What you should know about sustainability requirements of banks and insurance companies for obtaining investments

The amount of credit opportunities and insurance programs for businesses attached to social-ecological standards is constantly rising. This tendency is especially affected by the Covid-19 pandemic. However, the number of companies that understand the requirements of financial institutions clearly, is fairly small. So the low level of awareness complicates getting excess to beneficial financial and insurance products.

The transition of the banking and insurance sectors to data assessment, according to the ESG-approach and EU taxonomy were discussed on the online meeting “Sustainability requirements of banks and insurance companies for obtaining investments” within the Ukrainian Agribusiness Sustainability Webinar Series, a joint initiative of the Dutch Development Bank, FMO and the first international association of sustainability practitioners, the Association of Sustainable Development Experts.

Mind is the main media partner of the initiative.

 

Robert Adamczyk

Senior Advisor, Environment and Sustainability Department (ESD)

EBRD

What is EU taxonomy

The currently drive taking place in the EU takes place in some wat can be compares to the transformation that took shaes in CEE in the early 90s. We`re changing in the way we operate and our modus opernadii: we are looking at more green, more sustainable environment, the EU green deal of course the cornerstone of this.

The EU is also developing its own taxonomy but so are others such as China, the US, even in Russia are all developing taxonomies to define what is Green. It`s a worldwide system that we`re coming in and we can`t avoid it. And of course, the key aspect is the disclosure and reporting of non-financial information. We have the NFD Directive from 2014 that was referred to as the CSR directive. This is being changed, and it will be called the Corporate Sustainability Reporting Directive, as we no longer report on just non-financial issues, we`re reporting on financial impacts, climatic impacts that will have an impact on all of us including on the agribusiness sector.

It is being developed precisely to give a great outline of what is green and to stop greenwashing, because a lot of financial products, consumer products are being sold worldwide and told as green, but some are not. This is a milestone, and the legislation is in place. The Taxonomy refers to 6 environmental objectives, the first two with mitigation and adaptation have been approved and the EU is working on the next four which include circular economy, pollution prevention, sustainable use and protection of water marine resources, protection, and restoration of biodiversity and ecosystems.

It will be published this year we already have a draft. It will set out how to define the green products and it will be very important as the capital will want to flow in these directions and any investor, any institution will need to look at those in that context. The ultimate aim is to meet the EU targets of 2050 in terms of climate and the concept of “do no significant harm” on the other objectives. We`re also working on the social taxonomy and there`s a working group to address these including what that we are inclusive, there`s fair pay for gender treatment, appropriateness, governance, and human rights are in place, basic principles to be applied.

This is an evolving area and will impact all sectors and Ukrainan business needs to be prepared for this.

 

Felix Potishman

Senior Investment Officer, Agribusiness,

Food & Water Team, FMO

The past 20 years brought big changes in the approach of development institutions (“DFIs”) to environmental issues. One of the most important changes was in the overarching goals of the bilateral DFIs: 20 years ago, DFI’s mission was to promote economic dlt as seen by its country, whereas today it is UN’s SDGs. And whereas 20 years ago, the investment officer had to “clear pollution hurdles” in respect of E&S to approve a project, these days the environmental impact is a goal in itself and its maximisation, predominantly in relation to Climate Change, is today more important than the economic development impact of the relevant project.

 

Nikolay Shestak

Managing Partner,

Zubr Capital

Zubr Capital is the first PE fund in the Republic of Belarus with the main office in Minsk. As a result, a great number of processes, as well as the environmental and social management system, had to be started from the beginning. However, since 2018, our team has been systematically working in this direction and implementing the best practices in our portfolio investments.

From the very beginning of the fund’s work, it was decided not to invest in companies if their ESG risks were considered to be unmanageable or if the investment team was not sure about the company’s desire to improve social and environmental responsibility, as well as the safety and health of employees, corporate ethics.

