The second workshop on environmental risk management organised for credit institutions by the Croatian National Bank was held on 9 June 2022. Along with the representatives of credit institutions, more than a hundred workshop participants included the representatives of the Croatian Bank for Reconstruction and Development (HBOR), the Financial Agency (FINA), the Croatian Financial Services Supervisory Agency (HANFA) and the Croatian Banking Association (CBA).
Sanja Petrinić Turković, the Executive Director of the CNB’s Prudential Regulation and Methodology Area, presented regulatory requirements within the domain of credit institutions’ public disclosures on environmental risk management. The presentation was followed by a discussion on the challenges linked to the requirement for the disclosure of banks' key performance indicators in the segment of environmental risk management, such as, for example, the Green Asset Ratio (GAR) and the Banking Book Taxonomy Alignment Ratio (BTAR).
Marko Krištof of the Financial Agency presented FINA’s plans to strengthen its role of a supporting financial institution and continue monitoring relevant regulations regarding the reporting of undertakings. Since Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR) requires the collection of similar data, and the reporting obligation enters into force on 1 January 2023, FINA has initiated the development of a platform to ensure that environmental, social or governance (ESG) data, provided by undertakings and required by banks, are collected and exchanged through a single system. Krištof pointed out that FINA also intends to develop a methodology for the calculation of the ESG score, which may be very useful to small banks. Such a score, developed based on the data provided by Croatian undertakings, would better reflect the risk in this area.
As one of the key steps in launching this platform, the CBA is working on harmonising the questionnaire submitted by banks to their clients in order to collect data on the clients’ exposure to ESG risks, which should be harmonised by the end of June of the current year. The questionnaire, or data that will be collected based on the questionnaire, should allow the risk management function at banks to make adequate decisions. Also, more favourable lending terms will be offered to clients contributing to decarbonisation through their activities whose results meet eligible criteria. The CBA's representative, Ksenija Linarić, emphasised that the financial sector, and banks in particular, are expected to be the lever of sustainable development and, in order to accomplish this, banks should develop environmentally and socially responsible products.
HBOR’s representatives Hrvoje Galičić and Hrvoje Sučić gave a detailed presentation of the instruments through which HBOR intends to allocate HRK 1.925bn within the scope of the implementation of the National Recovery and Resilience Plan (NRRP). HBOR plans to place as much as HRK 1.2bn of the funds through two basic instruments: the financial instrument of interest rate subsidies and the umbrella guarantee financial instrument. Banks are also expected to take part in the implementation. As a minimum, the condition that the project does no significant harm to the environmental objectives (compliance with the DNSH criteria) is the key precondition for the withdrawal of the funds set by the European Commission. Even higher amounts of interest rate subsidies and guarantee coverage are foreseen for projects that comply with the substantial contribution criteria, thus making a positive contribution to at least one of the six environmental objectives. For this purpose, detailed questionnaires have been prepared that are primarily used to verify whether conditions are met at the level of the individual project. The questionnaires will be complemented with data on undertakings planning to exchange information through the platform developed by FINA. HBOR has adequate resources that at the initial stages of the NRRP implementation may also provide support to the banks that decide to finance such projects through HBOR’s instruments. The possibility for banks to carry out independent environmental and climate-related analyses directly is envisaged at a later stage of the implementation of the financial instruments.
At the closing panel discussion banks were also informed about regulatory requirements and good practices in the segment of the development of environmental risk management strategies and policies and proportionality ensured for small banks. During the panel discussion, the representative of Hrvatska poštanska banka (HPB), Nikolina Kolarić, presented the activities HPB is undertaking in order to set up the ESG risk management system. Last year the bank launched a project to integrate ESG factors into the bank’s operations. Six relevant industry sectors were identified as the key drivers of ESG risks for the bank. The bank plans to manage them through the governance processes of the Sustainable Development Office established for this purpose and supported by resources with adequate specific knowledge. The banks' measuring and reporting on scope 3 emissions was emphasised as the main challenge resulting from the activity of the assets that are not in the ownership or under the control of the reporting bank, but on which the bank has indirect impact in its value chain, primarily through lending and investing. The largest contribution to facing this challenge will come from the exchange of harmonised data on the ESG risks of corporations, which is planned to be set up through FINA.
The opportunity for a significant economic development provided by the NRRP is based on banks' good ESG risk management and a proper identification and exchange of information on ESG risks at corporations. The success of the programme requires the cooperation of all stakeholders: banks, regulators, state agencies and undertakings.