Responsible funding

Principles for responsible funding

Erste Group decided to implement a set of regulations ("Principles for responsible funding"), that governs the conduct of its corporate and investment banking segments on financing transactions in major industrial sectors.

These regulations should allow Erste Group:

To focus on businesses that add value
To manage the reputational risk
To attract long-term investors
To demonstrate their corporate social responsibility.

The energy sector was identified as the most important, and therefore, it is the first industrial sector for which the aforementioned regulations are designed to help govern transactions in a sometimes controversial environment.

The Principles were developed by a bottom-up process at group level, based on the data from colleagues who make transactions in this area, and various stakeholders, internal and external.

The result is a set of principles approved by the Board of the holding company in August 2011.

The Principles will help our colleagues in their daily work to assess the environmental and social environment, or the governance risks of transactions, to avoid the reputational risk in a structured manner and in accordance with the internationally accepted risks.

Erste Group is one of the largest financial services providers in Central and Eastern Europe (CEE), having a strong focus on retail and SME segments and a selective extension in corporate and investment banking segments.

We admit that due to our strong presence in CEE, our future is linked to the long-term social, environmental and economic success of the region. We aspire to become an active promoter for initiating and supporting real change in CEE through our commitment to sustainable development. Sustainability is tantamount to embracing opportunities and managing risks derived from economic, social and environmental developments and making commitments to all relevant stakeholders such as customers, investors, civil society, public sector, government institutions, employees and suppliers.

We are aware that, as a financial institution, the biggest impact we have on society and on the natural environment is via the business of our customers. Our goal is to take balanced, grounded and transparent decisions, and to serve commercially our customers by actively engaging together with them and other stakeholders to work towards the implementation of sustainable business practices for a reasonable period of time.

These principles are in line with the commitments of Erste Group on corporate social responsibility (sustainability), such as the Equator Principles and Global Compact, which we intend to sign, constantly seeking to ensure that the compliance with the human and environmental rights is an integral part of all our financing activities. They will have to be reviewed periodically since Erste Group reserves the right to adjust them, if necessary, and to include external stakeholders, as may be appropriate.

Our intention is to create principles for a responsible funding of socially, environmentally and ethically sensitive sectors. With this goal in mind, we developed our first set of Principles for the energy sector.

The Energy Sector

We are committed to providing financial services to the energy sector, since we believe that energy supply is key to economic and social development.

We are aware of environmental challenges, particularly the climate change issue, as one of the main collective hazards ever experienced worldwide, and we acknowledge the strategic importance of renewable energy and energy-efficiency improvement projects. Erste Group is committed to support the energy sector fulfil its key role in the development of the CEE economies but, on the other hand, it sees the need for judicious management of environmental and social impacts of energy sector projects.

Thus, Erste Group implements the Energy Sector Principles to govern its activities in this area in a way that supports the economies of the markets where Erste Group is present, and which should result in more prosperity and social independence, while managing environmental risks.

Erste Group does not exclude an a priori financing, advising or any other type of financial service of any component of the energy sector, as far as the Energy Sector Principles are complied with.

The Erste Group Energy Sector Principles guide our business units in the areas of corporate and investment banking, on the application of sustainability principles that will govern the Group's involvement in this sector. The Energy Sector Principles are based on principles accepted by the industry and various other stakeholders as representing the best practices, and are consistent with our long-standing commitment to sustainable development.

Erste Group is aware of the challenges that await it concerning the reduction of the future impact on the climate of greenhouse gases emissions. For this reason, we provide financial services to support energy sector projects, such as solid fuels, renewable energy sources and improving energy efficiency, as well as the implementation of low carbon technologies.

Coverage: The abovementioned Principles are valid for all members of the Erste Group, including subsidiaries and affiliates, including all activities in the corporate and investment banking sectors, including, but not limited to, commercial lending, acquisitions and project financing, capital markets, financial advising or any other form of financial or banking assistance.

Coverage includes:

The exploration, production, transportation, storage, distribution, waste management, oil & gas trading or other hydrocarbon and solid fossil fuels processing;
The production, transportation, storage, distribution of biofuels and other renewable sources;
The generation of electricity and/or heat (cold) by thermal energy (such as oil, gas, power plants), nuclear and renewable energy, as well as the transmission and distribution of the generated electricity, heat or cold.
The services related to the aforementioned activities in (i), (ii) and (iii).

Renewable energy includes electricity or heat generation by hydroenergy, wind, solar thermal, photovoltaic, geothermal energy, as well as biogas and biomass.

Guidelines

Erste Group will provide financing, advice or other banking services to the energy sector if such projects or transactions, in general:

Comply with the EU environmental legislation or the International Union for conversations about nature, and the human rights standards;
Comply with a thorough environmental impact assessment;
Are not located in war areas or connected therewith;
Are in line with the latest emission control and performance and security technologies;
Use equipment corresponding to the standard of the best available technology;
Have no negative effects on great importance natural habitats, critical resources of fresh water or marine reserves;
Are not located in high risk areas;
Provide an action plan for the environment, taking into account all the issues raised by the environmental impact assessment and, in particular, including, but not limited to, a contingency plan in the event of a discharge of oil, and the exclusion of continuous leaks of associated gas into the atmosphere;

Biofuels

Have no lasting adverse effects on the use of soil, critical importance natural habitats, such as rainforests, and critical fresh water reserves;
Do not substantially increase water consumption compared to the previous one in the area where the biomass originates;
Clearly identifies the source of biomass used, and, in accordance with EU Directive 2009/28/CE Art. 17 3ff, it has no impact on biodiversity and food quality;

Processing of coal into liquid, obtaining gas from coal, processing of gas into liquid;

Carbon emissions quantity associated with the production of resulted gas or liquids are smaller than those of any competitor gas or liquid with similar characteristics;

Thermal energy

Leads to a substantial improvement of its environmental standards (in particular, the reduction of emissions) for the modernization of a thermal power plant;

Nuclear energy

Erste Group has an extremely restrictive approach regarding nuclear energy projects. Accordingly, any project or transaction covered by the abovementioned principles, in addition to the compliance with the general conditions above, is subject to the following specific conditions:

It aims to improve the safety standards of existing nuclear power plants, which have an indispensable importance for the supply of electricity in our region,
It is supported by a master plan outlining the vision of the project sponsor about the future of electricity generation that includes a credible strategy on alternative energy sources,
It is supported by a plan outlining the storage of nuclear waste
It is supported by a general cost-benefit analysis that includes a realistic estimate of the total investment cost,
If a new nuclear power plants is being built, which entails the closure/replacement of the old power plant, which is outdated, it has to show that the need for the new project to meet the energy demand in our region was confirmed by independent specialized electricity consultants or by NGOs,
It is located in an area devoid of significant risks or major hazards (e.g. high seismic activity area or floodplain),
It is performed by one or more companies that have experience in the construction or modernization of power plants.

In addition, the above principles shall also apply to projects on key technology and component suppliers necessary for the operation of the power plant (such as control systems, electrical systems, turbines, steam system, auxiliary units, nuclear islands, fuel cassettes, etc.) and for the nuclear energy field. Also, Erste Group will not provide financing, advice or banking services for new projects involving the surface extraction of uranium and plutonium, as well as for the conversion, processing and storage of nuclear fuel and waste.

Hydropower and other renewable energy sources

According to the World Commission platform on Dams and international conventions, such as the EU Water Framework Directive,
They have no adverse effect on the major importance natural habitats or on critical fresh water resources.