Belarusian region has its particular characteristics. The share of private companies is only 28%. Market laws do not work at the state plants and factories. In the case of closing such companies, there is a high risk that a large number of unskilled personnel can find themselves redundant. In our opinion, for the development of the region, it is necessary to generate new jobs in non-state companies and co-create educational programs in demanded specialties. Within the investment period of the ZCFI Fund, the total number of workplaces in companies has tripled – from 5 845 in 2017 to 14 167 employees at the beginning of 2021.

To sum up, our experience is relevant for the CIS region because many processes have to be created from the beginning. However, systematic daily work is the key to success.

We also believe that Human resources is a key to the region's market. Moreover, it is important to consider environmental changes from the point of view of their efficiency for the business. The development of eco-culture gives the company new opportunities and helps to launch new products to the market more efficiently.

In spite of the underestimation of ESG in the region, Belarus has a fairly strong social base (safety equipment, social payments). However, it is important not only to follow the established business conventions but also to implement modern strategies.

 

Yanina Olkhovska

Director of Communications, CSR and Engagement, 

UKRSIBBANK BNP Paribas Group

The primary goal of UKRSIBBANK BNP Paribas Group is to become the leader in sustainable finance. By working alongside our partners and clients we promote a more environmentally friendly and inclusive economy, we are making sustainable finance the foundation of our long-term partnership.

UKRSIBBANK as a part of a global international Group uses ESG criteria which are included in our 10 sector policies. One of them is related to the agriculture sector that is one of the key sectors in the world economy. However, without proper management, this sector’s development can have many damaging effects on local communities, ecosystems, and climate change. At the same time if we join our forces, we can reduce agriculture's negative impact on the environment, while at the same time save the possibility to feed a growing population. We also are demanding of ourselves. For instance, in our daily activities, we strive to be a Green Company and do not use disposable plastic, we have an ambitious plan how to reduce own carbon emission, and support a lot of projects with a positive impact on society and environment those are implemented by the global organization, in particular UN, as well as create own programs which provide a solution for our customers. It drives us towards a more sustainable future.

On daily basis, we put the client and ESG approach in the center of decision and find out a personal solution/ and we are delighted to see how it works, change our future, and provided new opportunities for sustainable development.

When working with our clients we use evaluation criteria that includes general environmental management issues, food safety and traceability, Health & Safety, working conditions and human rights. And we use additional criteria for assessing farming activities, livestock poultry, seed producing companies and physical agricultural product merchant and traders. We value an individual approach with our clients that is why for each project we have a relationship manager that leads the process.

 

Paul Hammer

Senior Agricultural Underwriter and Product Manager,

Swiss Re

The Swiss Re Group is one of the world's leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, working to make the world more resilient. The aim of the Swiss Re Group is to enable society to thrive and progress, creating new opportunities and solutions for its clients.

Swiss Re's 2030 sustainability ambitions are grouped around three overarching topics that describe how we can have a significant positive impact in terms of supporting sustainability and strengthening resilience. These ambitions are:

1. Mitigating climate risk and advancing the energy transition
2. Building societal resilience
3. Driving affordable insurance with digital solutions

The agricultural team and its products are at the heart of these three ambitions when it comes to execution. In agriculture, we directly feel the impact of climate change, which is increasing the frequency and severity of catastrophic events from hailstorms to droughts. Drought is an existential threat and the dominant risk that farming businesses are facing globally. Therefore, farmers have a clear need for reliable products that make it possible to objectively assess drought losses at large scales.

To achieve this, Swiss Re has partnered with VanderSat, a company that specialises in measuring soil moisture with the help of satellite data. Swiss Re and VanderSat developed an effective soil moisture deficit index insurance product, which pays out in case the soil moisture deficit reaches a pre-defined level. The soil moisture deficit is closely linked to the drop in yield that occurs due to drought. The product has proven to be an efficient insurance protection for farmers, enabling them to invest more in production and reduce the volatility of their income.

We have successfully pioneered this product in Ukraine where we started with a pilot already in 2019. In 2020, the product proved its value when the region was experiencing drought conditions and we managed to support the producers in Ukraine through fast claim payouts. With premium subsidies, this product will become even more attractive for farmers as a risk management tool.