Cyprus 4.0: Bank of Cyprus forges ahead with ESG policy and products

“Bank of Cyprus has already covered considerable distance in our ESG journey. We have an ‘A’ rating from MSCI, which is the global benchmark on ESG. The company has also started a few years ago shifting towards a more mature model in our charitable work. We are now focused on generating Social Capital through long term partnerships and structured cooperation with other organizations – including businesses, customers, NGOs and the state.

We are now applying those same values to investment and products – we have ‘green’ loans, and we have started investing in financial products that support ESG values,” Pavlou explains. “And we expect to take advantage of the opportunities that ESG lending and investing offers.”

Bank of Cyprus is forging ahead, developing policy and products for ESG, Annita Pavlou, head of Investor Relations & ESG told the Cyprus Mail in an interview.

“We recently formed a Sustainability Committee as an executive committee, and the role of this committee is to define the ESG strategy of the Group, monitor its implementation and oversee all ESG-related initiatives and communication. The committee is chaired by the CEO, which is indicative of our level of focus on the ESG agenda. At Board level, ESG is a standing item on their agenda and has been set as a clear Board-led strategic priority.

We are the leading bank in Cyprus, and we have a responsibility to our community to take a leading role in ESG as well,” Pavlou insists. “We are not interested in just performing box-ticking exercises; we are taking a creative and innovative approach as we believe that we have a significant role in the ESG agenda, for the benefit of the country more broadly.”

Quality is a key issue, notes Pavlou. “There has been too much ‘green-washing,’ which means offering investments that seem to be environmentally friendly but in fact are not. We scrutinize our products and investments carefully to avoid these. The point is not to look good, but to do good”.

There is, of course, a sea-change underway across the financial services sector. Sustainability is not a PR exercise, but a business imperative.”

Pandemic brings ESG to the fore

Pavlou notes that the pandemic has also brought ESG issues to the fore.

“I think it was the Covid-19 Pandemic that actually pushed the investors to place greater emphasis on ESG. It certainly gave the markets a push. It forced companies, especially banks, to start taking action and to show progress in this area. Investors wanted to know if the companies were supporting stakeholders through the crisis.

In terms of governance and social programmes, Bank of Cyprus has always been a leader. We are listed on the London Stock Exchange, and this means we have very strict governance rules to comply with. We follow best practice in our own corporate governance, and we expect the same to be the case for the companies we do business with. And we have a number of important social initiatives.

One program, SupportCy has brought together 122 organizations, including customers of the Bank, to form a partnership in support of the formal sector. SupportCy quite overtly talks about the generation of Social Capital through a long-term, structured partnership of its members. Apart from extensive on-the ground charitable, a good deal of the work done involved support to the formal sector, including the Ministry of Health, of the Ministry of Education, Emergency Services, and the Ministry of Labor and Social Insurance.

On top this, the program works to the benefit of our participating customers, with whom our relationship is no longer simply transactional, but expands into a partnership for the good of our community.

But other programs are also proceeding at pace, like the IDEA accelerator for startup companies, out Cultural Foundation and the Oncology Centre which treats 60% of all cancer cases in Cyprus.

There is, of course, increasing pressure from regulators to take ESG risks into account. How does climate change affect a company’s operations? Is the company working to transition to renewable energy? Do they have ESG compliance within their supply chains? These are all risks that financial services companies – as well as companies in many other sectors – need to seriously take into account. The pressure is also coming from shareholders who consider that the management of ESG issues leads to long term increase of shareholder value as well as society as a whole.

New products with younger clients in mind

Pavlou explains that the Bank has begun developing new ESG-compliant products this year, which she expects will be launched by the end of 2021.

“We are currently considering a number of such products and we expect to launch them by the end of the year. For example, we are developing more ‘green loans,’ in the sense that they offer special conditions to finance sustainability projects. If you want to renovate your house to make it energy efficient, or if you want to install solar panels, or if you want to buy an electric car or renovate the premises of your business to make them energy-efficient – these are the types of loans that we’re looking to launch very soon.

