Sustainable Finance

Transition Roadmap

Many of the banks operating in Estonia have taken on a voluntary commitment to align their activities with the goal of the Paris Agreement of achieving net greenhouse gas neutrality by 2050. The banks have done this mainly as a result of the requirements of the European Central Bank as well as their own strategic objectives of moving sustainably towards a low-carbon economy. Such banks have set themselves targets for reducing the carbon footprint of both their operations and their loan portfolio, and have created individual roadmaps for achieving these targets.

What the transition roadmap means for the real economy

The transition roadmap towards a low-carbon economic model is important, because the latter is key to mitigating climate change and creating an environmentally sustainable future. Reducing carbon emissions helps to limit global warming, decrease pollution and dependence on fossil fuels, and promotes sustainable economic growth.

The Estonian government has committed to reducing greenhouse gas emissions by 70% by 2030 compared with the 1990 level, and has set the goal of achieving climate neutrality by 2050. Specific intermediate targets and steps are agreed within the framework of drafting the Climate Act, with the aim of shaping a more sustainable economic model for Estonia.

The targets being negotiated are difficult to achieve alone. The Ministry of Climate has created an initiative to agree on the creation of roadmaps within industry associations and key sectors. For example, roadmaps have been created for industry, agriculture, peat use, transport and mobility, and forestry and wood products.

What the transition to a sustainable economy means in banking

The role of banks in society is to support the transition to a low-carbon, sustainable economic model, and because of this additional regulations apply to banks. For example, one of the banks' obligations is to quantify the impact of climate risks on their balance sheet under various future scenarios and to ensure the availability of sufficient capital should these risks materialise (read more in the Risk assessment section (ECB Climate Guide)).

From the banks' perspective, the transition roadmap helps to increase banks' resilience to climate risks and to reduce the impact of these risks on the balance sheet. Banks are sensitive to climate risks mainly through their loan portfolio. The companies they finance that have high greenhouse gas emissions can be expected to face reduced profitability in the future — on the one hand through lower turnover due to falling demand, as clients favour more climate-friendly alternatives, and on the other hand through higher input costs arising from higher energy costs, carbon taxes and larger investment expenditure to achieve regulatory compliance. Such roadmaps may include measures and initiatives aimed at reducing fossil fuel use, deploying renewable energy, increasing energy efficiency and other environmentally friendly solutions in the economy, both in the banks' own operations and among their lending clients.

This is also the reason why some banks already today ask their clients for climate targets, climate data and transition plans.

Regulations

Disclosure and Reporting (CSRD, SFDR)

The European Union's Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) have been established with the aim of increasing the transparency and environmental sustainability of the activities of companies and financial institutions, including banks. The CSRD obliges companies to submit comprehensive reports on their social and environmental impact, enabling consumers and investors to make more informed decisions. The SFDR, in turn, requires financial institutions to disclose how their investment policies and decisions affect the environment and society more broadly, thereby ensuring greater transparency in financial markets. Both regulations are aimed at promoting sustainability and supporting the fight against climate change, while providing consumers and investors with important information.

EU Sustainable Finance Taxonomy (EU Taxonomy)

The European Union's Sustainable Finance Taxonomy Regulation is a regulatory framework whose aim is to promote environmentally sustainable financing by helping financial institutions and investors to identify which economic activities can be classified as environmentally friendly. It requires banks and other financial institutions to disclose how their financial products can be linked to sustainable development goals, thereby increasing the transparency of the financial sector and supporting the transition to a low-carbon economy. In applying this regulation, financial institutions are obliged to ensure that the classification of their investments and lending activities is carried out thoughtfully and responsibly, in order to promote the achievement of environmental and social objectives.

Assessment of climate and environmental risks (ECB Climate Guide)

The aim of the European Central Bank's guide on climate-related and environmental risks is to guide banks to appropriately manage and disclose possible physical risks caused by climate change as well as risks related to the transition to a sustainable economy. Banks are obliged to assess how climate and environmental risks may affect their liquidity and whether these could cause a reduction in liquidity buffers. Banks are also expected to integrate climate and environmental risks into their governance, strategies and risk management, in order to prepare for the transition to a lower-carbon economy.

Sustainability Risks

ESG risks are not treated as separate risk types, but as risk factors that in practice affect all risk types, such as credit, market, liquidity and non-financial risks. The management of such risks is therefore integrated into existing processes and the governance structure, in order to ensure the identification, monitoring and measurement of risks and risk reporting. Climate-related risks are divided into two categories: physical risks and transition risks.

Physical risks arise from the physical effects of global warming and climate change, which may, for example, reduce the value of banks' collateral.

Transition risks arise from the efforts of governments, institutions and businesses to accelerate the transition to a low-CO2 economy. This may bring about regulatory intervention, new market incentives, or changes in demand and behaviour, which may have a financial impact on banks' clients as well as on the banks themselves.

Banks face risks that are related to climate change either directly or indirectly. Direct risks arise from regulatory requirements, disruptions to banks' operations, and the impact on banks' products and services. Indirect climate risks are nonetheless considered the most significant, in particular those that accompany the bank's clients. Both physical and transition risks may affect the profitability, cash flows, asset values and refinancing options of banks' clients.

