How will ESG change the banking sector and corporate financing?Download the report
The term ‘ESG’ (Environmental, Social, Governance), i.e. all aspects related to environmental, social and corporate governance, is becoming increasingly important for the companies, financial institutions, but also broader economy. The wave of regulatory requirements in the EU, growing awareness among consumers and the increasing market pressure from investors shifting towards ‘green’ investments are the game changers in the financial markets.
Although ESG principles apply to the whole economy, the magnitude of impact will differ among industries. For example the banking industry, although not being a top contributor to CO2 emissions, will play a critical role in the process of economy and energy transition. Banks will adjust their credit policies to support redirecting the funds from carbon-heavy towards more efficient and sustainable industries.
Are the Polish banks ready for the new ESG requirements?
Our report presents a comprehensive view on the level of preparedness, based on an anonymous survey conducted in March 2021. The survey represents the views of 14 banks with ~80 percent of the total banking sector assets in Poland.
80% banków komercyjnych
of the commercial banks surveyed have introduced elements of sustainable financing in their business strategies and product offer
of surveyed banks made a general assessment of compliance with current ESG requirements and estimated their impact on business
12 out of 14 banków
of the surveyed banks take climate and environmental risks into account in the lending processes, mainly to selected industries and sectors
of the banks surveyed declared that they are currently in the process of implementing the requirements
"“The survey proves that 80% of the banks have already introduced components of sustainable finance in their business strategies and the product shelf. However, we should expect a wave of further changes such as climate and environmental risks factors embedded into the credit assessment models. This will inevitably drive the change in the lending process as well as availability of funding to selected industries and sectors.
In summary, ESG is an important signal for companies preparing for investments and searching for funding. ESG will drive the availability and cost of funding and increase the disclosure requirements of banks towards companies.
Interestingly, the vast majority of banks that participated in our survey perceive the emerging ESG regulatory requirements positively – as an opportunity for the whole banking sector and the economy."
PwC partner, financial services leader in PwC Poland
PwC director in the financial sector servicess
PwC expert in the financial sector services team
Almost 80% of the banks surveyed have already introduced elements of sustainable financing in their business strategies and product offer. Many institutions have not yet introduced elements of sustainable financing in the following areas: product pricing (86% of institutions have not introduced any ESG elements) and risk identification and assessment, stress testing, and the ICAAP process (71% of institutions have not introduced any ESG elements).
In addition to the areas mentioned in the survey, it was indicated that elements of sustainable financing were also introduced in:
In business strategy/operating strategy
In the product offer
In the organizational structure
In the process of risk identification and assessment, ST, ICAAP
In credit assessment processes
In product pricing
For selected industries/ sectors
For the largest strategic customers
For all customers, in proportion to the risks
Only two of the 14 institutions do not currently incorporate climate and environmental risks in their lending processes, however, they plan to introduce such a process next year. Most often climate and environmental risks are taken into account in the lending process for selected industries or sectors. Interviews conducted with banks indicate that these include the energy sector, and mining (mines), heavy industries and chemical industries.
One of the institutions surveyed declared that it currently accounts for climate and environmental risks in lending processes for all customers in proportion to the risk level. The “Other” category includes processes such as repurchase of receivables from leases granted for renewable energy projects (photovoltaics) and granting loans related to thermo-modernization.
According to the institutions surveyed, the biggest challenges posed by the requirements to include ESG factors into the risk framework are:
More than half of the institutions (57%) also see inadequacies in banks’ IT systems or internal processes as a significant challenge in relation to the requirements to include ESG factors into the risk framework. Almost 40% see the risk of an exceedingly mechanical implementation of the ESG legislation through the EU regulations of the European Commission rather than EU directives, which may lead to insufficient consideration of the negative effects of local implementation of the ESG regulations for the banks’ customers. This could happen as a result of forcing, through the regulations too quickly or too radical ESG transition, or not taking into consideration, among other things, the social costs of the transition, or underestimating the impact of ESG on the competitiveness of the Polish economy (companies, individual customers).
Absence of final, transparent regulations
Absence of/limited access to counterparty ESG data
Low quality of disclosures and counterparty awareness of ESG factors
Lack of knowledge and competences in the institution
Misalignment of systems or processes
Current EC/EP policy for increasingly wider use of the regulations directly applicable in EU Member States
Developing uniform interpretation rules for ESG regulations in the banking sector
Introducing detailed ESG disclosure requirements/guidelines for large enterprises/public companies listed on the WSE
Information and education campaigns addressed to banks’ customers
A sectoral database on ESG risks of banks’ customers
Introducing a certified rating system for the banks’ customers
All the banks surveyed unanimously declared that the development of uniform rules for interpreting ESG regulatory requirements for the banking sector would be useful for the implementation of ESG initiatives. Other useful solutions included:
There were also responses relating to the need to make the requirements for EPC Certificates more consistent throughout the EU and to make it mandatory to have an EPC for each property, and a publicly available database.