Then we have private banking customers that wish to make investments, but they wish to ensure that the money is used for ESG projects. We’re looking to make sure to offer products that are linked to the ESG strategy and objectives. This is an activity that has become very popular in Europe. And investors who seek solid returns are looking increasingly at ‘green bonds,’ which are fixed-income instruments that raise funds for environmentally sound businesses and projects. We will also consider incorporating our ESG ambitions into our funding strategy and the issuance of green bonds.”

“This”, says Pavlou, “indicates how rapidly the financial services industry is moving to ESG support.”

“It’s an entirely new kind of economy, one that is supported both by the business community and government. We understand that the Cyprus government has a mandate to lead the country into the green economy. We can handle this burden.”

We are also careful to align our approach with that of the State. The political leadership has been active in both environmental legislation and in the footprint of many sectors of the economy, including banking.”

The Cyprus government has recently launched its European Recovery Fund strategy which involves a major adaption of the EU’s ‘Green Deal’. Cyprus is looking to become a leader in the evolution to digital and green economy. This will involve banks as they will be helping to provide interim funding for projects and in supporting collateral activities.

“And this is a fine example of how ESG investing offers opportunities,” Pavlou points out. “There will be many such opportunities as our country’s ecosystem is transformed by the Green Deal.”

Service to clients is always the priority


For Pavlou, part of the challenge is working with clients and helping them adapt to this new economy.  How to help your customers mitigate the impact of climate change, and the challenges it poses.

“Again this offers new opportunities. We are not only a major supporter of ESG finance, we are also a key enabler of the digital economy. These two activities are closely linked at the Bank of Cyprus,” Pavlou continues.

“Digital transformation is also significant part of ESG, because it gives access and visibility to our products to all stakeholders. We need to make sure that we provide everyone in Cyprus this chance. So for Bank of Cyprus, the digital agenda is closely connected to ESG. It translates to better, cheaper, safe products and services, which are available to all.”

How would this work, in terms of ESG finance? Would information about a given loan, or type of investment be made easily available via electronic channels?

“This would give us the opportunity to communicate the value of our ESG offer. Clients, and everyone else, could see that we are making sustainable choices in our investment and products. And then, people will say, ‘yes, I want to invest with you because you share our values.

Of course, regulators and ratings agencies also are demanding increasing transparency in ESG activity at banks.

What percentage of your lending is green? What is the green asset ratio? Do you have a target? Where do you want to go? Do you have ESG-related KPIs? We are being asked these questions, and there are other metrics as well.

Banks are expected to inform the market on how their loan portfolio impacts the environment, and to identify the areas or the sectors of the economy that they consider will have the greatest impact on climate change -and to explain how they expect to actually help their customers to adopt more sustainable business practices.

ESG investing does, in general require a lot of data and intelligence, Pavlou says.

“Perhaps you want to make a loan to a solar power generator. And you find that the particular company is not qualified for technical reasons, because there are specific eligibility criteria which need to be met. A bank has to be able to analyse and identify which loans and to what kinds of clients are considered to be eligible for classification as ESG. Then we’ll design specific products for those criteria. We have products right now which were designed entirely for green home renovation loan, for green energy loans, for the purchase of heating systems based on renewables, business renovation loans, etc.

But, as we go through this process, we uncover opportunities. For example, if clients are forced to build sustainable buildings for corporate customers, then we have an opportunity for green lending. If Recovery Fund projects, which are not paid for by EU funding until they are complete, require interim investment, then we have an opportunity. As the green transformation develops, then we will find more and more opportunities for sustainable finance.

That’s the new economy we are gradually evolving into. As I say, it’s a new world, for everybody, and for Cyprus in particular, and Bank of Cyprus aspired to be a leading participant in this new journey” Pavlou concludes.