ACRA has assigned the ESG rating ESG-AA, level ESG-2 to Center-invest Bank (hereinafter, Center-invest, or the Bank), which corresponds to a very high assessment in the field of the environment, social responsibility, and governance.
According to the Methodology for Assigning ESG Ratings, a very high assessment in the field of the environment, social responsibility, and governance means that the Company pays increased attention to environmental, social responsibility, and governance matters.
Center-invest has policies, procedures and individual measurable performance indicators in the field of managing key industry ESG risks, a high level of compliance with best practices, as well as the presence of green, adaptation and social projects in the structure of the Bank’s loan portfolio.
Center-invest is an organically expanding regional bank that is among the 100 largest banks in Russia. It operates mainly in the Southern Federal District. Key business areas include providing consumer lending, mainly mortgage loans, and lending to SMEs, mostly agribusinesses. Center-invest has been active in promoting ESG principles in its key region of presence, and was among the first banks in Russia to start developing ESG banking.
KEY ASSESSMENT FACTORS
Center-invest’s key area of business is retail lending; mortgage loans bear a significant weight (almost 60% of the portfolio of loans issued to legal entities and part of the loans issued to individuals1 assessed by ACRA) in the assessment of the portfolio’s environmental and social risks. At the same time, this class of loans is dominated by standard mortgages, issued either for housing with an energy efficiency class below A, or for housing that does not have an energy efficiency rating. The share of so-called green mortgages issued to obtain housing with energy efficiency classes A to A++ accounted for 0.44% in the Bank’s asset portfolio as of February 1, 2024, which was analyzed by the Agency.
Car loans issued to individuals account for 1% of the Bank’s portfolio analyzed by ACRA, however, during the rating interview, Center-invest stated that it is considering the possibility of assessing the carbon footprint of its car loan portfolio.
Most of the Bank’s corporate loan portfolio analyzed by the Agency consists of loans issued to companies that operate in industries with low environment risk as per ACRA’s Methodology for Assigning ESG Ratings and Appendix 22 thereto (55.85% as of February 1, 2024); 26.97% of the corporate loan portfolio is represented by loans to companies belonging to industries with a medium level of environmental risk; industries with a high level of environmental risk account for 11.48% of the corporate loan portfolio. Sectors in which the Bank finances green projects that meet the criteria of the national taxonomy account for 5.66% of the corporate loan portfolio.
Center-invest is characterized by a fairly high level of environmental risk management. The Bank has developed top-tier documents for all relevant environmental risks. In addition, the Bank provided the Agency with a description of the activities carried out as part of monitoring and minimizing these risks. ACRA notes that risk management issues associated with irrational waste and water management, irrational paper consumption, as well as physical climate risks are also described in the Bank’s general strategy, which indicates the high priority of environmental protection issues in Center-invest’s business model.
Separately, the Agency notes the fact that for all assessed risks, Center-invest carries out actions to minimize these risks. In particular, the Bank is actively involved in the climate agenda and pays attention to its own energy efficiency — 47 kW solar panels are installed on the roof of its head office and the Bank annually purchases green certificates (the share of renewable energy sources within the Bank’s own consumption is 40%). In addition, Center-invest has approved programs for the collection of used batteries and waste paper.
At the same time, the Agency notes that the Bank has not developed internal regulatory documents (IRDs) to manage part of its risks. These risks include transitional climate risks and risks of unsustainable use of water resources. In addition, the Bank has not yet set any key performance indicators (KPIs) for monitoring the quality of management for any of the environmental risks analyzed in this section.
The level of elaboration of the issues of integrating the environmental agenda into the Center-invest’s business processes is very high — according to ACRA’s Methodology for Assigning ESG Ratings and Appendix 2 thereto, 95% of the factors included in the Bank’s analysis correspond to the best global practices. The Bank was one of the first in Russia to include in its procedures the verification of clients and projects for compliance with environmental protection requirements, continuously monitor environmental and climate risks at the level of the credit risk division, and was also the first financial institution in the country to issue green bonds in the Sustainable Development Sector of the Moscow Exchange. The has Bank developed and approved an exclusion list of industries and a list of priority green projects that meet the criteria of the national taxonomy.
The Bank has developed several special green products, including a green mortgage for individuals and legal entities, a green deposit (all funds of depositors are spent solely on projects that seek to achieve the UN’s Sustainable Development Goals and the goals of national projects), and also introduced lending for projects aimed at improving energy efficiency.
