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Research initiated by the Association of Banks of Russia reports: only 10% of banks in Russia are implementing ESG practices

Banks are gradually adopting the principles of environmental, social and corporate responsibility (ESG). By starting to incorporate ESG factors in lending and investment, banks are also encouraging businesses to reduce environmental damage. This is largely why banks will be defining the ESG agenda in Russia soon, showed the research "ESG Banking in Russia" initiated by the Association of Banks of Russia and conducted by Deloitte CIS.

The decision to conduct research was approved by the Council of the Association of Russian Banks in view of the growing role of ESG-principles implementation in activities of Russian credit institutions and their clients. When defining the objectives of the study, the Association of Banks of Russia consolidated the position of the banking community that the results should not only show a comprehensive picture of ESG-banking in Russia, but also indicate the trends and possible "points of growth" for the transition to the sustainable development pathway.

ESG is a concept of activity based on the principles of environmental (E), social (S) and governance (G) responsibility, reducing the negative impact on the environment and the social sphere.

Russia has all the financial infrastructure elements for the successful development of ESG approaches, as interviews with the heads of Russian banks have shown. However, there is still a lack of comprehensive government regulation, as well as effective economic incentives. Therefore, banks are adopting ESG principles in their operations in a fragmented way and are convinced that legislation needs to be completed.

The issue of green and social bonds is gaining momentum. Some Russian banks are already assessing the carbon footprint of borrowers in advance of the implementation of EU cross-border carbon regulation. The de-carbonization of the economy will require significant investment and it is banks that are most likely to provide the capital for such large scale changes.

Deloitte company at the request of the Association of Banks of Russia has assessed the current state, the main barriers and the potential for ESG transformation. A public reporting analysis of all banks registered in Russia ( about 400) has shown:

  • 10% of banks in Russia apply any ESG practices;
  • 40% apply Corporate Social Responsibility (CSR) practices.

Information disclosure is extremely limited: less than 1% of banks publish ESG reporting as a separate document or devote a portion of the annual report to it. Most attention to ESG is paid by banks interested in attracting foreign equity or bond investments.

 “So far, the largest banks are ahead of other market players, but there are already examples of regional banks successfully operating based on the ESG-banking business model. Banks with basic licenses can also take a worthy place in this work.”, - believes Georgy Luntovsky, President of the Association of Banks of Russia. In his opinion transition to ESG-rails can become a challenge for many market players, therefore such large-scale transformations need support of the government and creation of effective economic incentives for banks and business.

ESG is not only a global trend but also an efficient business model. “Banks are fully aware of the practical need to incorporate ESG factors into their business”, says Ekaterina Trofimova, Deloitte Partner and Financial Services Industry Leader for Russia and the CIS. “Among the benefits: increasing customer and employee loyalty, attracting investors and partners, adapting to new risks, including climate ones.” ESG factors can upgrade or downgrade credit ratings. Banks that are focused on ESG principals also achieve better financial results in the future, shown earlier by Deloitte's global research.

Major Russian banks are driving the ESG transformation, which could further widen the gap with smaller banks, warned Ms. Trofimova. 

The survey showed a low awareness of ESG among banks:

  • Around 15% of banks believe it is essential to consider ESG factors in their operations;
  • 30% expect ESG accounting to be significant in three years' time;
  • 40% believe that climate change will start to affect financial results in three years' time;
  • About 20% of banks expect the role of ESG scores in investor and lender decision-making to increase significantly during this period;
  • However, less than 20% of banks understand what ESG related information is most relevant for investors and lenders.

The research in English can be downloaded in the "Documents" section, in Russian on the page of the ESG-Banking Project Group.

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