Raiffeisen Bank International’s Karolina Gregor and Jörg Bayer explain how the bank is providing a key pathway for CEE market participants to join the region’s ESG road
In the early years of the ESG movement on the capital market, it was mainly the country of Poland and various Baltic companies that were present in the ESG bond market. Since 2016, the development of the Central and Eastern Europe (CEE) ESG market has been slow-moving.
While the share of new issuers in the Euro bond market is now well above 10 per cent, with a clear upward trend close to 20 per cent, the CEE ESG market has developed sluggishly in recent years.
Last year, a new record was set with a share of 2.4 per cent of the primary market offer from the ESG segment, but this is far behind the market dynamics in both international and European comparison.
The Ukraine war continues to weigh in on the development of the sustainable capital market in the region. In 2022, the share fell again to 1.3 per cent, while Raiffeisen Bank International (RBI) recorded significant growth worldwide.
The fact that ESG development has stagnated in CEE is likely to be for many reasons, most of all the ongoing conflict in Ukraine.
However, the countries from the CEE region are among the “beneficiaries” of the Next Generation EU programme. From the funds of this programme, at least 37 per cent of the investments will go into “green” investments.
This is despite the fact that the CEE industrial landscape is still strongly characterised by “brown” industries and, as an above-average number of jobs depend on these industries, they represent a certain lobby.
In addition, the political will, as well as the pressure from the population for ecological change, is still behind the current level in Western Europe and even more so behind current Northern European levels.
The CEE corporate structure, which is heavily weighted towards small- to medium-sized companies (SMEs), also contributes to the fact that ESG transparency is not yet in focus. However, this can also be seen in a positive light: in no other region can just €1 do more to mitigate carbon dioxide levels rising.
There are also positive trends on the market side, especially within the new ESG government bond programmes in Slovenia and Serbia. There is also a significant increase in sustainable bond financing in the corporate and banking sectors, especially in Poland, the Czech Republic and Romania.
One of the biggest challenges in the field of ESG for the CEE region, however, is data quality and data transparency. Broadly speaking, the SME structure and limited capital market presence contributes to delays in ESG initiatives, and also makes it much more complicated for investors and asset managers to invest in the region.
ESG Scoring Tool
Raiffeisen Research has developed an ESG Scoring Tool, which makes it possible to gain comparable ESG Scorings for all companies or to calculate them based on basic information. The application allows users to make various peer comparisons, for example with a country peer group, industry peer group, or with a global peer group.
The key advantages of the tool are its ease of use, its capability to integrate smaller companies, as well as its power to mitigate the existing bias towards large companies in the field of ESG.
Furthermore, the model already takes into account the factor of “country of risk”, which is not the case with many models.
Since the war in Ukraine began, Raiffeisen Research has played a decisive role in the topic of sustainable investments.
It is also possible to set and monitor targets with the application, and to also evaluate differing models.
In addition to the total ESG score, the individual scores of “E”, “S” and “G” are also available.
UN Principles for Responsible Banking
RBI continues to be a pioneer in the area of sustainability in its core markets. As the first Austrian bank to sign the UN Principles of Responsible Banking, RBI strives to not only offer sustainable financial services to its customers in Austria and CEE, but also to support them as they transition to sustainable business models.
RBI adopts a holistic approach across all customer groups — this means implementing ESG product solutions within the markets and investment banking area for institutional clients.
The sustainable orientation is defined in line with the European regulations, and in particular the EU Taxonomy Regulation. Within markets and investment banking, an ESG working group was set up to cooperate on ESG implementation in various products and support knowledge transfer.
The following product lines have fully implemented ESG criteria in their products:
Raiffeisen Capital Management is applying ESG criteria in their entire investment fund universe
Raiffeisen Centro Bank is a leading issuer of sustainable certificates
RBI acts as leading issuer of green bonds in Austria but also throughout its network in CEE countries
Raiffeisen Research has a dedicated ESG research team to keep its clients up-to-date, expanding its sustainable banking approach throughout the CEE region.
Within its global investor services (GIS) business line, RBI focuses on asset servicing for its clients. There is currently a major focus on governance within post-trade services, particularly to provide easy access possibilities to voting rights execution. EU regulations, primarily the Shareholders Rights Directive II, outlines the industry standards which RBI GIS has strictly implemented.
On top of its sustainable GIS product framework, RBI has developed the Global Investor Gate, a unique client portal for investor services where clients can identify sustainable investment funds.
RBI is in close cooperation with its research colleagues to market their ESG know-how to its customers. Its unique ESG scoring tool provides a competitive advantage to score clients’ portfolios according to specific criteria.
“S” and “G”
The societal and governance aspect of ESG has just as much significance as the environmental part. Today’s geopolitical situation has proven how crucial an understanding of your client and product portfolio is for a long-term sustainable business model — the societal aspect naturally goes hand in hand with this.
RBI pays close attention to its employees’ welfare throughout the whole network, but of course, in particular, to the colleagues impacted directly by the war in Ukraine.
As circumstances are particularly challenging in all three aspects of ESG at the moment, RBI’s ESG goals are now more important than ever.
