Moscow, Russia. Russian firms are at first of their ESG journeys, however Sovcombank is among the many trailblazers which have already applied ESG principles
Interview with: Dmitry Gusev, CEO, Sovcombank
May 8, 2020
Sustainable improvement is a topic of nice curiosity these days, for each monetary establishments and their prospects. As a consequence, many market gamers are integrating varied social duty programmes into their company technique. Today, companies in any trade merely can’t afford to sit out the sustainability pattern.
Businesses are beneath rising strain from society, companions, shoppers and workers to behave in a method that demonstrates a dedication to human values, as a substitute of merely chasing profit. One method or one other, it’s prospects and workers who drive change in companies. Those who don’t perceive this can lose out in the long term.
Adhering to the UN’s Sustainable Development Goals (SDGs) and its Principles for Responsible Banking (PRBs) will definitely enhance a agency’s company picture, however this alone shouldn’t be sufficient. Businesses will solely find a way to mix long-term success with a sustainable agenda in the event that they absolutely align their values with these of their prospects and society at giant.
Sustainable improvement and accountable banking are primarily related with the local weather agenda, however in reality, they go far past that. This means companies should not solely cut back their environmental footprint, but additionally construct trustworthy and accountable relationships with prospects, particularly within the retail sector.
At Sovcombank, one in every of Russia’s largest private-sector lenders, there’s an consciousness that many banks have compromised their sustainable credentials by behaving recklessly when dealing with their retail prospects. World Finance spoke with the financial institution’s CEO, Dmitry Gusev, about why the agency has chosen to prioritise monetary training for its prospects and continues to place nice worth on duty throughout its mortgage merchandise.
Businesses should not solely cut back their environmental footprint, but additionally construct trustworthy and accountable relationships with prospects
How will the corporate restructure its enterprise mannequin to meet the SDGs and PRBs?
There has been no want for us to make any drastic modifications to our enterprise technique since we’ve got all the time adopted related principles to these espoused by the SDGs and PRBs. However, step one for any financial institution entails assessing the established order and figuring out long-term targets and targets. We have already undergone a third-party audit and accredited some long-term targets – the important thing level is that they’ve to be possible. In the close to future, we are going to announce our plans and report on their implementation as we go.
As a signatory of the PRBs, how will Sovcombank combine these principles into its work with retail prospects and company shoppers?
As a part of our company lending enterprise, Sovcombank is already financing a number of long-term power saving, renewable power and waste administration tasks. Currently, numerous associated authorities initiatives and programmes are underway in Russia, and we see ourselves as an lively monetary participant on this market.
We are dedicated to financing tasks which are aligned with our targets and obligations in following the SDGs and PRBs. Our expertise has proven that this could go hand in hand with the financial institution’s pursuits and prospects. In explicit, we are going to help our prospects in relation to financing tasks that goal to cut back their environmental influence. As far as our retail companies are involved, we create market merchandise which are reasonably priced for our prospects and that foster good spending habits.
We need our prospects to minimise curiosity bills relating to their day by day wants, and save that cash to buy or renovate a home, or purchase a automobile. Our Halva instalment card is the product of alternative for these prospects. We additionally make a degree of training our shoppers on all issues credit score, which is our high precedence as a accountable lender.
What was the Russian regulator’s response to your initiative? Are there going to be any concessions or further necessities?
Amid more and more strict laws and tighter reporting and disclosure requirements, companies the world over are transferring in direction of practices that take account of environmental, social and humanitarian points.
Russian firms are at first of their environmental, social and governance (ESG) journeys, however Sovcombank is among the many trailblazers which have already applied ESG principles. There are presently no legal guidelines or laws relating to sustainable enterprise practices in Russia; some market gamers take part in ESG tasks on a voluntary foundation however, as time passes, regulation will turn out to be extra standardised, forcing lenders to function with sustainability in thoughts.
What particular areas has Sovcombank targeted its sustainability efforts on?
Transparency and company governance are vital strands of our sustainability principles. As the financial institution has grown, it has stayed true to its perception that companies should be open with all stakeholders relating to their operations and efficiency. We imagine that investing sooner or later is vastly vital. As such, we provide assist by way of recommendation and bespoke companies to assist Russia’s SMEs flourish.
We are aware of the significance of accountable lending. Our community of retail branches is geared toward supporting low-income prospects in underbanked areas all through Russia. By offering public entry to instructional supplies, we additionally exhibit our dedication to bettering monetary literacy throughout the nation.