The Bank is carrying out systematic work with stakeholders and the expert community in the field of sustainable development, maintaining interaction with GABV3 and the UNEP FI4, and has partnerships with scientific and educational center South of Russia regarding the establishment of an ESG expert assessment center. The only practice in the field of environmental protection that the Bank did not have at the time of rating analysis was certification of the environmental management system (ISO 14001).
Additionally, during the analysis of the Environment block as part of the assessment of best practices, ACRA applied the following positive modifiers: (1) the Bank’s experience in issuing green bonds; (2) implementation of the green office program; (3) joining environmental initiatives; (4) participation in public actions in support of the environmental agenda; (5) enabling Bank employees to dispose of separately collected waste.
According to ACRA’s Methodology for Assigning ESG Ratings and Appendix 2 thereto, loans provided to borrowers operating in industries with a high level of social risks accounted for 7.49% of the Bank’s corporate loan portfolio, while borrowers from industries with a medium level of social risks accounted for 62.11%, and borrowers from industries with a low level of social risks accounted for 30.14% as of February 1, 2024. Industries that finance social projects that meet the criteria of the national taxonomy, for which the Agency has assigned a very low level of social risk, occupied 0.24% of the total corporate loan portfolio.
Center-invest’s assessments of its own social risks range from very high to high. The Bank provided the Agency with top-tier documents and IRD on managing all social risks, as well as a description of measures to minimize all analyzed social risks.
In the Agency’s opinion, the Bank has elaborated in most detail the risks of Lack or Loss of Qualified Personnel and Aggressive and Unethical Marketing, including Misselling, as well as Labor Protection and Industrial Safety Risks, since for them, in addition to documents and a set of measures to prevent and mitigate relevant risks, KPIs have been approved. For the remaining risks analyzed within this block, Center-Invest at the time of the rating analysis did not set itself measurable target indicators for the effectiveness of risk management, which constrains the assessment for this block.
The Bank has implemented most of the best social responsibility practices characteristic of credit institutions — according to the Methodology for Assigning ESG Ratings and Appendix 2 thereto, 86% of the factors correspond to the best ESG practices. Center-invest has drawn up explicit regulations on human rights and business ethics, which include, among other things, provisions for the prevention of discrimination and sexual harassment at work.
Center-invest pays due attention to personnel management issues — the Bank has its own human resources development program, and it has concluded strategic cooperation agreements with the largest universities in the Southern Federal District in order to maintain a personnel reserve. The Bank aims to create favorable working conditions — the voluntary medical insurance program is available to all employees and there is an extensive parenting support program (in particular, there is a kindergarten for employees’ children).
The Bank participates in government programs aimed at increasing the availability of financial products to individuals (rural mortgages, mortgage loans for residents of the new territories, mortgages for IT specialists, family mortgages), and also offers special financial products with preferential loan rates to socially vulnerable groups of citizens (preferential cards for students and retirees, preferential loans for medical workers and for women engaged in entrepreneurial activities).
At the time of the Agency’s rating analysis, the best social responsibility practices that have not been implemented by the Bank were: (1) presence of a trade union or other representative body of employees; (2) availability of a women’s leadership program; (3) availability of inclusive programs.
In the Social Responsibility block, ACRA has applied the following positive modifiers: (1) high percentage of employees undergoing training; (2) high percentage of women among the Bank’s management; (3) high percentage of women in the board of directors.
The Agency rather highly assesses the quality of the Bank’s corporate governance. Center-invest received high scores for the work experience of its board members and the stability of the board’s membership. ACRA assesses the independence of the Bank’s board of directors, the concentration of shareholder ownership, and the management strategy as moderately high. The Agency also assesses the quality of information disclosure as moderately high — for more than two years in a row, the Bank has been issuing non-financial reports that take into account the Global Reporting Initiative (GRI) standards but do not fully comply with them.
An additional analytical adjustment was applied by ACRA for the Bank’s practice of assigning internal ESG ratings to its borrowers.
Center-invest has received very high scores for most of the corporate governance risks. All risks analyzed within the block are outlined in top-tier documents, and the Bank regularly carries out measures aimed at minimizing them.
In the Agency’s opinion, Center-invest pays special attention to personal data protection and information security, follows digitalization trends, and monitors the business reputation of its managers and shareholders. The Bank has detailed standards for managing the risks of proceeds from crime, strategy risks, and risks associated with the preparation and audit of financial statements. The Bank has received the highest scores for all these risks since it presented relevant key top-tier documents, internal policies, descriptions of measures taken, and KPIs to the Agency.