What banks must do about these risks

The analysis of sustainability-related risks is part of the credit process which, in combination with other risk factors, shapes the client's risk profile. In order to assess client risks, banks must obtain the necessary information from clients. A guide setting out the most common questions that banks ask when assessing their clients' sustainability profile can be found here: Unified ESG client questionnaire

Integration into pricing

The bank's own risk assessment and the definition of capital needs – banks must also assess the resilience of their credit portfolio to the consequences of climate-related risks. This is difficult to do, because possible future developments may be very different and a long-term view is needed to carry out analyses. To understand the impact of possible climate-related risks, banks must develop various scenarios, taking into account both current climate-related risks and forward-looking assessments of possible impacts, including those associated with a 1.5°C or 2°C rise in global temperature.

Climate Impact Assessment Tool and Recommendations

Greenhouse gas emissions calculator

On the initiative of the banking associations and financial companies of the three Baltic states, a greenhouse gas (GHG) emissions calculator was developed in cooperation with Deloitte to help companies assess the carbon footprint of their activities. The tool is available free of charge and is intended for companies, public sector institutions, research institutions and other organisations. The calculator can be used to assess GHG Scope 1 and Scope 2 emissions – on the one hand the direct GHG emissions arising from the activities of a company or organisation, and on the other hand the GHG emissions resulting from the consumption of electricity and heat energy.

The calculator is based on generally recognised databases (DEFRA, AIB, CIBSE, etc.) and on the international Greenhouse Gas Protocol. It also takes into account the emission coefficients of each country and is available in Estonian, Latvian, Lithuanian and English. In addition, supplementary learning materials are available to ensure simple and smooth use of the calculator.

The GHG emissions calculator and the user guide for the calculator are available free of charge here.

Banks' questionnaire

To make the collection of ESG – that is, environmental, social and governance – data standardised and simpler for businesses, the banking associations and financial service providers of the Baltic states have prepared a unified ESG client questionnaire covering the Baltic states. As a result, the collection of ESG data is harmonised and the sustainability assessment of companies operating in the Baltics is made more efficient.

The unified ESG client questionnaire is a guide for businesses, setting out the most common questions that banks ask when assessing their clients' sustainability profile. Although, depending on the bank, a variety of methods may be used to assess clients' sustainability, the questionnaire helps companies to gain an overview of the main topics to which financial institutions pay attention with regard to sustainability.

The unified ESG client questionnaire can be found here.

Top 15% and top 30% thresholds for the energy efficiency of Estonia's building stock

In 2023, the Estonian Banking Association, in cooperation with KredEx, commissioned an analysis to map the EU Taxonomy thresholds for the energy efficiency of the building stock in Estonia. The analysis examined criterion 7.7 of the EU Taxonomy Regulation (2020/852) – the acquisition and ownership of buildings – and the determination of the top 15%/30% thresholds in the Estonian context.

To make a substantial contribution to climate change mitigation, EPC (energy performance certificate) class A must be achieved, or the ETA/KEK value must be lower than the 15% threshold.

To meet the DNSH (Do No Significant Harm) criteria for climate change mitigation, EPC class C must be achieved, or the ETA/KEK value must be lower than the 30% threshold.

The upper quantile thresholds must be checked regularly (every 2–3 years), because the energy efficiency of the building stock and the statistics reflecting it change over time. For this reason, the Estonian Banking Association commissioned an analysis in 2026 to update the mapping of the thresholds.

The analysis was prepared by Granlund.

Climate-Resilient Economy Act

The drafting of the Climate Act is the foundation for shaping a more sustainable economic model for Estonia. The end result will give Estonian society a clear and reliable legal environment and environmental objectives, so that long-term decisions and investments can be made and new services and jobs created, which would give the Estonian economy a stronger competitive advantage and help it to grow.

The first public consultation on the proposal to draft the Climate Act and the sectoral working groups took place at the end of 2023 and the beginning of 2024, and the aim was to submit the act to the Riigikogu in autumn 2024.

On the basis of the input from the discussions of the Climate Act working groups, sectoral proposals for meeting the climate targets were consolidated. The Banking Association's sustainable banking committee was represented in all of the Climate Act working groups. Through this, the committee also fulfilled its goal of being a partner to state institutions, ministries, Eesti Pank and stakeholder organisations in developing the field of sustainable financing. As the Climate Act is a societal agreement on the direction in which to move forward and how to achieve the targets, the Banking Association has also been an active contributor.

At its cabinet meeting on 14 May 2025, the Government of the Republic gave its in-principle approval to the Climate-Resilient Economy Act. In line with the government's proposals, the Ministry of Climate made technical amendments to the act and the roadmaps, after which the updated draft act was submitted. As at June 2026, the updated draft passed its first reading.

Additional Information

EU Green Deal / European Green Deal

The European Green Deal is a policy strategy launched by the European Commission, whose aim is to achieve European climate neutrality by 2050. It is a long-term strategy of the European Union which, if successful, would make Europe the first climate-neutral continent.

Climate change and the deterioration of the environment pose an existential threat to Europe and the whole world. To address these problems, the European Green Deal will transform the EU into a modern, resource-efficient and competitive economy, ensuring that:

net greenhouse gas emissions are brought to zero by 2050
economic growth is decoupled from resource use
no person and no region is left behind.

Fit for 55 / The “Fit for 55” package

Under the European Climate Law, achieving the EU's climate target – reducing the EU's emissions by at least 55% by 2030 – is a legal obligation.

The aim of the package of proposals is to create a coherent and balanced framework for achieving the EU's climate targets, which:

ensures a fair and socially just transition
maintains and strengthens the innovation and competitiveness of EU industry, while ensuring a level playing field with third-country businesses
supports the EU's position as a global leader in the fight against climate change