At what level of ESG transformation (ESG - Еnvironmental, Social, Governance) are Armenian banks, is it necessary to implement a sustainable development strategy and how will ESG principles affect business in the future? We talked about this with Mesrop Hakobyan, CEO of “Unibank” OJSC.

- To what extent do Armenian banks adhere to the ESG agenda? How would you assess the position of the banking sector in this area?

- All our banks follow the ESG criteria to this or that extent. We, like any other large business, realize that in the long term, we cannot develop successfully in isolation from social responsibility and the environment. The Bank as a “citizen” of its country has to contribute to the development of the society in which it operates.

Of course, the practice of reporting in this direction is not yet widespread in Armenia, as well as environmental certification, and ESG ratings, there is no wide range of relevant tools. However, at the same time, we see how the ESG agenda is gaining momentum and the business is gradually, slowly, but “going green”. The changing social values, mindset of the new generation that promotes responsible consumption, rational and efficient use of resources, and care for the environment and society promote this.

It is more risk-oriented, and I would say a moral approach to doing business. Moreover, the introduction of ESG principles into the business processes of any bank or enterprise increases its investment attractiveness and allows it to attract more affordable financing. In the international market, there is a direct correlation between the yield on securities and the company's ESG rating.

As the international experience shows, banks not only implement green projects themselves and pay attention to their own impact on the environment, and maintain high corporate and social business standards, but can and should direct their clients towards ESG.

- That is, in practice, it is banks that are the drivers of ESG development.

- Banks have every opportunity for this. Interesting data was provided by the international organization CDP - banks are indirectly responsible for the harmful emissions of financed enterprises, which are 700 times higher than the direct emissions of the banks themselves.  Provided we assess the clients’ risks and business standards not only by financial indicators, but also by ESG metrics, and bring relevant products to the market, we will be able to involve business in the green agenda. In this case, the real sector will catch up, as the anticipatory ESG transformation in the banking system may complicate access to funds for companies that do not pay enough attention to the principles of sustainable development.

The same applies to retail customers. We can contribute to the popularization of ESG topics, change consumer behavior, and introduce a responsible approach to the choice of services by improving financial literacy.

Last year, the international conference Fintech360 was held in Yerevan with the assistance of Unibank. A discussion panel was devoted to the topic of sustainable development, where we discussed the prospects for the development of green finance and tried to answer the question: is ESG a hype or a sustainable trend? As a result, experts from different countries came to the conclusion that the model, which puts the interests of shareholders at the forefront, is beginning to give way to stakeholder management, which takes into account a wider scope of interested parties.

This trend is already coming to Armenia too. Banks and other large companies that fail to meet investor expectations on environmental, social, and governance factors risk losing access to global capital markets and international cooperation.

- What work does Unibank do to comply with the ESG requirements?

- We do not just strive to be as eco-friendly as possible, but we are systematically developing all three areas of ESG, i.e. ecology, social policy, and corporate governance.

Based on the specifics of banking, first of all, the emphasis in the bank was placed on social and managerial responsibility, which means taking care of customers, employees, partners... Our corporate principles are based on international standards.

Social and governance risk assessment is also already integrated into our overall risk management system. These include compliance with labor legislation, improvement of working conditions, availability of bonus systems, motivation and indexation of employees' salaries, health insurance, diversity management, and the absence of any gender-related restrictions.

We support the development of women's entrepreneurship, and we actively lend to projects in the field of renewable energy and energy efficiency, and modernization of production to reduce waste.

Now for us the priority of environmental direction is also rapidly growing. The Bank has already implemented an Environmental and Social Management System (ESMS), developed under the leadership of the International Finance Corporation, and has converted its data center to solar power for decarbonization. Our car fleet has been converted to electric vehicles, we are introducing eco-friendly office supplies. Thanks to digital technologies in Unibank, we have significantly reduced paper consumption and switched to electronic document management in the bank's internal communications.

We actively support social and green projects aimed at improving the ecological landscape. One of the most large-scale projects recently, in which Unibank, along with all commercial banks, the Central Bank, and the Union of Banks of Armenia, in cooperation with My Forest Armenia, took part, is the laying of a new forest with an area of 50 hectares in the Jrashen and Urasar communities in Lori. We are talking about planting 160,000 trees.

Our next step is to issue green bonds. We have already successfully completed the development of the Unibank Green Bond Framework concept.

Sustainalytics, the leading analytical company in the field of ESG, provided the second party opinion on the concept of issuing green bonds of Unibank and confirmed that it aligns with the core components of the Green Bond Principles 2021. The attracted investments will be directed to finance projects in Armenia in the areas of energy efficiency, rational use of natural resources in agriculture, purification of water resources.

This year, we are planning intensive work on internal regulatory policy and the formation of strategic documents, which will allow us to structure our activities in this direction.

- Does Unibank take into account the degree of commitment of borrowers to the principles of ESG at this stage?
 
- Loan portfolio of Unibank today is about 130 billion drams, more than 85% of which complies with “green” financing. When evaluating the client's activities, along with traditional financial analysis, we began to introduce parameters by which we take into account the social and environmental impact of business on the environment. To encourage borrowers to build their businesses on the basis of ESG principles, we have included interest rate differentiation in the bank's loan programs depending on the level of ESG commitment. This is not yet widespread, everything is at the test stage. The market for ESG products in Armenia is just emerging. And at this stage, it is important to define common "green" criteria in order to avoid greenwashing.

The need to pay special attention to ESG in business will only increase - modern society is willing to vote with its wallet for sustainable production and consumption. This is confirmed by the results of the PwC survey, which was conducted among 325 investors around the world. Almost half of the investors surveyed - 49% - said they were ready to stop investing in companies that ignore ESG issues.