In recent years, numerous developments aimed at sustainable operations and services have been realized concerning funded portfolios and the operations of banks. For instance, Erste Bank's carbon footprint from its own operations was only 1,700 tons last year, equivalent to the carbon footprint of 220 average Hungarian adults, which is 70% less than five years ago. Sustainability is also a key consideration in the bank's financing activities, with investments serving environmental goals expected to account for a quarter of the total corporate loan portfolio by 2026. Gábor Bara, the bank's strategic director, told Portfolio that in the future, those who can adequately demonstrate environmental impacts will be able to obtain loans on more favorable terms.
In your financing activities, you place significant emphasis on sustainability, but achieving the 2050 goals also requires appropriate projects. Do banks constantly seek financeable green projects?
We are always looking for such projects, but it is not an easy task. Due to regulation, it is still quite heterogeneous what qualifies as green; we get as many definitions as there are stakeholders we ask. The EU Taxonomy regulation, the Central Bank of Hungary (MNB), and the European Bank for Reconstruction and Development (EBRD) all have different views on this. Thus, we classify incoming loan applications based on various green definitions; our internal interpretation is based on the Taxonomy. Whatever the project, we will check if it is green; if not, we will examine how it could become green, and whether it is green or not, we will calculate or estimate its carbon footprint.
How well do customers know the data and metrics necessary to evaluate their business's green activities?
The market is still in its infancy on this topic, and often customers are not aware of this information. Where possible, we help determine the missing data, and where it is not possible, unfortunately, we cannot classify the loan as green. However, we model the client's data, such as greenhouse gas emissions, using the previously mentioned Partnership for Carbon Accounting Financials methodology. This is a complex model working with proxies, meaning if we know a company in a given industry whose data can be measured, we estimate based on similar companies' values. The bank models what the client cannot know about themselves. The problem with this is that when we model something, we work within limits and always have to start from the strictest value, giving a very conservative estimate.
For example, the energy efficiency of buildings varies widely, with different labels corresponding to primary energy consumption values, indicating how much energy is needed to operate 1 m² of a property for a year. These data are known for properties with an energy certificate. However, if this data is not available to the bank for some reason, only the letter label can be found in the database, which provides the limit value.
The interesting situation has arisen that a part of the real estate portfolio could become green on its own if we could obtain this energy consumption data accurately from the bank side, even without the client's involvement, and possibly for a fee.
This would also be beneficial for clients, as they wouldn't need to bring paper-based energy certificates to the bank, and the green loan evaluation process would be simplified.
Since we are talking about net carbon neutrality, we can rely on projects with a negative carbon balance, such as afforestation or those that remove greenhouse gases from the atmosphere. This can create the coverage needed to still have one or two projects that do not necessarily meet the neutrality criteria. However, in the long run, humanity will likely have to shut down these technologies; otherwise, we cannot talk about sustainability.
How much do clients expect carbon-neutral operations now, and how does this affect customer relationships?
People receive many impulses about what is green, but they have learned to see through this. When someone claims that their operations are sustainable but only engages in some cosmetic activity or even less, our experience shows that our clients now harshly punish this.
We also see that the younger someone is, the more they expect the products or services they buy and consume to be sustainable. This expectation is absolutely noticeable under the age of 30-35.
With the digitalization of our external and internal processes, we have reduced our paper usage by 95%, and clients appreciate that they hardly encounter paper documents during banking processes. For example, while in the past, the letters sent could completely wrap the bank's 15-story office building every three days, now only legally mandatory papers are sent out.
What will happen to long-term projects that do not meet carbon-neutral goals? Will certain types of projects be rejected in the future?
There are industries and activities, such as coal-based energy production, that the Austrian banking group has already declared will not be available in the portfolio from 2030. This means that we are not financing such projects now that extend beyond this date.
If you are considering energy efficiency or other green developments, contact us at one of the following links >>
Source: portfolio.hu
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