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ESG also Vital for Banking

Transitioning to a green agenda means adopting sound ESG practices throughout the economy, but it also means companies and financial institutions actively considering their environmental and social impact

As part of the upcoming ESG Adria Summit, the IFC is organising a capacity building event for banking associations from the Western Balkans intended to help deepen their knowledge of ESG and sustainable finance, and here the IFC’s Nicolas Marquier explains why ESG practices are so important.

The Government of Serbia has made transitioning to a green agenda one of its priorities. What does that mean for us?

― The Serbian government’s commitment to the green agenda included issuing the landmark Green Bond Framework in 2021 and strengthening ESG practices and capital market disclosures.

By definition, the transition to a green agenda means adopting sound ESG practices throughout the economy, but it also means companies and financial institutions actively considering their environmental and social impact. Adopting sound ESG practices is also good for business, as it helps organisations to manage risk and to provide safe and appropriate goods and services, and to do so without causing undue harm to the environment.

Serbia has also adopted some European Union ESG reporting standards, stemming from the Law on Accounting, which obliges companies that have 500 or more employees to make ESG disclosures. While the EU’s ESG rules mainly target financial institutions within the EU, Serbian firms and banks are indirectly impacted because of their EU parent firms and banks, services offered in the EU, and market pressures.

Serbia has also adopted some of the EU’s ESG reporting standards, obliging companies with 500 or more employees to make ESG disclosures

Many banks in Serbia are driven by these EU parent banks, which are mandated to adopt ESG practices like the Sustainable Finance Disclosure Regulation (SFDR). This requires financial institutions to incorporate ESG factors when making investment decisions. The EU’s new Corporate Sustainability Reporting Directive also mandates a broader range of companies (including banks) to disclose detailed sustainability information to support the SFDR’s data needs.

Does the Sustainable Banking and Finance Network (SBFN) include regulators and banking associations that operate in all countries of the region?

― The SBFN actively promotes exchanges of views and ideas among members. It also shares technical resources to promote sustainable finance across financial markets, including capital markets, institutional investment and insurance.

Have there been more specific activities to encourage the application of ESG practices in Serbia’s banking sector?

― The ASB [Association of Serbian Banks], with IFC support, developed and finalised its new Sustainable Finance Guidelines, which were published on 11th March. These guidelines are based on the contributions of member banks of the ASB’s Sustainable Finance Working Group and build upon the results of a survey developed in partnership with the ASB and distributed to Serbian banks in early 2023.

As the first voluntary ESG guidelines issued by an SBFN member in the region, they represent a milestone and provide Serbia’s financial institutions with sound guidance on incorporating ESG principles into their business activities. The fact that they are voluntary and result from the suggestions and contributions of member banks, rather than a regulatory push, also means many more banks are likely to follow through.

Experience from other SBFN members shows that industry association initiatives like this one can also motivate regulators to initiate changes, because they highlight the sector’s commitment to adopting sustainable finance and ESG practices.

IFC Europe and Central Asia’s Integrated ESG Advisory Programme, in partnership with the Swiss State Secretariat for Economic Affairs, SECO, is also working to improve financial sector efficiency by building sustainable financial markets that factor ESG into capital allocation and encourage SBFN participation. ∙

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