OTP Group sustainability efforts among best in world

OTP Group sustainability efforts among best in world

OTP Group has been named the world's best bank for sustainability transparency by Global Finance Magazine. How has the Bank earned this accolade? What are we doing for sustainability? We discussed this with Gergely Pókos, Managing Director of OTP Bank’s Green Programme Directorate. Mr Pókos is one of the speakers at the regional event called ESG Adria Summit in Montenegro in the end of April 2024. OTP Group is a platinum sponsor of the event which is dedicated to environmental, social and governance topics.

Global Finance's recognition is special because for the first time in our Bank's history, OTP has won an award in a global category from one of the most prestigious international financial magazines, taking the title of "Best Bank for Sustainability Transparency".

The jury also recognised the Bank's sustainability achievements in one national and four regional categories (The Best bank for Sustainability Transparency in Central and Eastern Europe for 2024; The Best Bank for Sustainable Project Finance in Central and Eastern Europe for 2024; The Best Bank for Sustainable Financing in Emerging Markets in Central and Eastern Europe for 2024; The Best Bank for ESG-Related Loans in Central and Eastern Europe for 2024; The Best Bank for Sustainable Finance in Hungary for 2024).

This is acknowledgement of the intensive and targeted work that the Banking Group is doing to ensure that sustainability remains in focus across our operations, risk management processes, green portfolio and sponsorship activities.

We asked Gergely Pókos, Managing Director of the Green Programme Directorate, about these efforts, the results achieved so far, and future objectives for the ESG field.

The name of the Global Finance award includes the term sustainability transparency. What exactly does this mean?

Gergely Pókos: I am very proud that we have won this global award for transparency.

The financial services and operation of OTP Group are linked to environmental impacts both directly and indirectly. We manage the environmental risks associated with the provision of financial services as part of our ESG Strategy and publish our results annually in the form of a report. Reporting and sustainable financing go hand in hand, and our bank regularly provides detailed information on its progress.

We adopted our group-wide Sustainable Financee Framework in 2022, in alignment with the broader CSR strategy, which also covers the social pillar of sustainability. Since the creation of the framework, we have been communicating about it transparently.

Transparency also includes communication within our organisation. One of our most valuable steps forward is the ESG training for senior executives. We have also launched an e-learning platform, ESG Magazine, accessible to all employees of the Bank in Hungary.

What has helped staff to achieve these results?

Gergely Pókos: We do not see sustainability as an external obligation imposed on us by law: promoting the transition to sustainable economic operation is part of the responsibility we undertake for the region as a whole.

The key to our success is teamwork: cooperation across banks and at expert level. Although the Green Programme Directorate has a stable but relatively small team of experts, the number of staff in the Bank who are taking ESG into account in their work is increasing. Cooperation between organisational units is essential if we want to perform well internationally.

What activities and processes are covered by the fields for which the Bank has received this regional recognition?

Gergely Pókos: We received four Central and Eastern European regional awards for sustainability: in the categories of transparency, project finance, convergence of emerging markets, and ESG-based lending.

Green finance is a project and/or investment that has a positive impact on environmental sustainability: for example, where a development project contributes to reducing the rate of global warming or improving adaptability to warming. This objective is best supported by projects related to renewable energy production. This type of development may also occur in the residential segment.

Other straightforward cases are corporate or retail loans for the purchase or leasing of battery-only vehicles to promote the spread of electromobility. The situation is more complicated for real estate. It is a generally accepted view in the European Union that the energy efficiency of the building associated with the loan must be assessed, but international practice suggests that additional factors will also be included in assessment in the near future.

It is safe to say that green lending will become more prominent in the coming years, and that biodiversity and natural resource conservation issues will be integrated into green lending practices.

Not only have we reached our 2023 green lending targets, but we are well on track to reach our 2025 target. By November 2023, we had disbursed HUF 617 billion in corporate and retail green loans, more than double the 2022 year-end result.

This year we will be continuing to push for the financing and refinancing of projects that make a clear contribution to establishing a low-carbon and climate change-resilient economy.

How popular are green products with customers? How can you encourage them to use these products?

Gergely Pókos: In the sectors I have just mentioned (energy, transport, real estate investment), we clearly see that there is demand. We keep our customers aware of and informed about the impacts of environmental change and sustainable development. We are also able to support customers with a greater appetite for ESG products over the longer term; furthermore, we are able to provide them with additional flexibility due to the Green Preferential Capital Requirement Programme of the National Bank of Hungary. The latter is another area where we are making progress: last year, we submitted request for green preferential capital requirement discounts in excess of our general market share.

Looking at international trends, OTP Group has increased its green loan portfolio at one of the highest rates in the region over the past two years, and the 2023 report shows that the share of green loans in our loan portfolio is close to 2%, which represents a significant increase.

The Bank's commitment is demonstrated by our dedicated ESG Strategy. What developments have been made in this area recently?

Gergely Pókos: Based on the EU regulatory environment, we have integrated environmental and social considerations into our investment and financing decision-making processes and, more broadly, we pay proper attention to these factors in our own operations. There are three factors we consider important: the state of our green loan portfolio, de-carbonisation of our own operations, and transparency. We have met the targets for our green loan portfolio year after year; the Hungarian banking operation already reached net carbon neutrality in 2022; and international awards are the best feedback in terms of our transparency.

We are continuously improving our risk management practices, and actively working on becoming an adequate financiers for the fight against the impact of climate change: we develop products and processes, prepare our employees to serve our customers well, raise awareness among our customers and build partnerships.

Taking into account the composition of OTP Group's portfolio and its business opportunities, we have added new economic activities related to climate change mitigation and adaptation to climate change impacts to our Green Lending Framework; this framework was set up in 2022 and now covers 51 economic activities in 6 macro sectors.

In 2023, we have also broadened and deepened our ESG approach at Group level, both in business development and risk management.

We are aware that the Bank enjoys significant opportunities, yet carries substantial responsibility: with the right intentions, coherent tools and approach, a high level of professionalism and ambition and an in-depth knowledge of local markets and trends, our institution can become a catalyst of green transition in the region.

What are the main goals you have set for this year at Group level?

Gergely Pókos: Our primary goal is to reach HUF 900 billion in green loans and to prepare a decarbonisation plan for the loan portfolio financed by the Group. This will generate a number of additional tasks for us and for our partners working in adjoining fields. Furthermore, by this year, all OTP Banking Group members will have their own ESG strategy. I have mentioned the ESG training for all employees, but we also aim to raise greater awareness and educate our employees and our wider environment.

We are making steady progress towards achieving our 2025 green targets and decarbonisation goals, while knowing that our reporting obligations are going to become broader and more detailed. By the end of this decade, sustainability assessment and the analysis of the impact of companies on the environment will become as common as financial reporting, and we are at the forefront of this reporting process.

I believe that meeting ESG criteria is a marathon rather than a sprint, and we are still at an early stage in this race. This set of criteria is new, and many are still learning to operate on an ESG basis, including banks. This is both the beauty and the difficulty of the matter.