ESG Banking in Russia
We are pleased to present the findings of the ESG Banking in Russia research, which was initiated by the Association of Banks of Russia and conducted by Deloitte CIS.
We conducted this research to study trends and growth prospects of ESG banking in Russia. In pursuit of this objective, we analysed the applicable legislation, international and Russian ESG initiatives, and global best practices. We also held a series of interviews with representatives of top banks and other participants of the Russian financial services market.
Banks are gradually implementing the principles of environmental, social and governance responsibility (ESG) into their business practices. They have started to consider ESG factors when they issue loans or invest, thereby encouraging the business community to reduce its negative environmental impact.
ESG-oriented companies take responsibility for environmental (E), social (S) and governance (G) factors in order to reduce adverse environmental and social impacts. According to our survey, ESG banking is a banking concept based on the principles of environmental, social and governance responsibility towards present and future generations, as well as on the initiatives to achieve the United Nations Sustainable Development Goals and other socially significant outcomes.
Interviews held with the heads of Russian banks and other market players reveal that Russia has all the necessary infrastructural components to successfully develop ESG approaches. However, the country lacks comprehensive government regulations and a robust system of economic incentives. Thus, banks are implementing ESG principles into their operating models piecemeal, and they are convinced of the necessity of legislative amendments. It should also be noted that the issue of “green” and social bonds is gaining momentum. Some Russian banks are already analyzing the carbon footprint of their borrowers ahead of the introduction of the Carbon Border Adjustment Mechanism (CBAM) in the EU. Decarbonizing the economy will require significant investments, and banks are the most likely source of capital for implementing large-scale changes.
In this survey, Deloitte assessed the current state, major challenges, and potential of ESG transformation. Our public reporting analysis of all Russian banks (nearly 400) revealed the following findings:
- 10% of Russian banks apply some ESG methods
- 40% of them apply corporate social responsibility models
Disclosures are rather limited: less than 1% of banks publish ESG reporting as a separate document or incorporate it into their annual reports. The banks that do have an ESG agenda are mostly trying to raise foreign equity or bond investments.
The findings of the Deloitte survey also show the sector's low awareness of ESG matters:
- About 15% of banks believe that it is important to consider ESG factors in their work
- 30% expect that ESG considerations will be significant for them in three years’ time
- 40% are sure that in three years’ time, climate changes will affect financial results
- About 20% of banks believe that the role of ESG scores in investor and lender decision-making will increase significantly over the next three years
- Less than 20% of banks understand what ESG-related information is most relevant for investors and lenders.
For more information on the trends identified, please refer to our report.