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Center-invest Bank Presents ESG Banking Model to the Federation Council

On 12 April, the Federation Council hosted a joint working meeting to discuss the role of regional banks in implementation of the National Action Plan for Employment and Household Income Recovery, Economic Growth, and Long-Term Economic Structural Change. The meeting was attended by the Leadership of the Federation Council, the Bank of Russia, and representatives of federal government executive agencies.

Opening the meeting, the Speaker of the Federation Council of the Federal Assembly of the Russian Federation, Valentina Matviyenko, said that, “The presence in a region of its own solid banks is one of the quality of life indicators”.1

The Governor of the Bank of Russia, Elvira Nabiullina, noted that, “All types of financial intermediaries are being called upon to adapt their business models, including banks of all sizes, not just regional banks.”2

The Chairman of the State Duma Committee on the Financial Market, Anatoly Aksakov, informed the participants that a survey had identified that regional banks face the following challenges: competition on the financial market, digital transformation, compliance with cyber security requirements, access to government information resources, and digital collaboration with government bodies.3

Chairman of the Board of Directors of Center-invest Bank, Dr Vasily Vysokov, told the participants about how the ESG banking model works in practice and how it changes the work of a bank. “In the interests of current and future generations, ESG banking considers a wider range of risks (environmental, social and governance) and expands the decision-making time horizon. While this approach requires expenditure, it enables a bank to examine a wider variety of options and instruments, and to adapt more quickly to constant change amid continual crises.”

From Dr Vysokov’s presentation to the Federation Council

ESG – operating risks. In a crisis, ESG banks behave differently from speculative banks. When risks increase, speculative banks will increase their loan interest rates, whereas an ESG bank will instead work together with its customers to reduce risks. Consequently, its customers obtain competitive advantages, they complete their projects and they repay their loans and the interest on time and in full. This is a win-win situation for the customer and the bank, and the economy maintains a stable trajectory.

ESG – credit risks. Center-invest Bank has a RUB12bn agribusiness loan portfolio. Working with agribusiness is always considered risky, because if you provide a three-year loan, two of those years might have poor harvests. But if the loan is for five years, two good harvests will guarantee loan repayment.

The SME sector diversifies risks, innovates successfully, and is always ready for transformation and to respond to crises (“the harder you fall, the faster you push back up”). Center-invest Bank supports SMEs throughout their development trajectory, just as is envisaged by the National Action Plan. The bank’s SME loan portfolio stands at RUB26bn.

For women in business, the loan interest rate can be reduced by 0.5% as there are no defaults in this borrower category. This is borne out by the bank’s eight years of experience in this sector, during which it has made 1000 loans for a total of RUB2bn.

In social and youth entrepreneurship, mentoring is important. The bank has worked in this area since 2013. In that time, it has provided over 800 business projects with funding totalling RUB1bn, and mentors from among the bank's existing customers have helped to grow these businesses.

Loans for the renovation of apartment buildings are premised on a sense of collective civic responsibility. The bank has made 200 loans for a total of RUB400m, thanks to which 50,000 residents are enjoying renovated, warm, energy efficient buildings.

Energy efficiency lending. The bank has invested a total of RUB20bn in 22,000 customer projects. These projects have reduced annual СО2 emissions by 300,000 tonnes.

Business transformation loans (no security required) have enabled almost 500 companies to adapt in response to COVID-19. 

ESG funding. Center-invest Bank has already placed two issues of green bonds, for RUB550m, in the Moscow Exchange’s Sustainable Development Sector. These issuances were a pilot for the bank, for the Moscow Exchange, and for the Russian economy. In addition, over 2,300 people in southern Russia have become responsible investors by opening a green deposit account with Center-invest Bank. The bank regularly reports on how it is meeting its commitment to use the funds raised for specific purposes.

ESG digitalisation encompasses all components of ESG banking: taxonomy, governance structure, business plans, risk management, and reporting. It entails digitalisation of the bank’s own operations, digitalisation of its customers’ businesses, collaboration with government bodies on digitalisation, partnership with higher education institutions on recruitment, and participation in all of the regulator’s projects: the Mir National Payment System, the Faster Payment System, the Marketplace, the Association for Financial Literacy Improvement, and biometrics. As part of the Digital Profile project, the bank’s customers have the option to undergo authorisation via the Government Services portal when applying for a loan, to obtain access to information from the Pension Fund, the Federal Tax Service, the Ministry of Internal Affairs, and the Federal State Registration Service.

Creation of ESG banking infrastructure. By sharing its experience4  with the members of the Association of Russian Banks, Center-invest Bank’s successes have had a multiplier effect. A Project Team of the Association of Russian Banks has approved Practical Recommendations for Banks5, and examined the ESG ratings methodology of Russian ratings agencies.

ESG banking is contributing to implementation of the National Economic Recovery Plan and it proposes measures that do not require additional expenditure, but which will address challenges identified by the meeting’s participants:

  • Government support programmes should disclose information about their partner banks and how much funding they are being given;
  • There should be no lowering of the limits for applications from regional banks for government support programmes; instead, revisions should be based on results;
  • Inspection reports should indicate not only whether yesterday’s events have complied with the instructions from the day before yesterday, but also whether banks are prepared today for the challenges of tomorrow;
  • Public reporting by all federal executive agencies on their work with regional banks.

The Bank of Russia will continue to work on issues relating to the development of regional banks.