Just a few years ago, so-called responsible investing was viewed with skepticism in Russia, but now the country’s biggest banks are starting to implement these principles in their strategies. However, lenders should take a delicate approach due to the structure of the Russian economy, as it is heavily dependent on “dirty” industries.
Russian banks look to environmental, social and governance (ESG) principles, says S&P Global. At the end of January, Russia’s largest lender Sberbank adhered to the United Nations principles for a responsible bank like Sovcombank, which embarked on the initiative in 2019. On February 4, the Association of Russian Banks approved recommendations for the implementation of ESG principles by local lenders, and two weeks later Central Bank Director Elvira Nabiullina said the regulator was working on rules for verifying ESG financial instruments.
However, according to the executive director of research on stocks and financial institutions of Gazprombank Andrey Klapko, the environmental situation is difficult. “The breakdown of the loan books of the largest Russian banks depends heavily on the structure of the Russian economy, which is heavily oriented towards dirty industries,” he said in an interview. About 9% of Sberbank loans go to the oil and gas industry, while for Gazprombank the figure is 23%. The oil and gas sector as well as metals and mining make crucial contributions to the Russian economy, but they also contribute significantly to the country’s carbon footprint. As the Russian government gradually changes its attitude to climate change and environmental issues, pollution continues to increase in some areas.
Meanwhile, ESG is becoming harder and harder to ignore, as some of the world’s largest asset managers, as well as local Russian players, pay more and more attention to the issue when they take investment decisions. If Russian banks, some of which already operate under international sanctions, want to avoid further restricting their access to capital, they must adapt to these demands, Klapko believes.
At the same time, the central role of Russia’s polluting industries and businesses in its society demands that local lenders take a delicate approach. Sovcombank CEO Dmitry Gusev says his bank aims to strike the right balance between several factors. “The bank does not plan to change its lending policy overnight, and we do not intend to finance exclusively green projects,” he said, adding that the lender is ready to provide financing to difficult industries if they describe their goals and processes to reduce this negative. impact in their development strategy. “For companies that are not looking to reverse their negative environmental impacts, we will gradually reduce the amount of funding.”
As for Sberbank, it could become a key influencing factor in promoting ESG in the Russian economy at large, as the bank accounts for around a third of all Russian business loans. “Sberbank is very serious in its intentions to improve things,” says Ekaterina Marushkevich, banking and insurance analyst at S&P Global Ratings, noting that the lender has identified ESG as one of the three main areas of interest during the course. the next three years. Nevertheless, his approach will have to be managed with delicacy. “They will not be able to stop lending to the biggest Russian companies because of their social importance in various regions and cities,” says Marushkevich. She believes that Sberbank’s influence over the Russian banking sector should convince other banks that it is not just a fad that can be ignored. Currently, 7% of Russian banks are already applying ESG principles in their business models, while 67% are preparing for the transition to ESG banking, according to data prepared by the Association of Russian Banks.
By Anna Litvina
