УДК 336.7

Green Banking Practices and Their Impact on the Russian Banking Sector's Sustainability Performance

Максимов Евгений Сергеевич – магистрант кафедры экономики Санкт-Петербургского государственного университета

Abstract: This paper examines the extent to which Russian banks have adopted green banking practices and the impact of these practices on the sector's sustainability performance. By conducting a comprehensive review of existing literature and analyzing data from various sources, author assesses the progress made by Russian banks in implementing green banking initiatives, as well as their effects on environmental, social, and governance (ESG) performance indicators.

Keywords: green banking, sustainability, Russian banking sector, environmental, social, and governance performance.

Introduction

The increasing global awareness of environmental and sustainability issues has led to the emergence of green banking as a critical component of the financial sector. Green banking involves adopting environmentally-friendly practices, providing financial products and services that promote sustainable development, and addressing environmental, social, and governance (ESG) risks [2, p. 176-185]. Despite its potential for enhancing the sustainability of the banking sector, the adoption of green banking practices in Russia remains relatively underexplored. This paper aims to fill this gap by investigating the extent to which Russian banks have adopted green banking practices and their impact on the sector's sustainability performance.

As global awareness of environmental and sustainability issues continues to grow, it is expected that the demand for green banking practices will also increase. In this context, the Russian banking sector has an opportunity to not only improve its sustainability performance but also contribute to the country's transition towards a low-carbon, resource-efficient, and sustainable economy. Moreover, the increased emphasis on sustainability in the global financial system, as demonstrated by the growing number of international sustainability frameworks, guidelines, and regulations, will likely influence the Russian banking sector's approach to green banking. By aligning its practices with international standards and collaborating with other financial institutions, the Russian banking sector can enhance its reputation and attract investments from sustainability-conscious investors.

Literature Review

Green banking, also known as sustainable or ethical banking, has gained increasing prominence in recent years, as financial institutions worldwide recognize the importance of incorporating environmental, social, and governance (ESG) criteria into their business strategies [6]. There several classifications for green banking practices. They can be broadly categorized into two groups: internal practices and external practices [5]. Internal practices involve integrating ESG considerations into a bank's internal operations, such as reducing energy consumption, waste management, and promoting a sustainable corporate culture [5]. External practices involve providing financial products and services that promote sustainable development and addressing ESG risks in lending and investment activities [8]. Sometimes external practices are outlined by products and services, and risk management sole directions [3]. Examples of such practices include energy-efficient infrastructure, eco-friendly loans, and the integration of ESG factors into risk assessments. These practices have been shown to yield both environmental and financial benefits, such as reduced carbon emissions, cost savings, and improved risk management [12].

Studies suggest that the adoption of green banking practices can enhance the sustainability performance of banks. This is achieved by reducing environmental risks, improving resource efficiency, and addressing the social and governance aspects of sustainability [1]. However, the relationship between green banking and sustainability performance remains an area of ongoing research, particularly in emerging markets such as Russia. The Russian banking sector has been relatively slow to adopt green banking practices compared to other countries [10]. This lag can be attributed to various factors, such as low public awareness of sustainable finance, inadequate regulatory frameworks, and a lack of incentives for banks to invest in green initiatives [11, p. 35-44]. Moreover, the Russian banking sector has historically been heavily reliant on fossil fuel investments, which poses a challenge for transitioning towards a more sustainable model [9, p. 39-49].

Regulatory frameworks and international cooperation can play a crucial role in encouraging the adoption of green banking practices in Russia. For instance, the implementation of ESG reporting standards and the development of green finance guidelines could create a more supportive environment for sustainable banking [4]. Additionally, cooperation with international financial institutions and participation in global sustainability initiatives, such as the United Nations' Principles for Responsible Banking, can enhance the credibility of the Russian banking sector in the global sustainability movement.

