Sustainable development is a subject of great interest nowadays, for both financial institutions and their customers. As a result, many market players are integrating various social responsibility programmes into their corporate strategy. Today, businesses in any industry simply cannot afford to sit out the sustainability trend.
Businesses are under growing pressure from society, partners, consumers and employees to behave in a way that demonstrates a commitment to human values, instead of simply chasing profit. One way or another, it is customers and employees who drive change in businesses. Those who don’t understand this will lose out in the long run.
Adhering to the UN’s Sustainable Development Goals (SDGs) and its Principles for Responsible Banking (PRBs) will certainly improve a firm’s corporate image, but this alone is not enough. Businesses will only be able to combine long-term success with a sustainable agenda if they fully align their values with those of their customers and society at large.
Sustainable development and responsible banking are primarily associated with the climate agenda, but in fact, they go far beyond that. This means businesses must not only reduce their environmental footprint, but also build honest and responsible relationships with customers, especially in the retail sector.
At Sovcombank, one of Russia’s largest private-sector lenders, there is an awareness that many banks have compromised their sustainable credentials by behaving recklessly when dealing with their retail customers. World Finance spoke with the bank’s CEO, Dmitry Gusev, about why the firm has chosen to prioritise financial education for its customers and continues to place great value on responsibility across its loan products.
Businesses must not only reduce their environmental footprint, but also build honest and responsible relationships with customers
How will the company restructure its business model to meet the SDGs and PRBs?
There has been no need for us to make any drastic changes to our business strategy since we have always followed similar principles to those espoused by the SDGs and PRBs. However, the first step for any bank involves assessing the status quo and identifying long-term goals and objectives. We have already undergone a third-party audit and approved some long-term goals – the key point is that they have to be feasible. In the near future, we will announce our plans and report on their implementation as we go.
As a signatory of the PRBs, how will Sovcombank integrate these principles into its work with retail customers and corporate clients?
As part of our corporate lending business, Sovcombank is already financing several long-term energy saving, renewable energy and waste management projects. Currently, a large number of related government initiatives and programmes are underway in Russia, and we see ourselves as an active financial player in this market.
We are committed to financing projects that are aligned with our goals and obligations in following the SDGs and PRBs. Our experience has shown that this can go hand in hand with the bank’s interests and prospects. In particular, we will assist our customers in relation to financing projects that aim to reduce their environmental impact. As far as our retail services are concerned, we create market products that are affordable for our customers and that foster smart spending habits.
We want our customers to minimise interest expenses relating to their daily needs, and save that money to purchase or renovate a house, or buy a car. Our Halva instalment card is the product of choice for these customers. We also make a point of educating our clients on all things credit, which is our top priority as a responsible lender.
What was the Russian regulator’s reaction to your initiative? Are there going to be any concessions or additional requirements?
Amid increasingly strict legislation and tighter reporting and disclosure standards, businesses the world over are moving towards practices that take account of environmental, social and humanitarian issues.
Russian companies are at the start of their environmental, social and governance (ESG) journeys, but Sovcombank is among the trailblazers that have already implemented ESG principles. There are currently no laws or regulations relating to sustainable business practices in Russia; some market players participate in ESG projects on a voluntary basis but, as time passes, regulation will become more standardised, forcing lenders to operate with sustainability in mind.
What specific areas has Sovcombank focused its sustainability efforts on?
Transparency and corporate governance are important strands of our sustainability principles. As the bank has grown, it has stayed true to its belief that businesses must be open with all stakeholders regarding their operations and performance. We believe that investing in the future is hugely important. As such, we offer support in terms of advice and bespoke services to help Russia’s SMEs flourish.
We are acutely aware of the importance of responsible lending. Our network of retail branches is aimed at supporting low-income customers in underbanked areas throughout Russia. By providing public access to educational materials, we also demonstrate our commitment to improving financial literacy across the country.
Could you talk about the potential offered by green bonds?
Green bonds offer a fantastic way for investors to make money with a clean conscience. Globally, the US is leading the way in terms of green bond issuance (see Fig 1), but with the release of its first green bond in December, Russia is making moves to catch up. There is a great deal of excitement surrounding the green bond offer by SFO RuSol 1, suggesting that the Russian market is receptive to sustainable investment options.
Today’s more environmentally conscious world makes it easier than ever to pursue green policies while maintaining a healthy bottom line
Although it would be nice to think that companies will commit to environmentally friendly practices simply out of a sense of duty, profit is a huge motivator. Fortunately, renewable technology represents a significant growth market that is already attracting investor attention. Green bonds represent another way for businesses, investors and the planet to prosper – it’s a win-win situation.
What green products is Sovcombank currently working on?
We are working on several green products. One of them involves the development of a renewables project that securitises revenue streams from two solar power stations, with around RUB 5bn ($76.1m) worth of green bonds issued in the local market. The special purpose vehicle set up to finance the project has already secured a credit rating from Russian agency ACRA and received the relevant green certification, representing another milestone for ESG progress in Russia.
How much of an impact has the ESG trend had on global markets?
ESG initiatives were one of the major concerns in the business world last year, and their importance resonated throughout various markets – to a greater degree in Europe than the US, and increasingly in Russia. Partly, this was driven by environmental considerations, including climate change and rising pollution levels.
While ESG is not a new topic, there has been a noticeable shift towards using capital markets to mitigate the risks of global warming, not only in developed markets but in emerging economies too. The ESG trend offers a means for businesses to diversify their investor base and attract specialised green investors, as well as to boost efficiency and align corporate practices with international standards.
What specific developments are taking place in the Russian market with regards to ESG initiatives?
A number of developments have occurred in the Russian market, including state-led programmes to modernise and develop problematic sectors, such as waste management, recycling and metallurgy. This testifies to the fact that the sustainable finance market is evolving to tackle the challenges of creating a more sustainable future.
It is fair to say that in rouble markets there are not enough dedicated green investors, while on the hard currency side there are many. The latter have ESG mandates within their portfolios and habitually invest in green products; they are often prepared to pay a premium because of additional subsidies or tax discounts they may receive in their home countries for investing in ESG products.
What role should regulators play with regards to ensuring the ESG space is accessible to all?
Regulation in the Russian ESG space is currently in the very early stages. Still, there are already a few dozen companies and agencies that are licensed to hand out sustainability ratings that are closely aligned with global practices. Now, there needs to be greater demand for these products from the investment community. This can be achieved either through tough restrictions, such as mandatory ESG targets, or by positive incentives, such as subsidies.
The government and market regulators are paying close attention to the ESG sector and are becoming more engaged with its development, which we expect to continue this year, perhaps with additional stimuli in the shape of subsidies and green infrastructure projects, such as water irrigation systems and renewable power stations.
How important is it that green proposals also take into account shareholder interests and profit?
Sustainability does not mean pursuing environmentalism at all costs. Businesses still have to take their revenue streams and customers’ interests into consideration in order to safeguard their long-term prospects. Fortunately, today’s more environmentally conscious world makes it easier than ever to pursue green policies while maintaining a healthy bottom line.
We have long believed that sustainability can form part of a successful business strategy and have therefore incorporated a number of ESG initiatives into our operations.
What is your view on ESG implementation in global financial markets? Is a green strategy viable today?
Globally, businesses are becoming the driving force behind the climate agenda. It has already been noted that private investors are shifting to investment decisions that have ESG considerations at their heart. Today, if a company enters a capital market with a sensible corporate social responsibility policy and a robust ESG platform, it is likely to help attract investors.