“Bank of Cyprus has already come a considerable distance in our ESG journey. We have an “A” rating from MSCI, which is the global benchmark for ESG. The company also began a few years ago to evolve into a more mature model in our charitable work. We now focus on generating social capital through long-term partnerships and structured cooperation with other organizations, including businesses, clients, NGOs and the state.
We now apply those same values to investments and products – we have “green” loans and we have started investing in financial products that support ESG values, ”Pavlou explains. “And we plan to take advantage of the opportunities offered by ESG lending and investing. “
The Bank of Cyprus is moving forward, developing policy and products for ESG, Annita Pavlou, head of investor relations and ESG told the Cyprus Mail in an interview.
“We recently formed a sustainable development committee as an executive committee, and the role of this committee is to define the Group’s ESG strategy, monitor its implementation and oversee all initiatives and communication related to the ESG. The committee is chaired by the CEO, which is indicative of our level of attention on the ESG agenda. At the board level, ESG is a standing item on their agenda and has been defined as a clear strategic priority led by the board.
We are the first bank in Cyprus and we have a responsibility towards our community to play a leading role in the ESG field ”, insists Pavlou. “We’re not interested in just doing tick drills; we take a creative and innovative approach because we believe that we have an important role in the ESG agenda, in the interest of the country more broadly. “
Quality is a key issue, Pavlou notes. “There has been too much ‘green-washing’, which means offering investments that seem environmentally friendly but are not in reality. We carefully scrutinize our products and investments to avoid them. The goal is not to look good, but to do good ”.
There is, of course, a radical change underway in the financial services industry. Sustainability is not a public relations exercise, but a business imperative.
The pandemic puts ESG at the forefront
Pavlou notes that the pandemic has also brought ESG issues to the fore.
“I think it was the Covid-19 pandemic that actually caused investors to put more emphasis on ESG. It certainly gave the markets a boost. It forced companies, especially banks, to take action and show progress in this area. Investors wanted to know if companies were supporting stakeholders during the crisis.
In terms of governance and social programs, Bank of Cyprus has always been a leader. We are listed on the London Stock Exchange, which means that we have to comply with very strict rules of governance. We follow best practices in our own corporate governance, and we expect the same to be true of the companies we do business with. And we have a number of important social initiatives.
One program, #SupportCy, brought together 122 organizations, including Bank clients, to form a partnership in support of the formal sector. #SupportCy speaks quite openly about generating Social Capital through a long-term structured partnership of its members. Aside from the important charitable work on the ground, much of the work done has involved support to the formal sector, including the Department of Health, the Department of Education, Emergency Services and the Department of Labor and Social Security.
In addition, the program benefits our participating clients, with whom our relationship is no longer simply transactional, but develops into a partnership for the good of our community.
But other programs are also advancing at a steady pace, such as the IDEA accelerator for startups, the Cultural Foundation and the Oncology Center which treats 60% of all cancer cases in Cyprus.
There is of course increasing pressure from regulators to take ESG risks into account. How does climate change affect a company’s operations? Is the company working on the transition to renewable energies? Do they have ESG compliance within their supply chains? These are all risks that financial services companies – as well as companies in many other industries – must seriously consider. The pressure is also coming from shareholders who believe that managing ESG issues leads to a long-term increase in shareholder value as well as of the company as a whole.
New products for young customers
Pavlou explains that the Bank has started this year to develop new ESG-compliant products, which it says will be launched by the end of 2021.
“We are currently considering a number of these products and plan to launch them by the end of the year. For example, we are developing more “green loans”, in the sense that they offer special conditions to finance sustainability projects. If you want to renovate your home to make it energy efficient, or if you want to install solar panels, or if you want to buy an electric car or renovate your business premises to make them energy efficient, here are the types of loans that we plan to launch very soon.
Then we have private banking clients who want to make investments, but they want to make sure that the money is used for ESG projects. We seek to ensure that we offer products that are linked to ESG strategy and objectives. It is an activity that has become very popular in Europe. And investors looking for solid returns are increasingly turning to “green bonds,” which are fixed income instruments that raise funds for environmentally friendly businesses and projects. We will also consider integrating our ESG ambitions into our financing strategy and the issuance of green bonds.
“This,” says Pavlou, “indicates how quickly the financial services industry is moving towards ESG support. “
“This is an entirely new type of economy, supported by both business and government. We understand that the Cypriot government has the mandate to steer the country towards the green economy. We can handle this burden.
We also make sure to align our approach with that of the state. Political leaders have been active both in environmental legislation and in the footprint of many sectors of the economy, including the banking sector. “
The Cypriot government recently launched its European Recovery Fund strategy which involves a major adaptation of the EU’s “Green Deal”. Cyprus seeks to become a leader in the evolution towards a digital and green economy. This will involve the banks as they will help provide interim financing for the projects and support the guarantee activities.
“And it’s a great example of how ESG investing offers opportunities,” Pavlou emphasizes. “There will be many such opportunities as our country’s ecosystem is transformed by the Green Deal. “
Customer service is always the priority
For Pavlou, part of the challenge is working with clients and helping them adjust to this new economy. How to help your clients mitigate the impact of climate change and the challenges it poses.
“Again, this opens up new opportunities. We are not only a major supporter of ESG finance, we are also a key enabler of the digital economy. These two activities are closely linked to the Bank of Cyprus ”, continues Pavlou.
“Digital transformation is also an important part of ESG, as it gives access and visibility to our products to all stakeholders. We have to make sure that we offer this chance to everyone in Cyprus. So, for the Bank of Cyprus, the digital agenda is closely linked to ESG. This translates into better, cheaper and safer products and services that are accessible to everyone. “
How would that work, in terms of ESG finance? Would information on a given loan or type of investment be readily available through electronic channels?
“This would give us the opportunity to communicate the value of our ESG offering. Customers, and everyone else, could see that we are making sustainable choices in our investments and our products. And then people will say, “yes, I want to invest with you because you share our values.
Of course, regulators and rating agencies also demand increased transparency in banks’ ESG activity.
What percentage of your loans are green? What is the green asset ratio? Do you have a target? Where do you want to go? Do you have KPIs related to ESG? We are asked these questions, and there are other measures as well.
Banks are expected to educate the market on the impact of their loan portfolio on the environment, and identify areas or sectors of the economy that they believe will have the greatest impact on climate change – and explain how they really intend to help their customers. adopt more sustainable business practices.
ESG investing usually requires a lot of data and intelligence, says Pavlou.
“Maybe you want to take out a loan for a solar power generator. And you find that the company in question is not qualified for technical reasons, because there are specific eligibility criteria that must be met. A bank must be able to analyze and identify which loans and to which types of clients are considered eligible for the ESG classification. Then we will design specific products for these criteria. We currently have products that have been entirely designed for green renovation credit, for green energy credits, for the purchase of heating systems based on renewable energies, business renovation credits, etc.
But, as we move forward in this process, we discover opportunities. For example, if customers are forced to build sustainable buildings for corporate customers, then we have a green loan opportunity. If the Stimulus Fund projects, which are not financed by European funds until they are completed, require an intermediate investment, then we have an opportunity. As the green transformation unfolds, we will find more and more opportunities for sustainable finance.
It is the new economy towards which we are gradually moving. As I said, it’s a new world, for everyone, and for Cyprus in particular, and the Bank of Cyprus aspired to be a leading player in this new journey, ”concludes Pavlou.