Though the adoption of green banking practices in Russia remains limited, several studies have demonstrated their potential to positively impact the sustainability performance of the Russian banking sector. For example, Pavlov found that Russian banks with higher levels of ESG disclosure exhibited stronger financial performance and reduced credit risk [7, p. 198-202]. Moreover, some authors argued that diversifying investment portfolios away from fossil fuels and towards renewable energy projects could contribute to a more resilient and sustainable banking sector in Russia [9, p. 39-49].

Findings

Our findings suggest that the adoption of green banking practices in Russia is still in its nascent stages. However, some leading banks, such as Sberbank and VTB, have implemented green banking initiatives, including the issuance of green bonds, the provision of green loans, and the integration of ESG considerations into their operations [13]. The Russian government has also introduced regulatory measures to promote green finance, such as the development of a national taxonomy for sustainable finance [14].

The limited adoption of green banking practices in Russia has led to mixed results in terms of sustainability performance. Banks that have implemented green banking initiatives have shown improvements in ESG performance indicators, such as energy efficiency, carbon emissions reduction, and social responsibility [15]. However, the overall impact on the Russian banking sector's sustainability performance remains modest, as many banks have yet to adopt comprehensive green banking strategies.

Challenges and Opportunities

The adoption of green banking practices in Russia, like in any other country, comes with its unique set of challenges and opportunities. Understanding these challenges and leveraging the opportunities can help banks and policymakers make informed decisions and create a supportive environment for green banking practices.

Some of the key challenges faced by the Russian banking sector in adopting green banking practices include: limited awareness and understanding of ESG issues among banks' management and employees, which may hinder the integration of green banking practices into their operations; The lack of standardized ESG reporting frameworks and metrics, which makes it difficult for banks to assess and compare their sustainability performance; Insufficient financial incentives for banks to adopt green banking practices, given that the short-term costs may outweigh the long-term benefits; The potential trade-off between profitability and sustainability, as banks may be reluctant to restrict lending to carbon-intensive industries that have historically contributed to their profitability.

Despite these challenges, there are several opportunities for the Russian banking sector to accelerate the adoption of green banking practices: leveraging emerging technologies, such as big data analytics, artificial intelligence, and blockchain, to enhance ESG risk assessment, develop innovative green financial products and services, and improve transparency in sustainability reporting; Aligning with international sustainability frameworks, guidelines, and regulations to enhance the Russian banking sector's reputation and attract investments from sustainability-conscious investors; Collaborating with other financial institutions, both domestically and internationally, to learn from best practices in green banking and foster knowledge sharing; Engaging with stakeholders, including customers, investors, regulators, and civil society, to create a supportive ecosystem for the adoption of green banking practices.

Recommendations

Based on the findings, we propose the following recommendations to promote the adoption of green banking practices in Russia and improve the sustainability performance of the banking sector:

Enhancing Regulatory Framework. The Russian government should continue to develop and implement a comprehensive regulatory framework that encourages green banking practices. This may include the establishment of mandatory ESG reporting requirements, the introduction of incentives for banks to finance sustainable projects, and the development of a comprehensive green finance taxonomy.

Promoting Green Financial Products. Russian banks should focus on expanding their portfolio of green financial products and services, such as green loans, green bonds, and sustainable investment funds. These initiatives would not only contribute to the bank's sustainability performance but also help foster the growth of sustainable businesses and industries in Russia.

Capacity Building and Training. Russian banks should invest in capacity building and training programs to enhance their employees' understanding of ESG issues and green banking practices. This would help ensure that the bank's employees are well-equipped to identify, assess, and manage ESG risks in their lending and investment activities.

Collaboration and Knowledge Sharing. Russian banks should actively engage in collaboration and knowledge sharing with other banks, both domestically and internationally, to learn from best practices in green banking. This could involve participating in forums, conferences, and workshops that focus on sustainable finance and green banking, as well as engaging in partnerships with international organizations and financial institutions that have expertise in this area.

