complying with both, based on this arguably generic definition. Even with a tighter definition we should comply. It is at the core of Hypoteket and what we do to work for a sound and sustainable Mortgage market with as few and small negative environmental footprints as possible.

We are also dedicated to steer our mortgage portfolios in the direction of net zero greenhouse gas emissions by 2050, or actually even by 2045 (which is Sweden's ambition), and so we support the Race to Zero (COP 26) initiative.

Please read more about our work with ESG and sustainability here and do not hesitate to reach out with any potential questions you may have in relation to this.