Could you discuss concerning the potential supplied by inexperienced bonds?
Green bonds provide a incredible method for buyers to earn cash with a clear conscience. Globally, the US is main the best way by way of inexperienced bond issuance (see Fig 1), however with the discharge of its first inexperienced bond in December, Russia is making strikes to catch up. There is a substantial amount of pleasure surrounding the inexperienced bond provide by SFO RuSol 1, suggesting that the Russian market is receptive to sustainable funding choices.
Today’s extra environmentally acutely aware world makes it simpler than ever to pursue inexperienced insurance policies whereas sustaining a wholesome backside line
Although it might be good to suppose that firms will commit to environmentally pleasant practices merely out of a way of obligation, profit is a big motivator. Fortunately, renewable expertise represents a big progress market that’s already attracting investor consideration. Green bonds characterize one other method for companies, buyers and the planet to prosper – it’s a win-win scenario.
What inexperienced merchandise is Sovcombank presently engaged on?
We are engaged on a number of inexperienced merchandise. One of them entails the event of a renewables challenge that securitises income streams from two solar energy stations, with round RUB 5bn ($76.1m) value of inexperienced bonds issued within the native market. The particular goal automobile arrange to finance the challenge has already secured a credit standing from Russian company ACRA and acquired the related inexperienced certification, representing one other milestone for ESG progress in Russia.
How a lot of an influence has the ESG pattern had on international markets?
ESG initiatives have been one of many main issues within the enterprise world final yr, and their significance resonated all through varied markets – to a larger diploma in Europe than the US, and more and more in Russia. Partly, this was pushed by environmental concerns, together with local weather change and rising air pollution ranges.
While ESG shouldn’t be a brand new matter, there was a noticeable shift in direction of utilizing capital markets to mitigate the dangers of world warming, not solely in developed markets however in rising economies too. The ESG pattern affords a method for companies to diversify their investor base and entice specialised inexperienced buyers, in addition to to increase effectivity and align company practices with worldwide requirements.
What particular developments are going down within the Russian market with regards to ESG initiatives?
Quite a few developments have occurred within the Russian market, together with state-led programmes to modernise and develop problematic sectors, similar to waste administration, recycling and metallurgy. This testifies to the truth that the sustainable finance market is evolving to deal with the challenges of making a extra sustainable future.
It is truthful to say that in rouble markets there will not be sufficient devoted inexperienced buyers, whereas on the exhausting foreign money aspect there are lots of. The latter have ESG mandates inside their portfolios and habitually spend money on inexperienced merchandise; they’re usually ready to pay a premium due to further subsidies or tax reductions they might obtain of their residence international locations for investing in ESG merchandise.
What position ought to regulators play with regards to making certain the ESG area is accessible to all?
Regulation within the Russian ESG area is presently within the very early levels. Still, there are already a number of dozen firms and companies which are licensed to hand out sustainability scores which are intently aligned with international practices. Now, there wants to be larger demand for these merchandise from the funding group. This might be achieved both by robust restrictions, similar to obligatory ESG targets, or by constructive incentives, similar to subsidies.
The authorities and market regulators are paying shut consideration to the ESG sector and have gotten extra engaged with its improvement, which we anticipate to proceed this yr, maybe with further stimuli within the form of subsidies and inexperienced infrastructure tasks, similar to water irrigation methods and renewable energy stations.
How vital is it that inexperienced proposals additionally take into consideration shareholder pursuits and profit?
Sustainability doesn’t imply pursuing environmentalism in any respect prices. Businesses nonetheless have to take their income streams and prospects’ pursuits into consideration so as to safeguard their long-term prospects. Fortunately, immediately’s extra environmentally acutely aware world makes it simpler than ever to pursue inexperienced insurance policies whereas sustaining a wholesome backside line.
We have lengthy believed that sustainability can type a part of a profitable enterprise technique and have subsequently integrated a lot of ESG initiatives into our operations.
What is your view on ESG implementation in international monetary markets? Is a inexperienced technique viable immediately?
Globally, companies have gotten the driving drive behind the local weather agenda. It has already been famous that personal buyers are shifting to funding choices which have ESG concerns at their coronary heart. Today, if an organization enters a capital market with a wise company social duty coverage and a sturdy ESG platform, it’s seemingly to assist entice buyers.