Conclusion

In conclusion, the adoption of green banking practices in Russia remains limited, with only a few leading banks implementing such initiatives. As a result, the impact on the sector's sustainability performance has been modest. However, the efforts of these leading banks, coupled with the recent regulatory measures introduced by the Russian government, indicate a growing awareness and recognition of the importance of green banking practices in the country. This paper has demonstrated that the adoption of green banking practices in Russia remains limited, with only a few leading banks implementing such initiatives. Consequently, the impact on the sector's sustainability performance has been modest. However, the efforts of these leading banks, coupled with the recent regulatory measures introduced by the Russian government, indicate a growing awareness and recognition of the importance of green banking practices in the country.

By enhancing the regulatory framework, promoting green financial products, investing in capacity building and training, fostering collaboration and knowledge sharing, and strengthening stakeholder engagement, Russian banks can accelerate the adoption of green banking practices and improve their sustainability performance. Future research should focus on identifying the barriers to the adoption of green banking practices in Russia, as well as the potential incentives and policy interventions that could encourage a more widespread adoption across the sector. Additionally, primary data collection and comparative studies could provide further insights into the adoption of green banking practices in Russia and its impact on the sector's sustainability performance.

This study has some limitations, primarily due to the relatively limited data available on green banking practices in Russia. Future research could benefit from conducting primary data collection, such as surveys and interviews, to gather more in-depth insights into the adoption of green banking practices by Russian banks and their impact on sustainability performance. Moreover, comparative studies could be conducted to examine the adoption of green banking practices in Russia compared to other countries, providing a more comprehensive understanding of the factors that influence the adoption of these practices globally.

List of literature

  1. Al Mulla S., Nobanee H. Green Banking: A Mini-Review //Available at SSRN 3539125. – 2020.
  2. Bahl S. Green banking-The new strategic imperative //Asian Journal of Research in Business Economics and Management. – 2012. – Т. 2. – №. 2. – С. 176-185.
  3. Bihari S. C. Green banking-towards socially resonsible banking in india //International Journal of Business Insights & Transformation. – 2010. – Т. 4. – №. 1.
  4. Dikau S., Volz U. Central bank mandates, sustainability objectives and the promotion of green finance //Ecological Economics. – 2021. – Т. 184. – С. 107022.
  5. Jeucken M. Sustainable finance and banking: The financial sector and the future of the planet. – Earthscan, 2001.
  6. Jeucken M. Sustainability in finance: Banking on the planet. – Eburon Uitgeverij BV, 2004.
  7. Pavlova S. A., Pavlov I. E., Milyukhina N. V. Development of esg concept in the russian banking sector // International scientific-research journal. – 2022. – №. 7-3 (121). – С. 198-202.
  8. Scholtens B. Corporate social responsibility in the international banking industry //Journal of business ethics. – 2009. – Т. 86. – №. 2. – С. 159-175.
  9. Semenova N. N., Eremina O. I., Skvortsova M. A. Green financing in Russia: current status and development prospects //Finance: theory and practice. – 2020. – Т. 24. – №. 2. – С. 39-49.
  10. Shershneva E. G., Kondyukova E. S. Green banking as a progressive format of financial activity in transition to sustainable economy //IOP conference series: Materials science and engineering. – IOP Publishing, 2020. – Т. 753. – №. 7. – С. 072003.
  11. Soundarrajan P., Vivek N. Green finance for sustainable green economic growth in India //Agricultural Economics. – 2016. – Т. 62. – №. 1. – С. 35-44.
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  13. Sber impact report for 2021 [Electronic resource] / Sberbank of Russia // Access mode: <chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.sberbank.com/common/img/uploaded/files/pdf/normative_docs/en/sber_impact_report_for_2021.pdf > (date of request: 27.03.2022)
  14. VEB RF [Electronic resource] // Access mode: <https://xn--90ab5f.xn--p1ai/en/press-center/50836/ > (date of request: 27.03.2022)
  15. VTB sustainability report 2020 [Electronic resource] / VTB // Access mode: <chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://csr2020.vtb.com/download/full-reports/csr_en_annual-report_spreads_vtb_2020.pdf > (date of request: 27.03.2022)/

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