Banks remain on the path of green transformation, despite additional challenges

Green finance in Poland, edition 3

Report
10 minute read
February 15, 2024

ESG, i.e. Environmental, Social, Governance (ESG) issues, have already become part of the reality of the operations of financial institutions in Poland.

Implementing the Paris Agreement, the Green Deal, together with other political declarations, paves the path to achieving climate neutrality of the European economy, including zero-carbon EU by 2050. To realise these goals, a redirection of capital flows towards more sustainable investments is needed. This is reflected in the current and emerging regulatory requirements and ESG guidelines for the European financial sector, which put pressure on the industry playing a leading role in financing the ‘green transition’. The regulations that are being introduced are also impacting with increasing force on banks operating in our country.

What does environmental and social transformation look like from the perspective of banks operating in Poland? What are the biggest challenges they face? We will answer these questions for the third time, in the Green Finance Report, based on the results of a survey conducted among banks in Poland.

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83%

of banks plan to expand product offerings in sustainable finance.

2/12

institutions surveyed plan to raise the cost to the customer when financing so-called ‘dirty’ investments or activities.

75%

say they are introducing additional services to support their customers' transformation.

Przemysław Paprotny
Partner, PwC CEE Financial Services Leader, PwC Poland

Piotr Bednarski
Director, PwC Poland

Dorota Hutny
Senior manager, PwC Poland

This year’s survey brings with it three main conclusions. Firstly, it confirms the willingness of Polish banks to support their clients in the green transition. Not only do these institutions plan to expand their offerings with further sustainable products (e.g. loans for investments supporting taxonomic climate goals), but also to actively cooperate with clients on ESG-related topics, for example through various additional services.

Secondly, the risk of banks raising the cost of financing so-called ‘dirty’ investments or activities is already flagging. For the time being, only 2 out of 12 respondents are talking about this, but as recently as 2022, no bank was considering such an option. The vast majority of institutions, however, still prefer an incentive system that promotes more sustainable solutions.

Thirdly, the current geopolitical situation, including the prolonged war in Ukraine, is resulting in a different view from last year’s banks on the possibility of changing existing plans and the intensity of assumed ESG work. This determination is simply less. Nevertheless, still the majority of institutions (60%) do not expect the current conditions to affect the planned work within the adopted ESG strategies.

Approach to risk management and ESG strategy

As methods of identifying and estimating the impact of ESG factors on financial institutions’ risk profile and long-term business resilience continue to develop, as well as increasing regulatory pressure in this area, it is becoming more and more important for banks to systematically integrate ESG factors into their risk management processes.

For the purposes of managing ESG risks and shaping business strategy, banks operating in Poland use a broad spectrum of methods and tools, with the vast majority of them using at least three different tools:

1

Policies limiting funding for activities considered controversial in the context of sustainable development (for example, those in high-carbon sectors or those related to the arms industry) introduced by 92% of the banks surveyed.

2

Tailored product offering to help clients make the transition to a sustainable economy, implemented by 83% of respondents.

3

The approach of actively working with clients on their transition (75% of those surveyed).

This approach has been present for several years in foreign banks, e.g. in the Scandinavian countries, which work closely with their clients and support them in energy transition processes, the area of clean water, sewage or waste disposal.

What methods/approaches does your institution use to manage ESG risks and guide business strategy?

Exclusion policy

Products and services to help customers make the transition to a sustainable economy

Actively working with clients on their transformation

Establishment of key risk indicators (KRIs) and/or key performance indicators (KPIs) for ESG risks

Targets and limits for key ESG indicators

Plans for sustainable financing

The implementation of supervisory regulations and guidelines and the development of a green product offering are the priority areas on which banks plan to focus their activities in the coming year (75% and 67% of respondents respectively). The implementation of the adopted ESG strategy was indicated in third place (58% of respondents).

These declarations are similar to the results from the previous (2022) edition of our survey (these responses received 75%, 63% and 69% of indications, respectively). This means that, invariably for several years now, the main factors motivating banks to take sustainability measures are increasing legal and regulatory requirements and the desire to improve or maintain their competitive position.

The least votes were given to organisational change initiatives aimed at structuring and strengthening competences in the area of sustainability (e.g. setting up a dedicated unit, a coordinator, etc.) and measures to strengthen the level of internal ESG competences (i.e. training of management, staff and/or recruitment of ESG specialists).

This result is not surprising, as most banks have already established units in charge of specific ESG aspects in previous years (2021-2022) and ensured at least the minimum necessary level of competence (through training or recruitment of specialists). While the situation in the sustainability training market has improved compared to previous years (the number of training providers and the variety of training offerings are increasing), the labour market still lacks specialists who have both a pragmatic approach to ambitious ESG goals and a good understanding of the banking business and climate risk management, which puts additional upward pressure on salaries.

Please identify 3 key areas of sustainable funding that your institution plans to focus on in the coming year.

Implementation of laws and supervisory guidelines in the area of sustainable development

Development of a green product portfolio

Implementation of the adopted ESG strategy and the objectives set out therein

Educate and encourage suppliers and customers (clients) to implement the best sustainability standards

Development of ESG databases and tools and/or purchase of ESG data (company data, emissions data, ESG ratings, etc.)

Strengthening the level of competence in the ESG area through training of management, staff and / or recruitment of specialists

Organisational changes to structure and strengthen competences in the area of sustainable development (e.g. creation of a dedicated unit, coordinator, etc.)

Sustainable financing offer

The vast majority of respondents (83%) plan to expand their offerings in 2023/2024 with new sustainable finance loan products. Only one bank declared no activity in this area. The banks primarily plan to implement loans for investments aimed at meeting the environmental objectives set out in the Taxonomy, i.e. such as climate change mitigation or adaptation (83%), pollution prevention or the transition to a circular economy, or water protection (42%).

The majority of banks (75%) also declare the implementation of additional services to support customer transformation, which is a considerable improvement compared to 2022 (by 25 percentage points). In view of the difficulties and transformational challenges facing the Polish economy, this course of action for banks seems very necessary. In the context of customer support activities, banks are also planning to expand their offerings to include loans with subsidies from national or EU funds to support environmental transformation or the transition to a sustainable economy (58% of surveyed entities).

Investment products complying with the requirements of the Sustainable Finance Disclosure Regulation (SFDR) were indicated relatively infrequently — those aiming at sustainable investments (SFDR Article 9) were selected by two banks and those promoting sustainable investments (SFDR Article 8) by three out of 12 banks.

In which areas does your institution plan to expand its sustainable finance product offering in the coming year?

Loans for investments to mitigate or adapt to climate change, according to the criteria set out in the Taxonomy

Additional services to support customer transformation towards a sustainable development

Loans with subsidies from national or EU funds to support environmental transformation or the transition to a sustainable economy

Loans for investments aimed at pollution prevention or the transition to a closed-loop economy or the protection of water resources, according to the criteria set out in the Taxonomy

Investment products that promote sustainable investment (meeting the requirements of Article 8 of the SFDR)

Investment products aimed at sustainable investments (meeting the requirements of Article 9 of the SFDR)

We have no plans to expand our sustainable finance product offering in the coming year

Loans for investments to maintain or restore biodiversity, according to the criteria set out in the Taxonomy

About report

This report presents the results of a survey conducted among banks in Poland by PwC from July to September 2023. Representatives of 12 banks (banking groups), representing approximately 66% of the total balance sheet of the Polish banking sector, participated in the survey.