For the following risks, the scores were not the highest in view of the absence of duly established performance indicators: (1) corruption risks; (2) business ethics risks; (3) risks of conflict between shareholders; (4) risks related to the protection of shareholders’ rights. For the rest of the corporate governance risks within the analyzed block, the Bank received moderate scores in accordance with the Methodology for Assigning ESG Ratings and Appendix 2 thereto, due to the lack of IRDs for managing these risks and corresponding KPIs. The risk of monopoly position and market collusion is recognized by the Agency as irrelevant for the Bank.
In ACRA’s opinion, Center-invest demonstrates a fairly high level of compliance with the best international corporate governance practices. 81% of the factors in this block correspond to the best ESG practices, according to the Methodology for Assigning ESG Ratings and Appendix 2 thereto. The Bank has drawn up relevant internal documents, established connections between the board of directors and departments in charge of compliance, internal audit and risk management, has a policy on related-party transactions, and a disclosed dividend policy. The Bank also has a corporate secretary.
The Agency notes the priority of ESG matters for the Bank: its ESG strategy is part of the overall strategy, which is emphasized in its title: 2022–2024 Strategy: ESG Digitalization 2.0.
At the time of the rating analysis, the Bank did not disclose the description of ESG risks and risk appetite for them in its annual reports, and the remuneration committee included not only independent directors. In addition, ESG-linked KPIs had not been established for the Bank’s top managers.
ACRA considers the best practices in such factors as Assessment of the Quality of the Work of the Board of Directors and Disclosure of Information About Owner(s) to be irrelevant for the Bank in light of the relevant decisions of the Bank of Russia. In addition, the factor Hotline for Minority Shareholders, in the Agency’s view, is irrelevant due to the specifics of the Bank’s business.
The assessment of the quality of corporate governance was adjusted by the following positive modifiers: (1) integration of ESG factors into the credit analysis of borrowers and Bank-funded projects; (2) directors who are members of the ESG committee have degrees and work experience in areas related to environment (including climate change) or social responsibility.
Negative modifiers were applied by the Agency for (1) lack of an audit opinion on non-financial statements, and (2) presence of offshore entities among the Bank’s owners.
1 The Bank’s portfolio was assessed based on information on the industry structure of the portfolio of loans issued to legal entities (including small and medium-sized businesses), as well as data on mortgage and car loans issued to individuals.
2 https://www.acra-ratings.ru/upload/iblock/meth/20240322_ESG%20Methodology_Appendix_Financial.pdf
3 The Global Alliance for Banking on Values is an independent association of ‘values-based banks’ whose shared mission is to use finance to achieve positive environmental, social and corporate governance results.
4 United Nations Environment Programme Finance Initiative
KEY ASSUMPTIONS
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Information provided by the Bank in ACRA’s questionnaire and reflected in the non-financial reports for 2022 is reliable.
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Information on the portfolio of legal entities and individuals as of February 1, 2024 provided by the Bank in ACRA’s questionnaire is reliable.
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Risk levels for 10% of the Bank’s corporate and SME loan portfolio were calculated taking into account the approaches outlines in Appendix 1 of Appendix 2 of the Methodology for Assigning ESG Ratings, but using analytical adjustments.
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Mortgage loans granted to borrowers to buy apartments in energy efficiency class А to А++ apartment blocks were reclassified from the category of products with low environmental risk level to the category of green products/projects on the basis of Clause 3.5 of Decree of the Government of the Russian Federation No. 1587 dated September 21, 2021.
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For mortgage loans used by borrowers to buy apartments in energy efficiency class B apartment blocks, the score for environmental risk was adjusted to two notches.
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The share of green and adaptation projects in the Bank’s loan portfolio was 5.66% of the total corporate loan portfolio as of March 1, 2024.
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The share of social projects in the Bank’s loan portfolio is 0.24% of the total corporate loan portfolio.
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In addition, the Agency analyzed the car loan portfolio as of February 1, 2024.
RATING COMPONENTS
Final ESG rating: ESG-AA.
Final level: ESG-2.
ESG rating determination: very high assessment in the field of environment, social responsibility and governance. Increased attention is paid to the environment, social responsibility and governance matters.
E assessment: ESG-4.
S assessment: ESG-2.
G assessment: ESG-1.
additional information
The ESG rating has been assigned in accordance with the Methodology for Assigning ESG Ratings and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
An ESG rating has been assigned to Center-invest Bank for the first time. The ESG rating is expected to be revised within one year from the publication date of this press release.
The ESG rating was assigned based on data provided by Center-invest Bank, information from publicly available sources, and ACRA’s databases.
The ESG rating is solicited and Center-Invest Bank participated its assignment.
In assigning the ESG rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodology.
No conflicts of interest were discovered in the course of the assessment process.
The assigned ESG rating is not a credit rating.
